Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

11.Income Taxes

The current and deferred components of income tax (benefit) expense consisted of the following for the years ended December 31, 2022 and 2021:

	December 31, 2022									December 31, 2021
	Federal			State			Total			Federal		State			Total
	(Dollars in thousands)
Current	$	(59	)	$	109		$	50		$	334	$	(42	)	$	292
Deferred		(369	)		(132	)		(501	)		117		192			309
	$	(428	)	$	(23	)	$	(451	)	$	451	$	150		$	601

Total income tax (benefit) expense is different from the amounts computed by applying the U.S. Federal income tax rates in effect to income before income taxes. The reasons for these differences are as follows for the years ended December 31, 2022 and 2021:

	December 31, 2022						December 31, 2021
	Amount			% of Pretax Income			Amount			% of Pretax Income
	(Dollars in thousands)
Computed “expected” tax (benefit) expense	$	(213	)		(21.0	)%	$	677			21.0	%
State tax (benefit) expense, net of federal tax benefit		(18	)		(1.8	)		118			3.7
BOLI income		(21	)		(2.1	)		(22	)		(0.7	)
Valuation allowance		62			6.1			—			—
Income on tax exempt securities		(252	)		(24.8	)		(178	)		(5.5	)
Other		(8	)		(0.8	)		6			0.2
	$	(451	)		(44.4	)%	$	601			18.7	%

Components of deferred tax assets and liabilities at December 31, 2022 and 2021 are as follows:

	December 31,
	2022			2021
	(Dollars in thousands)
Deferred tax assets:
Allowance for loan losses	$	977		$	988
Deferred compensation liabilities		494			468
Contribution carryforward		171			120
State tax credit carryforward		62			52
Depreciation		16			—
Securities available-for-sale		3,873			—
Net operating loss carryforward		707			—
Other		48			56
Subtotal		6,348			1,684
Less: valuation allowance		(171	)		(60	)
Total deferred tax assets		6,177			1,624
Deferred tax liabilities:
Depreciation		—			(45	)
Interest rate swaps		(260	)		(54	)
Securities available-for-sale		—			(213	)
Prepaid expenses		(43	)		(43	)
Net deferred loan costs		(661	)		(447	)
Mortgage servicing rights		(96	)		(87	)
Total deferred tax liabilities		(1,060	)		(889	)
Net deferred tax assets, included in other assets	$	5,117		$	735

The calculation of the Company’s charitable contribution carryforward deferred tax asset is based upon a carryforward of approximately $633,000 and $443,000 of charitable contributions at December 31, 2022 and 2021, respectively. As of December 31, 2022 and 2021, it has been determined that it is more likely than not that a portion of the benefit from this charitable contribution carryforward will not be realized prior to expiration. As a result, a valuation allowance of $171,000 and $60,000 has been provided on this deferred tax asset for the years ended December 31, 2022 and 2021, respectively. The ultimate realization of this deferred tax asset is dependent upon the generation of future taxable income. The Internal Revenue Federal Tax Code (the “Code”) limits the charitable contribution deduction in any one year to 10% of taxable income, computed without regard to charitable contributions, certain special deductions, net operating loss carry backs and capital loss carry backs. However, the Code allows a corporation to carry forward the excess charitable contributions to each of the five immediately succeeding years, subject to a 10% limitation in each of those years. Thus, the Company would have six years in which to utilize the December 31, 2019 charitable contribution carryforward. The valuation allowance for this net deferred tax asset may be adjusted in the future if estimates of taxable income during the carryforward period are reduced or increased. All other deferred tax assets as of December 31, 2022 and 2021 have not been reduced by a valuation allowance because management believes that it is more likely than not that the full amount of these deferred tax assets will be realized.

As of December 31, 2022, the Company has a Federal and New Hampshire net operating loss carryforward of $2.7 million and $2.4 million, respectively. The Federal net operating loss carryforward can be carried forward indefinitely but is limited to 80% of each subsequent year’s taxable income. The New Hampshire net operating loss carryforward expires in 2032 and is also limited to 80% of each subsequent year’s taxable income. Additionally, as of December 31, 2022, the Company has a New Hampshire Business Enterprise Tax credit carry forward of $78,000 that expires in 2029 through 2032.

The tax reserve for loan losses at the Company’s base year amounted to approximately $2.3 million. If any portion of the reserve is used for purposes other than to absorb loan losses, approximately 150% of the amount actually used (limited to the amount of the reserve) would be subject to taxation in the year in which used. As the Company intends to use the reserve to only absorb loan losses, a deferred tax liability of approximately $623,000 has not been provided.

The Company does not have any uncertain tax positions at December 31, 2022 or 2021 which require accrual or disclosure. The Company records interest and penalties as part of income tax expense. No interest or penalties were recorded for the years ended December 31, 2022 and 2021.

The Company’s income tax returns are subject to review and examination by federal and state taxing authorities. The Company is currently open to audit under the applicable statutes of limitations by the Internal Revenue Service for the years ended December 31, 2019 through 2022. The years open to examination by state taxing authorities vary by jurisdiction; no years prior to 2019 are open.