Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 10 — Income Taxes

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

	Years ended December 31,
	2023			2022
Current tax expense (benefit):
Federal	$	—		$	—
State		—			—
Total current tax expense (benefit)		—			—
Deferred tax expense:
Federal		(1,819	)		(131	)
State		—			(40	)
Valuation allowance		2,207			—
Total deferred tax expense		388			(171	)
Provision (credit) for income taxes	$	388		$	(171	)

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,
	2023						2022
	Amount			% of Pretax Income			Amount			% of Pretax Income
Reconciliation of statutory to effective rates:
Federal income taxes at statutory rate	$	(1,345	)		21.00	%	$	(67	)		21.00	%
Adjustments for:
Increase in cash value of life insurance		(124	)		1.94	%		(89	)		27.90	%
Change in valuation allowance		1,756			(27.42	)%		—			—
Other, net		101			(1.58	)%		(15	)		4.70	%
Total income tax expense (benefit)	$	388			(6.06	)%	$	(171	)		53.60	%

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,
	2023			2022
Deferred tax assets:
Allowance for credit losses	$	1,248		$	875
Deferred compensation		1,046			893
Accrued employee benefits		71			81
NOL and charitable contribution carryforwards		5,610			3,657
Net unrealized losses on available for sale securities		2,564			4,250
Premises and equipment		26			67
ESOP release of shares		66			49
Other		103			97
Total deferred tax assets	$	10,734		$	9,969
Deferred tax liabilities:
Loan fees	$	231		$	227
Mortgage servicing rights		466			508
FHLB stock dividends		26			26
Total deferred tax liabilities	$	723		$	761
Net deferred tax asset/liability		10,011			9,208
Valuation allowance		(3,141	)		(934	)
Net deferred tax asset	$	6,870		$	8,274

Income tax expense (benefit) was $388 for the year ended December 31, 2023 and ($171) for the year ended December 31, 2022. As of December 31, 2023 and December 31, 2022, the Company had a deferred tax asset valuation allowance of $3.1 million and $934, respectively, reducing our net deferred tax assets to $6.9 million and $8.3 million, at each respective date.

On July 5, 2023, the Wisconsin legislature enacted 2023 Wisconsin Act 19 (the "Act"). The Act contains a provision that provides financial institutions with a state tax-exemption for interest, fees and penalties earned on qualifying loans. For the exemption to apply, the loan must be $5 million or less, for primarily a business or agricultural purpose, and made to borrowers residing or located in Wisconsin. The exemption first applies to taxable years beginning after December 31, 2022, and applies to loans on the books as of January 1, 2023 and to new loans made after January 1, 2023, that meet the qualifications. The Company currently projects that its Wisconsin state taxable income will be significantly reduced and/or eliminated in the future as a result of this provision. Also a result of this provision, the Company reversed $98 in income tax benefits which had been recorded during the first two quarters of 2023 and increased the valuation allowance for deferred tax assets by $1.8 million, resulting in a one-time $1.9 million increase in tax expense in the third quarter of 2023.

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 $16.2 million as of December 31, 2023. Of this amount, $8.3 million represents tax loss carryforwards which have an indefinite carryforward period due to the Tax Cuts and Jobs Act of 2017. The remaining $7.9 million of losses begin to expire in 2030. The Company also has $515 of charitable contribution carryforwards that may be applied against future taxable income and begin to expire in 2024.

The Company had an ownership change during 2021 which resulted in an annual limitation on the future utilization of both Federal and Wisconsin net operating loss (NOL) carryforwards.

The Company has state net operating loss carryforwards totaling approximately $33.0 million as of December 31, 2023, that may be applied against future state taxable income and begin to expire in 2024. The Company also has $518 of charitable contribution carryforwards that may be applied against future taxable income which begin to expire in 2024.

With few exceptions, the Company is generally no longer subject to examinations by taxing authorities for years before 2020 for federal tax examinations and 2019 for state tax examinations.