Note 15 - Income Taxes

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE 15:         INCOME TAXES

As of December 31, 2020 and 2019, retained earnings included approximately $5,075,000 for which no deferred income tax liability has been recognized. This amount represents an allocation of income to bad debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes only, which would be subject to the then current corporate income tax rate. The unrecorded deferred income tax liability on the above amount was approximately $1,218,000 as of December 31, 2020.

The provision for income taxes consists of:

		Years Ended December 31,
	2020			2019		2018
Taxes currently payable	$	1,705,323		$	1,459,016	$	1,230,427
Deferred income taxes		(470,145	)		224,142		624,386
	$	1,235,178		$	1,683,158	$	1,854,813

The tax effects of temporary differences related to deferred taxes shown on the December 31, 2020 and 2019 balance sheets are:

	December 31,			December 31,
	2020			2019
Deferred tax assets:
Allowances for loan losses	$	2,308,086		$	1,825,853
Writedowns on foreclosed assets held for sale		152,192			409,031
Unrealized loss on interest rate swaps		1,185,887			390,804
Deferred loan fees/costs		368,937			96,700
Lease Liabilities		2,177,140			-
Other purchase accounting adjustments		567,187			690,341
Tax credit partnerships and related tax credit carryforwards		1,322,240			1,354,315
Other		100,565			284,925
		8,182,235			5,051,969
Deferred tax liabilities:
FHLB stock dividends		(20,968	)		(30,062	)
Unrealized gain on available-for-sale securities		(1,169,053	)		(262,217	)
Lease ROU assets		(2,155,245	)		-
Accumulated depreciation		(525,995	)		(598,785	)
Other		(635,280	)		(749,964	)
		(4,506,541	)		(1,641,028	)
Net deferred tax asset	$	3,675,694		$	3,410,941

A reconciliation of income tax expense at the statutory rate to income tax expense at the Company’s effective rate is shown below:

	Years ended
	December 31,
	2020			2019			2018
Computed at statutory rate		21.0	%		21.0	%		21.0	%
Increase (reduction) in taxes resulting from:
State financial institution tax and credits		(1.2	%)		(2.3	%)		(1.3	%)
Cash surrender value of life insurance		(1.6	%)		(1.0	%)		(1.1	%)
Tax exempt interest		(1.8	%)		(1.1	%)		(1.4	%)
Non-dedecutible merger costs		-			-			1.0	%
Other		(1.1	%)		(1.4	%)		2.0	%
Actual effective rate		15.3	%		15.2	%		20.2	%

As part of the acquisition of Hometown, the Company acquired net operating loss (NOL) carryforwards that Hometown had accumulated through acquisition date. The Company estimates the amount of NOL that it expects to utilize in the future will be approximately $1,900,000 and has recorded a deferred tax asset related to the NOL, which is included in the purchase accounting adjustments above.