Note 13 - Income Taxes

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE 13 Income Taxes

Income tax expense for the years ended December 31, 2022 and 2021 is as follows:

(Dollars in thousands)	2022		2021
Current:
Federal	$	2,123		3,234
State		1,000		1,519
Total current		3,123		4,753
Deferred:
Federal		2		410
State		101		202
Total deferred		103		612
Income tax expense	$	3,226		5,365

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)	2022			2021
Expected federal income tax expense	$	2,367			3,975
Items affecting federal income tax:
State income taxes, net of federal income tax deduction		899			1,350
Other, net		(40	)		40
Income tax expense	$	3,226			5,365

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)	2022		2021
Deferred tax assets:
Allowances for loan losses	$	2,899		2,610
Deferred compensation costs		120		143
Deferred ESOP loan asset		361		399
Non-accruing loan interest		179		96
Net unrealized loss on securities available for sale		6,539		618
Other		110		679
Total gross deferred tax assets		10,208		4,545
Deferred tax liabilities:
Deferred loan costs		243		272
Premises and equipment basis difference		618		669
Originated mortgage servicing rights		843		923
Other		157		152
Total gross deferred tax liabilities		1,861		2,016
Net deferred tax assets	$	8,347		2,529

The Company has no federal or state net operating loss carryforwards at December 31, 2022.

Retained earnings at December 31, 2022 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, 2022 and 2021.