Note 16 - Income Taxes

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE

1

6

– INCOME TAXES     

The provision for income taxes from continuing operations for the years ended

December 31, 2019

and

2018,

includes these components:

	Years Ended December 31,
	2019		2018
Current
Federal	$	510,945	$	508,165
State		106,086		114,841
Deferred expense		48,922		51,706
Provision for income taxes from continuing operations	$	665,953	$	674,712

Income tax expense from continuing operations differs from the amounts computed by applying the federal income tax rate of

21%

in

2019

and

2018,

to earnings before federal income tax expense. These differences are primarily caused by state income taxes, net of federal tax benefit, income that is

not

taxable for federal and state income tax purposes, expenses that are

not

deductible for tax purposes and tax adjustments related to prior federal income tax returns.

A reconciliation of income tax expense from continuing operations at the Federal statutory rate to the Company’s actual income tax expense for all periods presented is shown below:

	Years Ended December 31,
	2019			2018
Federal tax at the statutory rate (21%)	$	552,733		$	535,493
Benefit from permanent differences:
State income taxes, net of Federal tax benefit		109,048			216,188
Bank-owned life insurance		(58,173	)		(59,303	)
Meals & entertainment		11,080			6,486
Other, net		51,265			(24,152	)
Provision for income taxes from continuing operations	$	665,953		$	674,712

The tax effects of temporary differences related to deferred taxes were:  

	As of December 31,
	2019			2018
Deferred tax assets:
Allowance for loan losses	$	734,048		$	721,765
Unrealized losses on AFS securities		-			135,038
Board of Directors retirement plan		271,099			239,957
Other, net		278,581			311,762
Deferred compensation		248,271			215,033
Accrued bonus		192,331			216,254
Organizational costs		50,451			70,638
Net operating loss carryforwards		787,500			840,001
Total deferred tax assets		2,562,281			2,750,448
Deferred tax liabilities:
FHLB stock dividends		(79,953	)		(52,709	)
Depreciation and amortization		(217,321	)		(276,802	)
Loan origination costs		(218,615	)		(195,770	)
Purchase accounting		(33,425	)		(28,239	)
Unrealized gains on AFS securities		(105,091	)		-
Total deferred tax liabilities		(654,405	)		(553,520	)
Net deferred tax asset	$	1,907,876		$	2,196,928

A valuation allowance for deferred tax assets is recorded when it is more-likely-than-

not

that some portion or all of the deferred tax assets will

not

be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and tax planning strategies which will create taxable income during the periods in which those temporary differences become deductible. Management considered the scheduled reversal of deferred tax liabilities, projected future taxable income, NOL carry-back potential, and tax planning strategies in making this assessment. Based upon the Company’s assessment of all available evidence, management determined it was more-likely-than-

not

that the net deferred tax asset would be realized at

December 31, 2019.

At

December 31, 2019,

the Company had federal operating loss carry-forwards of approximately

$3.8

million, all of which are subject to Internal Revenue Code (“IRC”) Section

382

limitations, which limit the annual use of acquired losses to

$250,000

per year, and begin to expire in

2028.

At

December 31, 2019,

the Company has recorded deferred tax assets of

$788,000

related to the Federal net operating loss carry-forwards.

It is the Company’s policy to provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more likely than

not

to be sustained upon examination by tax authorities. As of

December 31, 2019,

2018

and

2017,

there were

no

material uncertain tax positions related to federal and state income tax matters. The Company does

not

expect the amounts of unrecognized tax benefits to significantly increase or decrease within the next

12

months.

The Company files consolidated U.S. federal and various state income/franchise tax returns. The Company is

no

longer subject to examination by U.S. federal taxing authorities for years before

2016

and is

no

longer subject to examination by state taxing authorities for years before

2015

or

2016.

Our federal and state tax returns have

not

been audited for the past

five

years.