Federal Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Federal Income Taxes

Federal Income Taxes

The components of income tax expense for the years indicated are as follows: 

	Year Ended December 31,
	2021		2020
	(In thousands)
Current	$	2,690	$	1,937
Deferred	235		5
Total income tax expense	$	2,925	$	1,942

A reconciliation of the tax provision based on the statutory corporate rate of 21% for the year ended December 31, 2021, and 2020, on pretax income is as follows:

	Year Ended December 31,
	2021		2020
	(In thousands)
Income tax expense at statutory rate	$	3,187	$	2,205
Income tax effect of:
Tax exempt interest, net	(54)		(23)
BOLI income, net	(229)		(200)
Other, net	21		(40)
Total income tax expense	$	2,925	$	1,942

The deferred tax assets and liabilities, included in the accompanying consolidated balance sheets, consisted of the following at the dates indicated: 

	December 31,
	2021		2020
	(In thousands)
Deferred tax assets:
ALLL	$	3,288	$	3,187
Reserve for unfunded commitments	59		74
Deferred compensation	194		309
Net unrealized loss on derivative cash flow hedge	—		594
Reserve for uncollected interest	—		45
Employee benefit plans	385		424
OREO market value adjustments	—		10
Accrued expenses	114		141
Core deposit intangible	53		42
Expenses to facilitate branch acquisition	20		22
Split dollar life insurance	87		78
Lease liability	799		794
Total deferred tax assets	4,999		5,720
Deferred tax liabilities:
FHLB stock dividends	3		4
Loan origination fees and costs	1,098		1,031
Net unrealized gain on derivative cash flow hedge	312		—
Net unrealized gain on investments available for sale	42		392
Fixed assets	1,818		1,785
Goodwill	54		42
Right of use asset	766		766
Other, net	56		59
Total deferred tax liabilities	$	4,149	$	4,079
Deferred tax assets, net	$	850	$	1,641

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. These calculations are based on many complex factors including estimates of the timing of reversals of temporary differences, the interpretation of federal income tax laws, and a determination of the differences between the tax and the financial reporting basis of assets and liabilities. Actual results could differ significantly from the estimates and interpretations used in determining the current and deferred income tax assets and liabilities.

At December 31, 2021 and 2020, the Company had no net operating loss carryforward.

As a result of the bad debt deductions taken in years prior to 1988, retained earnings includes accumulated earnings of approximately $4.5 million, on which federal income taxes have not been provided. If, in the future, this portion of retained earnings is used for any purpose other than to absorb losses on loans or on property acquired through foreclosure, federal

income taxes may be imposed at the then-prevailing corporate tax rates. The Bank does not contemplate that such amounts will be used for any purpose that would create a federal income tax liability; therefore no provision has been made.

Under GAAP, a valuation allowance is required to be recognized if it is “more likely than not” that a portion of the deferred tax asset will not be realized. In order to support a conclusion that a valuation allowance is not needed, management evaluates both positive and negative evidence under the “more likely than not” standard. The weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which the strength of the evidence can be objectively verified. As of December 31, 2021, it was determined the full deferred tax asset would be realized in future periods and a valuation allowance would not be necessary.

The CARES Act, among other things, permits net operating loss (“NOL”) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company evaluated the impact of the CARES Act and determined that none of the changes would result in a material income tax benefit to the Company. In addition, the Company has determined that neither the enactment of the CAA, 2021, nor changes to income tax laws or regulations in other jurisdictions have a significant impact on income taxes.

The Company had no unrecognized tax benefits at December 31, 2021 or 2020, and recognized no interest or tax penalties. The Company has filed U.S. federal income tax returns. Income tax returns filed are subject to examination by the U.S. federal, state, and local income tax authorities. While no income tax returns are currently being examined, the Company is no longer subject to tax examination by tax authorities for years prior to 2018.