INCOME TAXES

12 Months Ended

Dec. 31, 2022

INCOME TAXES

INCOME TAXES

NOTE 9 — INCOME TAXES

The current and deferred components of the income tax expense consisted of the following:

(Dollars in thousands)

	2022		2021
Federal
Current	$	2,180	$	2,432
Deferred		114		(111)
Income tax expense	$	2,294	$	2,321

The following is a reconciliation between the income tax expense and the amount of income taxes which would have been provided at the statutory rate of 21%:

(Dollars in thousands)

	2022				2021
	Amount		Rate		Amount		Rate
Federal income tax at statutory rate	$	3,427	21.0	%	$	3,572	21.0	%
Tax-exempt income		(749)	(4.6)			(761)	(4.5)
Low-income housing credits		(249)	(1.5)			(405)	(2.4)
Bank owned life insurance income		(125)	(0.7)			(126)	(0.7)
Other		(10)	(0.1)			41	0.2
Income tax expense and rate	$	2,294	14.1	%	$	2,321	13.6	%

The components of the net deferred tax asset and liability at December 31, 2022 and 2021 are as follows:

(Dollars in thousands)

	2022		2021
Deferred Tax Assets:
Net unrealized losses on debt securities available-for-sale	$	7,857	$	—
Allowance for loan losses		1,738		1,823
Provision for unfunded commitments		14		37
Deferred compensation		238		260
Contributions		6		8
Accrued rent expense		103		100
Operating lease liabilities		426		315
Finance lease liabilities		1		3
Limited partnership investments		313		283
Impairment loss on securities		4		4
Deferred health insurance		48		37
Capital and net operating loss carry forwards		258		438
Valuation allowance related to state net operating losses		(258)		(438)
Total		10,748		2,870
Deferred Tax Liabilities:
Net unrealized gains on debt securities available-for-sale		—		2,017
Loan fees and costs		237		164
Net unrealized gains on marketable equity securities		319		354
Operating lease right-of-use assets		426		315
Accumulated depreciation		287		300
Accretion		36		41
Mortgage servicing rights		57		53
Intangibles		257		257
Total		1,619		3,501
Net Deferred Tax Asset (Liability)	$	9,129	$	(631)

A valuation allowance for deferred tax assets was recorded in the amount of $258,000 and $438,000 at December 31, 2022 and 2021, respectively. The valuation allowance relates to state net operating loss carryforwards for which realizability is uncertain. At December 31, 2022 and 2021, the Corporation had state net operating loss carryforwards, net of a valuation allowance, of $0, which are available to offset future state taxable income, and expire at various dates through 2042.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible and tax planning strategies, management believes it is more likely than not that the Corporation will realize the benefits of these deferred tax assets, net of any valuation allowance at December 31, 2022.

The Corporation did not have any uncertain tax positions at December 31, 2022 and 2021.

The Corporation and its subsidiary file a consolidated federal income tax return. The Corporation is no longer subject to examination by Federal or State taxing authorities for the years before 2019.