Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

(17) Income Taxes

Income tax expense (benefit) attributable to income from operations consisted of the following:

(Dollars in thousands)	Years ended December 31,
	2022			2021			2020
Current:
Federal	$	559		$	3,039		$	4,582
State		(317	)		967			708
Total current		242			4,006			5,290
Deferred:
Federal		994			662			(442	)
State		238			196			(8	)
Total deferred		1,232			858			(450	)
Deferred tax valuation allowance		(42	)		(50	)		(53	)
Income tax expense	$	1,432		$	4,814		$	4,787

The reasons for the difference between actual income tax expense (benefit) and expected income tax expense attributable to income from operations at the statutory federal income tax rate were as follows:

(Dollars in thousands)	Years ended December 31,
	2022			2021			2020
Computed “expected” tax expense	$	2,375		$	4,793		$	5,099
(Reduction) increase in income taxes resulting from:
Tax-exempt interest income, net		(633	)		(645	)		(695	)
Excess tax benefit from stock option exercise		(4	)		(29	)		(26	)
Bank owned life insurance		(180	)		(156	)		(137	)
Reversal of unrecognized tax benefits, net		(465	)		162			(229	)
State income taxes, net of federal benefit		369			718			800
Investment tax credits		(23	)		(19	)		(28	)
Other, net		(7	)		(10	)		3
	$	1,432		$	4,814		$	4,787

The tax effects of temporary differences that give rise to the significant portions of the deferred tax assets and liabilities at the following dates were as follows:

(Dollars in thousands)	As of December 31,
	2022			2021
Deferred tax assets:
Unrealized loss on investment securities available-for-sale	$	8,132		$	-
Loans, including allowance for loan losses		2,879			2,041
State taxes		562			534
Other, net		210			184
Investments		184			70
Net operating loss carry forwards		181			223
Acquisition costs		120			141
Net deferred loan fees		78			125
Valuation allowance on other real estate		74			-
Deferred compensation arrangements		62			64
Total deferred tax assets		12,482			3,382
Less valuation allowance		(181	)		(223	)
Total deferred tax assets, net of valuation allowance		12,301			3,159
Deferred tax liabilities:
Intangible assets		1,324			387
Mortgage servicing rights		801			879
Prepaid expenses		554			314
Premises and equipment, net of depreciation		241			723
FHLB stock dividends		17			8
Unrealized gain on investment securities available-for-sale		-			1,259
Total deferred tax liabilities		2,937			3,570
Net deferred tax asset (liability)	$	9,364		$	(411	)

The Company has Kansas corporate net operating loss carry forwards totaling $3.1 million and $3.8 million as of December 31, 2022 and 2021, respectively, which expire between 2023 and 2027. The Company has recorded a valuation allowance against the Kansas corporate net operating loss carry forwards. A valuation allowance related to the remaining deferred tax assets has not been provided because management believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets at December 31, 2022.

Retained earnings at December 31, 2022 and 2021 include approximately $6.3 million for which no provision for federal income tax had been made. This amount represents allocations of income to bad debt deductions in years prior to 1988 for tax purposes only. Reduction of amounts allocated for purposes other than tax bad debt losses will create income for tax purposes only, which will be subject to the then current corporate income tax rate.

The Company has unrecognized tax benefits representing tax positions for which a liability has been established. A reconciliation of the beginning and ending amount of the liability relating to unrecognized tax benefits is as follows:

(Dollars in thousands)	Years ended December 31,
	2022			2021
Unrecognized tax benefits at beginning of year	$	2,290		$	2,138
Gross increases to current year tax positions		390			325
Gross decreases to prior year’s tax positions		(61	)		(125	)
Lapse of statute of limitations		(462	)		(48	)
Unrecognized tax benefits at end of year	$	2,157		$	2,290

Tax years that remain open and subject to audit include the years 2019 through 2022 for both federal and state tax purposes. The Company recognized $462,000 and $48,000 of previously unrecognized tax benefits during 2022 and 2021, respectively. The gross unrecognized tax benefits of $2.2 million and $2.3 million at December 31, 2022 and December 31, 2021, respectively, would favorably impact the effective tax rate by $1.7 million and $1.8 million, respectively, if recognized. During 2022, the Company recorded an income tax benefit of $52,000 associated with interest and penalties. During 2021 and 2020, the Company recorded $298,000 and $71,000 of income tax expense respectively associated with interest and penalties. As of December 31, 2022 and 2021, the Company had accrued interest and penalties related to the unrecognized tax benefits of $571,000 and $623,000, respectively, which are not included in the table above. The Company believes that it is reasonably possible that a reduction in gross unrecognized tax benefits of up to $528,000 is possible during the next 12 months as a result of the lapse of the statute of limitations.