Income Taxes

12 Months Ended

Dec. 31, 2024

Income Taxes

Income Taxes

11.  Income Taxes

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

	For the years ended December 31,
(In thousands)	2024		2023
Federal - current provision	$	12,236	$	10,625
Federal - deferred benefit		(1,401)		(285)
Total federal provision		10,835		10,340
State - current provision		2,451		2,750
State - deferred (benefit) provision		(346)		198
Total state provision		2,105		2,948
Total provision for income taxes	$	12,940	$	13,288

Reconciliation between the reported income tax provision and the amount computed by multiplying income before taxes by the statutory Federal income tax rate for the past two years is as follows:

	For the years ended December 31,
(In thousands, except percentages)	2024			2023
Federal income tax provision at statutory rate of 21%	$	11,422		$	11,129
(Decreases) increases resulting from:
Stock option and restricted stock		(536)			(52)
Bank owned life insurance		(114)			(179)
Tax-exempt income		(15)			(3)
Meals and entertainment		48			64
Captive insurance premium		—			(244)
Non-deductible compensation		250			—
State income taxes, net of federal benefit		1,663			2,329
Other		222			244
Provision for income taxes	$	12,940		$	13,288
Effective tax rate		23.8	%		25.1	%

Deferred income taxes are provided for temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. The components of the net deferred tax asset at December 31, 2024 and 2023 are as follows:

(In thousands)	December 31, 2024		December 31, 2023
Deferred tax assets:
Allowance for credit losses	$	7,168	$	6,940
SERP		1,788		1,669
Stock-based compensation		1,010		1,070
Deferred compensation		1,750		1,329
Depreciation		701		674
Deferred loan fees and costs, net		227		—
Net unrealized securities losses		1,755		1,759
Commitment reserve		171		172
Net other deferred tax assets		820		698
Gross deferred tax assets		15,390		14,311
Deferred tax liabilities:
Goodwill		413		418
Deferred servicing fees		40		74
REIT deferral		596		929
Bond accretion		32		49
Deferred loan fees and costs, net		—		35
Interest rate swaps		203		253
Gross deferred tax liabilities		1,284		1,758
Net deferred tax asset	$	14,106	$	12,553

The Company computes deferred income taxes under the asset and liability method. Deferred income taxes are recognized for tax consequences of “temporary differences” by applying enacted statutory tax rates to differences between the financial reporting and the tax basis of existing assets and liabilities. A deferred tax liability is recognized for all temporary differences that will result in future taxable income. A deferred tax asset is recognized for all temporary differences that will result in future tax deductions subject to reduction of the asset by a valuation allowance.

Included as a component of deferred tax assets is an income tax expense (benefit) related to unrealized gains (losses) on AFS debt securities and interest rate swaps. The after-tax component of each of these is included in other comprehensive income (loss) in shareholders’ equity. The after-tax component related to AFS debt securities was an unrealized loss of $2.7 million in 2024, compared to unrealized loss of $3.4 million in 2023. The after tax component related to the interest rate swaps was an unrealized gain of $0.5 million for 2024, compared to an unrealized gain of $0.7 million for 2023.

The Company follows FASB ASC Topic 740, “Income Taxes,” which prescribes a threshold for the financial statement recognition of income taxes and provides criteria for the measurement of tax positions taken or expected to be taken in a tax return. ASC 740 also includes guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition of income taxes. The Company did not recognize or accrue any interest or penalties related to income taxes during the years ended December 31, 2024 or 2023. The Company does not have an accrual for uncertain tax positions as of December 31, 2024 or 2023, as deductions taken or benefits accrued are based on widely understood administrative practices and procedures and are based on clear and unambiguous tax law. Tax returns for all years 2021 and thereafter are subject to future examination by tax authorities.