Note 13 - Income Taxes

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE

1

3

Income Taxes

Income tax expense for the years ended

December 31, 2020,

2019

and

2018

is as follows:

(Dollars in thousands)	2020			2019		2018
Current:
Federal	$	3,418			2,141		1,690
State		1,452			687		115
Total current		4,870			2,828		1,805
Deferred:
Federal		(589	)		256		234
State		(213	)		240		849
Total deferred		(802	)		496		1,083
Income tax expense	$	4,068			3,324		2,888

The reasons for the difference between the expected income tax expense utilizing the federal corporate tax rate of

21%

and the actual income tax expense are as follows:

(Dollars in thousands)	2020		2019		2018
Expected federal income tax expense	$	3,019		2,334		2,336
Items affecting federal income tax:
State income taxes, net of federal income tax deduction		1,025		852		559
Other, net		24		138		(7	)
Income tax expense	$	4,068		3,324		2,888

The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are as follows at

December 31:

(Dollars in thousands)	2020		2019
Deferred tax assets:
Allowances for loan losses	$	3,010		2,394
Deferred compensation costs		141		158
Deferred ESOP loan asset		430		453
Non-accruing loan interest		134		78
Other		499		182
Total gross deferred tax assets		4,214		3,265
Deferred tax liabilities:
Deferred loan costs		119		344
Premises and equipment basis difference		549		526
Originated mortgage servicing rights		856		607
Net unrealized gain on securities available for sale		496		18
Other		167		68
Total gross deferred tax liabilities		2,187		1,563
Net deferred tax assets	$	2,027		1,702

The Company has

no

federal and

$0.4

million of state net operating loss carryforwards at

December 31, 2020.

Retained earnings at

December 31, 2020

included approximately

$8.8

million for which

no

provision for income taxes was made. This amount represents allocations of income to bad debt deductions for tax purposes. Reduction of amounts so allocated for purposes other than absorbing losses will create income for tax purposes, which will be subject to the then-current corporate income tax rate.

The Company considers the determination of the deferred tax asset amount and the need for any valuation reserve to be a critical accounting policy that requires significant judgment. The Company has, in its judgment, made reasonable assumptions and considered both positive and negative evidence relating to the ultimate realization of deferred tax assets. Positive evidence includes the cumulative net income generated over the prior

three

year period and the probability that taxable income will be generated in future periods. The Company could

not

currently identify any negative evidence. Based upon this evaluation, the Company determined that

no

valuation allowance was required with respect to the net deferred tax assets at

December 31, 2020

and

2019.