INCOME TAXES

12 Months Ended

Dec. 31, 2022

INCOME TAXES

INCOME TAXES

NOTE 9. INCOME TAXES

Income tax expense (benefit) for the years ended December 31, 2022 and 2021 are summarized as follows:

	Year Ended December 31,
(Dollars in thousands)	2022		2021
Federal:
Current	$	(12)	$	332
Deferred		(9)		152
Total income tax expense (benefit)	$	(21)	$	484

Total income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 21 percent in 2022 and 2021 to income before income taxes as a result of the following:

	Year Ended December 31,
(Dollars in thousands)	2022		2021
Expected income tax expense at federal tax rate	$	33	$	504
Bank-owned life insurance income		(66)		(19)
Tax free investment securities income		(13)		(8)
Nondeductible stock-based compensation expense		24		4
Other		1		3
Total income tax expense (benefit)	$	(21)	$	484

Deferred taxes are recorded based upon differences between the financial statement and tax basis of assets and liabilities. The net deferred tax assets and liabilities in the accompanying statements of financial condition include the following components:  

	December 31,
(Dollars in thousands)	2022		2021
Deferred tax assets:
Allowance for loan losses	$	-	$	77
Net unrealized losses on available-for-sale securities		2,412		181
Foreclosed assets		44		44
Stock-based compensation		31		-
Other		12		40
Deferred tax assets		2,499		342
Deferred tax liabilities:
Allowance for loan losses		(24)		-
FHLB stock		(122)		(119)
FHLB debt modification discount		(168)		(206)
Premises and equipment, net		(330)		(401)
Deferred tax liabilities		(644)		(726)
Net deferred tax asset (liability)	$	1,855	$	(384)

Retained earnings at December 31, 2022 and 2021 include approximately $1.9 million accumulated prior to January 1, 1987, for which no deferred federal income tax liability has been recognized. This amount represents an allocation of income to bad-debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad-debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes only, which would be subject to the then-current corporate income tax rate.