Income Taxes

12 Months Ended

Dec. 31, 2024

Income Taxes

Income Taxes

8.   Income Taxes

The components of the provision for income taxes are as follows:

	Years Ended December 31,
	2024		2023
Current expense:
Federal	$	(1)	$	1,314
State		265		257
Total current expense		264		1,571
Deferred expense:
Federal		(2,581)		(352)
State		(738)		(148)
Change in valuation allowance		738		148
Total deferred expense		(2,581)		(352)
Total provision for income taxes	$	(2,317)	$	1,219

The following is a reconciliation between the expected federal statutory income tax rate of 21% and the Company’s actual income tax expense and rate:

	Years ended December 31,
	2024				2023
(Benefit) provision at statutory rate	$	(2,297)	21.00	%	$	1,179	21.00	%
Tax exempt income		(248)	2.27	%		(192)	(3.42)	%
State income taxes, net of federal income tax benefit		215	(1.97)	%		213	3.79	%
Other, net		13	(0.12)	%		19	0.34	%
Effective income tax and rate	$	(2,317)	21.18	%	$	1,219	21.71	%

Provision for income taxes directly reflects the expected tax associated with the pre-tax income generated for the given year and certain regulatory requirements.  The statutory tax rate is impacted by the benefits derived mainly from tax-exempt bond income and income received on the bank owned life insurance to arrive at the effective tax rate.

The tax effects of temporary differences that give rise to significant components of the deferred tax assets and deferred tax liabilities at December 31, 2024 and 2023 are presented below:

	December 31,
	2024		2023
Deferred tax assets:
Allowance for credit losses	$	2,371	$	2,263
Deferred expenses		21		18
Deferred compensation		1,773		1,652
Unrecognized pension liability		653		910
Postretirement liability		1,032		1,002
Unrealized loss on securities		2,786		6,932
Federal tax NOLs		2,538		—
Other		889		658
Gross deferred tax assets		12,063		13,435
Deferred tax liabilities:
Prepaid expenses		(578)		(515)
Prepaid pension		(1,180)		(1,222)
Deferred loan fees		(51)		(154)
Depreciation and amortization		(374)		(476)
Mortgage servicing rights		(430)		(534)
Gross deferred tax liabilities		(2,613)		(2,901)
Net deferred tax asset		9,450		10,534
Deferred tax valuation allowance		(1,336)		(598)
Deferred tax assets, net of allowance	$	8,114	$	9,936

As of December 31, 2024, the Company has a federal net operating loss (“NOL”) carryforward of $9,400, which carries forward indefinitely under current tax regulations. This NOL resulted in a deferred tax asset of $2,538, representing a temporary difference in the Company’s financial statements. The realization of this deferred tax asset depends on the Company’s ability to generate sufficient future taxable income. Based on management’s assessment of projected earnings and other relevant factors, the Company has recorded a deferred tax valuation allowance of $1,336 as of December 31, 2024, compared to $598 as of December 31, 2023. The increase in the valuation allowance reflects management’s evaluation of the likelihood of utilizing certain deferred tax assets in future periods.

New York State (“NYS”) tax law provides for a permanent deduction of income from “qualified” loans for community banks. Accordingly, the Company has generally incurred NYS taxable losses and incurred minimal NYS income tax liability. As the Company has not established a history of strong NYS taxable income, the Company has established a full valuation allowance against the NYS deferred tax asset.

Retained earnings at December 31, 2024 and 2023 include a contingency reserve for loan losses of $1,534, which represents the tax reserve balance existing at December 31, 1987 and is maintained in accordance with provisions of the Internal Revenue Code applicable to mutual savings banks. Amounts transferred to the reserve have been claimed as deductions from taxable income and, if the reserve is used for purposes other than to absorb losses on loans, a federal income tax liability could be incurred. It is not anticipated that the Company will incur a federal income tax liability relating to this reserve balance and accordingly, deferred income taxes of $414 at December 31, 2024 and $414 at December 31, 2023 have not been recognized.

The Company’s income tax returns are subject to review and examination by federal and state taxing authorities. The Company is currently open to audit under the applicable statutes of limitations by the Internal Revenue Service for

the years ended December 31, 2021 through 2024. The years open to examination by state taxing authorities vary by jurisdiction; no years prior to 2021 are open.