INCOME TAXES

12 Months Ended

Dec. 31, 2024

INCOME TAXES

INCOME TAXES

NOTE I - INCOME TAXES:

Deferred taxes (or deferred charges) as of December 31, 2024 and 2023, included in other assets, were as follows (in thousands):

December 31,	2024		2023		2023
				As adjusted		As originally
Deferred tax assets:						reported
Allowance for credit losses	$	782	$	833	$	695
Employee benefit plans' liabilities		4,029		4,079		3,434
Unrealized loss on available for sale securities, charged from equity		9,286		9,909		8,341
Loss on credit impairment of securities		423		423		356
Earned retiree health benefits plan liability		1,222		1,276		1,074
General business and AMT credits		1		1,033		210
State income tax net operating loss carryforward		930		1,111		—
Other		218		279		344
Valuation allowance		(423)		(15,617)		(11,534)
Deferred tax assets		16,468		3,326		2,920
Deferred tax liabilities:
Unearned retiree health benefits plan asset		460		469		395
Bank premises and equipment		2,106		2,088		1,759
Other		—		13		10
Deferred tax liabilities		2,566		2,570		2,164
Net deferred taxes	$	13,902	$	756	$	756

During the preparation of its third quarter 2024 consolidated financial statements the Company determined that the disclosures of deferred income tax assets and liabilities in the footnotes to its December 31, 2023, consolidated financial statements improperly excluded deferred state income taxes.  The above amounts as of December 31, 2023 have been restated to include deferred federal and state income taxes. The correction of this disclosure error had no impact on the recorded amount of net deferred taxes in the Company’s December 31, 2023 consolidated statement of condition.  

Income taxes consist of the following components (in thousands):

Years Ended December 31,	2024		2023		2022
Current	$	437	$	410	$	15
Deferred:
Federal		1,434		—		1,188
Change in valuation allowance		(15,194)		1,711		(3,634)
Total deferred		(13,760)		1,711		(2,446)
Totals	$	(13,323)	$	2,121	$	(2,431)

Income taxes amounted to less than the amounts computed by applying the U.S. Federal income tax rate of 21.0% for 2024, 2023 and 2022 to income before income taxes and State income tax rate of 3.95% for 2024. The reasons for these differences are shown below (in thousands):

	2024				2023				2022
	Tax		Rate		Tax		Rate		Tax		Rate
Taxes computed at statutory rate	$	1,760	21	%	$	2,370	21	%	$	1,367	21	%
Increase (decrease) resulting from:
State income tax expense, net of federal effect		224	2.7			—	—			—	—
Tax-exempt interest income		(176)	(2.1)			(191)	(2)			(198)	(3)
Income from BOLI		(112)	(1.3)			(102)	(1)			(93)	(1)
Tefra disallowance		79	0.9			—	—			—	—
Federal tax credits		—	—			(1,416)	(12)			(45)	(1)
Other		96	1.1			(251)	(2)			172	2
Other changes in valuation allowance		(15,194)	(181.3)			1,711	15			(3,634)	(55)
Total income tax (benefit) expense	$	(13,323)	(159.0)	%	$	2,121	19	%	$	(2,431)	(37)	%

During 2024, the Company recorded current and deferred income tax expense (benefit) of $437,000 and ($13,760,000), respectively or a net income tax benefit of ($13,323,000).  During 2023, the Company recorded current and deferred income tax expense of $410,000 and $1,711,000, respectively or a net income tax expense of $2,121,000. During 2022, the Company recorded current and deferred income tax expense (benefit) of $15,000 and ($2,446,000), respectively or a net income tax benefit of $2,431,000.

A valuation allowance is recognized against deferred tax assets when, based on the consideration of all available positive and negative evidence using a more likely than not criteria, it is determined that all or a portion of these tax benefits may not be realized. This assessment requires consideration of all sources of taxable income available to realize the deferred tax asset including taxable income in prior carry-back years, future reversals of existing temporary differences, tax planning strategies and future taxable income exclusive of reversing temporary differences and carryforwards.

The Company had a valuation allowance on federal and state deferred tax assets totaling $15,617,000 as of December 31, 2023. In the third quarter of 2024, the Company reassessed the valuation allowance based upon its projections of future sources of taxable income in accordance with applicable accounting guidance and determined it was appropriate to reverse substantially all the valuation allowance which resulted in a one-time discrete reduction to income tax expense of $15,194,000 in the third quarter of 2024. Excluding the discrete item, income tax expense for the year ended December 31, 2024, totaled $1,871,000 based upon the expected annual tax rate for 2024 of 22.3% compared to income tax expense of $2,121,000 for the year ended December 31, 2023, at an effective rate of 18.8%.  Excluding the change in valuation allowance of ($3,634,000), income tax expense totaled $1,203,000 for the year ended December 31, 2022, at an effective tax rate if 18.5%.

As of December 31, 2024, the net deferred tax asset was $13,902,000.  As of December 31, 2023 the net deferred tax asset was $756,000.  

The Company has reviewed its income tax positions and specifically considered the recognition and measurement requirements of the benefits recorded in its financial statements for tax positions taken or expected to be taken in its tax returns. The Company currently has no unrecognized tax benefits that, if recognized, would favorably affect the income tax rate in future periods.