Note 11 - Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Note 11 - Income Taxes

The components of the provision for income taxes are as follows:

Year ended December 31,	2022			2021		2020
Current Federal income taxes	$	3,543		$	3,629	$	2,569
Current state income taxes		180			219		52
Deferred Federal income taxes (benefits)		36			21		(53	)
Deferred state income taxes (benefits)		(102	)		92		(6	)
Valuation adjustment		8			—		—
Net provision	$	3,665		$	3,961	$	2,562

At December 31, 2022 and 2021, the tax effects of temporary differences that represent the significant portion of deferred tax assets and liabilities are as follows:

December 31,	2022		2021
Deferred tax assets
Allowance for loan losses	$	2,212	$	2,349
Net unrealized holding losses on investment    securities available-for-sale		21,565		994
Fair value adjustment on equity securities		10		—
Non-accrual interest income		52		32
Leasing liability		678		788
Deferred revenue		7		23
Incurred but not reported medical expense		28		31
Bonus		128		248
Other		48		54
Total deferred tax assets		24,728		4,519
Deferred tax liabilities
Deferred loan income		459		430
Depreciation		225		295
Mortgage servicing rights		98		110
Fair value adjustment on equity securities		—		286
Prepaid expenses		232		214
Right of use asset		611		719
Other		18		16
Total deferred tax liabilities		1,643		2,070
Valuation allowance		8		—
Net deferred tax asset	$	23,077	$	2,449

The ability to realize deferred tax assets is dependent upon a variety of factors, including the generation of future taxable income, the existence of taxes paid and recoverable, the reversal of deferred tax liabilities and tax planning strategies. Based upon these and other factors, management believes it is more likely than not that QNB will realize the benefits of the above deferred tax assets except an $8,000 deferred tax asset related to non-qualified stock option that it is more likely than not that the options will expire unexercised due to the strike price.  A valuation allowance was recorded for this amount.

A reconciliation of the tax provision on income before taxes computed at the statutory rates of 21 % for 2022, 2021 and 2020 and the actual tax provision was as follows:  

Year ended December 31,	2022						2021						2020
	Dollar			%			Dollar			%			Dollar			%
Provision at statutory rate	$	4,113			21.0	%	$	4,295			21.0	%	$	3,075			21.0	%
Tax-exempt interest and dividend income		(504	)		(2.6	)		(527	)		(2.6	)		(518	)		(3.5	)
Bank-owned life insurance		(75	)		(0.4	)		(104	)		(0.5	)		(62	)		(0.4	)
Stock-based compensation expense		20			0.1			19			0.1			20			0.1
State income tax		62			0.3			245			1.2			35			0.2
Other		41			0.2			33			0.2			12			0.1
Income tax provision		3,657			18.7			3,961			19.4			2,562			17.5
Valuation Adjustment		8			0.0			—			—			—			—
	$	3,665			18.7	%	$	3,961			19.4	%	$	2,562			17.5	%