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Note 7 - Income Tax
 3 Months Ended
Mar. 31, 2026
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

Note 7 - Income Tax

 

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. These calculations are based on many complex factors including estimates of the timing of reversals of temporary differences, the interpretation of federal income tax laws, and a determination of the differences between the tax and the financial reporting basis of assets and liabilities. Actual results could differ significantly from the estimates and interpretations used in determining the current and deferred income tax assets and liabilities.

 

 

Effective tax rates differ from the statutory maximum federal tax rate for 2026 and 2025 of 21%, largely due to the nontaxable earnings on BOLI and tax-exempt interest income earned on certain investment securities and loans. Included in the benefit from income tax for the first quarter of 2026 were additional adjustments related to unrealized gains and penalties. Included in the benefit from income tax for the first quarter of 2025 was an estimate for taxes and penalties on the early surrender of a BOLI contract.

 

The effective tax rate does not include a valuation allowance for the net deferred tax asset based on management’s evaluation of cumulative earnings inclusive of other comprehensive income. Available tax planning strategies support the realization of the net deferred tax asset; furthermore, management has concluded that all deferred tax assets are realizable individually.