Western New England Bancorp, Inc. Income Taxes Disclosure

14. INCOME TAXES

 

Income taxes consist of the following:

 

		Years Ended December 31,
		2025				2024				2023
		(Dollars in thousands)
Current tax provision:
Federal		$	3,873			$	2,089			$	2,990
State			1,650				1,024				1,335
Total			5,523				3,113				4,325
Deferred tax (benefit) provision:
Federal			(712	)			123				94
State			(290	)			55				97
Total			(1,002	)			178				191
Total tax provision		$	4,521			$	3,291			$	4,516

 

 

The differences between the statutory federal income tax at a rate of 21% and the effective tax are summarized below:

 

		Years Ended December 31,
		2025								2024								2023
		(Dollars in thousands)
Statutory federal income tax		$	4,156				21.0	%		$	3,141				21.0	%		$	4,113				21.0	%
Increase (decrease) resulting from:
State taxes, net of federal tax benefit			1,074				5.4				853				5.7				1,244				5.8
Tax-exempt income			(354	)			(1.8	)			(340	)			(2.3	)			(340	)			(1.7	)
Bank-owned life insurance (BOLI)			(412	)			(2.1	)			(401	)			(2.7	)			(382	)			(2.0	)
BOLI death benefit			—				—				—				—				(163	)			(0.8	)
Other, net			57				0.3				38				0.3				44				0.8
Effective tax		$	4,521				22.8	%		$	3,291				22.0	%		$	4,516				23.1	%

 

State taxes in Massachusetts and Connecticut made up the majority (greater than 50%) of the tax effect in this category for the years ended December 31, 2025, 2024, and 2023.

 

The effective tax rate differs from the statutory federal income tax rate primarily due to state taxes, tax-exempt income, and BOLI. In particular, state taxes increased our effective tax rate, while tax-exempt income and BOLI lowered the effective tax rate for the years ended December 31, 2025, 2024, and 2023.

 

Cash paid for income taxes for the years ended December 31, 2025, 2024, and 2023 was $5.6 million, $2.9 million and $4.6 million, respectively. Income taxes paid were as follows:

Income taxes consist of the following:

		Years Ended December 31,
		2025				2024				2023
		(Dollars in thousands)
Federal tax		$	3,750			$	2,050			$	3,000
State taxes:
Massachusetts			1,406				661				1,250
Connecticut			306				150				250
All other states			140				70				98
Total		$	5,602			$	2,931			$	4,598

 

The tax effects of each item that gives rise to deferred taxes are as follows:

 

		December 31,
		2025				2024
		(Dollars in thousands)
Deferred tax assets:
Allowance for credit losses		$	5,929			$	5,702
Net unrealized loss on available-for-sale securities			5,677				7,962
Lease liability			1,872				2,157
Employee benefit and share-based compensation plans			1,245				1,154
Accrued expenses			876				599
Investment in partnerships			465				202
Nonaccrual interest			229				292
FDIC assessment			110				103
Interest payable			69				90
Purchased mortgage servicing rights			61				66
Other			97				1
Gross deferred tax assets			16,630				18,328
Deferred tax liabilities:
Lease right-of-use asset			(1,791	)			(2,075	)
Deferred loan fees			(1,013	)			(914	)
Purchase accounting adjustments, net			(633	)			(774	)
Fixed asset depreciation			(406	)			(533	)
Other			(71	)			(35	)
Gross deferred tax liabilities			(3,914	)			(4,331	)
Net deferred tax asset		$	12,716			$	13,997

 

The federal income tax reserve for loan losses at the Bank’s base year is $9.4 million. If any portion of the reserve is used for purposes other than to absorb loan losses, approximately 150% of the amount actually used, limited to the amount of the reserve, would be subject to taxation in the fiscal year in which used. As the Bank intends to use the reserve solely to absorb loan losses, a deferred tax liability of $2.6 million has not been provided.

 

We did not have any uncertain tax positions at December 31, 2025 or 2024 which required accrual or disclosure. We record interest and penalties as part of income tax expense. The Company recorded $6,000 in interest and penalties for the year ended December 31, 2025. There were no interest or penalties recorded for the years ended December 31, 2024 and 2023.

 

Our income tax returns are subject to review and examination by federal and state tax authorities. We are currently open to audit under the applicable statutes of limitations by the Internal Revenue Service for the years ended December 31, 2022 through 2025. The years open to examination by state taxing authorities vary by jurisdiction; however, no years prior to 2022 are open.