Income Taxes

12 Months Ended

Dec. 31, 2019

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,
	2019	2018
Current taxes:
Federal	$ (26)	$ (397)
State	(3)	-
Total current taxes	(29)	(397)

Deferred taxes:
Federal	19	263
State	1	(43)
Total deferred taxes	20	220
Credit for income taxes	$ (9)	$ (177)

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,
	2019	2018
Deferred tax assets:
Allowance for loan losses	$ 542	$ 884
Deferred compensation	692	658
Accrued employee benefits	136	229
Loss carryforwards	4,743	4,080
Unrealized (gain) loss on available for sale securities	(39)	586
Premises and equipment	11	262
Other	14	91
Total deferred tax assets	6,099	6,790

Deferred tax liabilities:
Loan fees	$ 82	$ 136
Premises and equipment	-	-
Mortgage servicing rights	589	570
FHLB stock dividends	28	38
Total deferred tax liabilities	699	744
Net deferred tax asset	5,400	6,046

NOTE 11 — Income Taxes – (continued)

The Company has federal loss carryforwards of approximately $14,308 as of December 31, 2019. These losses begin to expire in 2029. 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 Company has state net operating loss carryforwards totaling approximately $24,455 that may be applied against future state taxable income and begin to expire in 2024 as of 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 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 of the appropriate character in the period during which deductible temporary differences reverse or within the carryforward periods available under tax law.

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,
	2019		2018
	Amount	% of Pretax Income	Amount	% of Pretax Income
Reconciliation of statutory to effective rates:
Federal income taxes at statutory rate	$ 92	21.00%	$ (41)	21.00%
Adjustments for:
State income taxes, net of federal income tax benefit	-	0.00%	(34)	17.34%
Increase in cash value of life insurance	(117)	-26.70%	(142)	72.73%
Change in valuation allowance	-	0.00%	-	0.00%
Other	16	3.65%	40	-20.41%
Provision (credit) for income taxes	$ ( 9)	-2.05%	$ (177)	90.66%

With few exceptions, the Company is no longer subject to federal or state examinations by taxing authorities for years before 2016 for Federal and 2015 for State.