Note 13 - Income Taxes

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE 13: INCOME TAXES

As of December 31, 2021 and 2020, 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, 2021.

The provision for income taxes consists of:

			Years Ended
			December 31,
	2021		2020			2019
Taxes currently payable	$	1,773,480	$	1,705,323		$	1,459,016
Deferred income taxes		906,305		(470,145	)		224,142
	$	2,679,785	$	1,235,178		$	1,683,158

The tax effects of temporary differences related to deferred taxes shown on the December 31, 2021 and 2020 balance sheets are:

	December 31,			December 31,
	2021			2020
Deferred tax assets:
Allowances for loan losses	$	2,541,255		$	2,308,086
Writedowns on foreclosed assets held for sale		26,880			152,192
Unrealized loss on interest rate swaps		140,051			1,185,887
Deferred loan fees/costs		107,070			368,937
Lease Liabilities		2,088,727			2,177,140
Other purchase accounting adjustments		515,093			567,188
Tax credit partnerships and related tax credit carryforwards		185,747			1,322,240
Other		248,903			100,565
		5,853,726			8,182,235
Deferred tax liabilities:
FHLB stock dividends		(20,968	)		(20,968	)
Unrealized gain on available-for-sale securities		(124,148	)		(1,169,053	)
Lease ROU assets		(2,057,551	)		(2,155,245	)
Accumulated depreciation		(368,414	)		(525,995	)
Other		(514,189	)		(635,280	)
		(3,085,270	)		(4,506,541	)
Net deferred tax asset	$	2,768,456		$	3,675,694

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,
	2021			2020			2019
Computed at statutory rate		21.0	%		21.0	%		21.0	%
Increase (reduction) in taxes resulting from:
State financial institution tax and credits		1.1	%		(1.2	%)		(2.3	%)
Cash surrender value of life insurance		(1.0	%)		(1.6	%)		(1.0	%)
Tax exempt interest		(1.1	%)		(1.8	%)		(1.1	%)
Other		0.1	%		(1.1	%)		(1.4	%)
Actual effective rate		20.1	%		15.3	%		15.2	%

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 $1,700,000 and has recorded a deferred tax asset related to the NOL, which is included in the purchase accounting adjustments above.