Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 11 — Income Taxes

The provision for income taxes included in the accompanying consolidated financial statements consists of the following components:

	Years ended December 31,
	2020		2019
Current tax expense (benefit):
Federal	$	86	$	(26	)
State		—		(3	)
Total current tax expense (benefit)		86		(29	)
Deferred tax expense:
Federal		589		19
State		127		1
Valuation allowance		934
Total deferred tax expense		1,650		20
Provision (credit) for income taxes	$	1,736	$	(9	)

A summary of the sources of differences between income taxes at the federal statutory rate and the provision (credit) for income taxes follows:

	Years ended December 31,
	2020						2019
	Amount			% of Pretax Income			Amount			% of Pretax Income
Reconciliation of statutory to effective rates:
Federal income taxes at statutory rate	$	641			21.00	%	$	92			21.00	%
Adjustments for:
State income taxes, net of federal income tax benefit		—			0.00	%		—			0.00	%
Increase in cash value of life insurance		(84	)		-2.75	%		(117	)		-26.70	%
Change in valuation allowance		934			30.60	%		—			0.00	%
Other, net		245			8.03	%		16			3.65	%
Total income tax expense (benefit)	$	1,736			56.88	%	$	(9	)		-2.05	%

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

The net deferred tax asset in the accompanying balance sheet includes the following amounts of deferred tax assets and liabilities:

	As of December 31,
	2020			2019
Deferred tax assets:
Allowance for loan losses	$	735		$	542
Deferred compensation		859			692
Accrued employee benefits		122			136
Carryforwards		3,492			4,743
Premises and equipment		6			11
ESOP release of shares		17			—
Other		57			14
Total deferred tax assets	$	5,288		$	6,138
Deferred tax liabilities:
Loan fees	$	48		$	82
Unrealized gain on available for sale securities		420			39
Mortgage servicing rights		491			589
FHLB stock dividends		26			28
Total deferred tax liabilities	$	985		$	738
Net deferred tax asset/liability		4,303			5,400
Valuation allowance		(934	)		—
Net deferred tax asset	$	3,369		$	5,400

Income tax expense (benefit) was $1.7 million for the year ended December 31, 2020 and ($9) for the year ended December 31, 2019. Included in income tax expense for the year ended December 31, 2020 was a $934 increase in our deferred tax valuation allowance. As of December 31, 2020, the deferred tax asset valuation allowance was $934, reducing our net deferred tax assets to $3.4 million at that date. We did not have a deferred tax asset valuation allowance at December 31, 2019.

Deferred tax assets are deferred tax consequences attributable to deductible temporary differences and carryforwards. After the deferred tax asset has been measured using the applicable enacted tax rate and provisions of the enacted tax law, it is then necessary to assess the need for a valuation allowance. A valuation allowance is needed when, based on the weight of the available positive and negative evidence, it is more likely than not that some portion of the deferred asset will not be realized. As required by generally accepted accounting principles, available evidence is weighted heavily on cumulative losses, with less weight placed on future projected profitability. Realization of the deferred tax asset is dependent on whether there will be sufficient future taxable income, including available tax strategies of the appropriate character in the period during which deductible temporary differences reverse or within the carryforward periods available under tax law.

The Company has federal loss carryforwards of approximately $9.9 million as of December 31, 2020. Of this amount, $1.8 million represents a tax loss carryforward from the 2019 tax year has an indefinite carryforward period due to the Tax Cuts and Jobs Act of 2017. The remaining $8.1 million of losses begin to expire in 2029. The Company also has $0.4 million of charitable contribution carryforwards that may be applied against future taxable income and begin to expire in 2022.

Under the Tax Cuts and Jobs Act, for federal losses originating in tax years after January 1, 2018, the Company is allowed an indefinite carryforward period limited to 80% of each subsequent year’s net income. The CARES Act temporarily repealed this 80% limitation for the calendar year ended December 31, 2020.

The Company has state net operating loss carryforwards totaling approximately $20.2 million that may be applied against future state taxable income and begin to expire in 2023 as of December 31, 2020. The Company also has $0.4 million of charitable contribution carryforwards that may be applied against future taxable income and begin to expire in 2022.

With few exceptions, the Company is no longer subject to federal or state examinations by taxing authorities for years before 2017 for Federal and 2016 for State.