Note 13 - Income Taxes

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE 13 Income Taxes

Income tax expense for the years ended December 31, 2023 and 2022 was as follows:

(Dollars in thousands)	2023			2022
Current:
Federal	$	2,143			2,123
State		815			1,000
Total current		2,958			3,123
Deferred:
Federal		(81	)		2
State		(329	)		101
Total deferred		(410	)		103
Income tax expense	$	2,548			3,226

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 were as follows:

(Dollars in thousands)	2023		2022
Expected federal income tax expense	$	1,796		2,367
Items affecting federal income tax:
State income taxes, net of federal income tax deduction		557		899
Other, net		195		(40	)
Income tax expense	$	2,548		3,226

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)	2023			2022
Deferred tax assets:
Allowances for credit losses	$	3,337			2,899
Deferred compensation costs		144			120
Deferred ESOP loan asset		315			361
Non-accruing loan interest		163			179
Net unrealized loss on securities available for sale		5,149			6,539
State net operating loss carry-forward		39			0
Other		101			110
Total gross deferred tax assets		9,248			10,208
Valuation allowance		(283	)		0
Deferred tax assets, net of valuation allowance		8,965			10,208
Deferred tax liabilities:
Deferred loan costs		241			243
Premises and equipment basis difference		570			618
Originated mortgage servicing rights		764			843
Other		219			157
Total gross deferred tax liabilities		1,794			1,861
Net deferred tax assets	$	7,171			8,347

The Company has no federal net operating loss carryforwards at December 31, 2023.

Retained earnings at December 31, 2023 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 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. A valuation allowance is required to be recognized, under GAAP, if it is “more likely than not” that the deferred tax asset will not be realized. The determination of the realizability of the deferred tax assets is highly subjective and dependent upon management’s judgment and evaluation of both positive and negative evidence, including the forecasts of future income, tax planning strategies, and assessments of the current and future economic and business conditions. The positive evidence considered includes the Company’s cumulative net income in the prior three-year period, the ability to implement tax planning strategies to accelerate taxable income recognition, and the probability that taxable income will be generated in future periods. The only negative evidence the Company identified was related to a change in Wisconsin state tax law that was enacted in 2023. The law change allows financial institutions to exempt from state taxation loan income from loans of $5 million or less where the borrower resides or is located in Wisconsin. The law change substantially reduced the Company’s effective state income tax rate in Wisconsin. A valuation allowance was recorded at December 31, 2023 to reflect the anticipated reduction in the Company’s ability to recognize future Wisconsin state tax benefits when the timing differences reverse on the previously recorded deferred tax assets. It is possible that future conditions may differ substantially from those anticipated in determining that a valuation allowance was required on deferred tax assets and adjustments may be required in the future.