Note 9 - Federal Taxes on Income

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note 9 - Federal Taxes on Income

The provision for income taxes for the periods shown is summarized as follows:

	For the Year Ended December 31,
	2021		2020
	(In thousands)
Current	$	3,131	$	4,085
Deferred		63		(1,131	)
	$	3,194	$	2,954

A reconciliation of the tax provision (benefit) based on statutory corporate tax rates, estimated to be 21% for the year ended December 31, 2021, on pre-tax income and the provision (benefit) shown in the accompanying consolidated statements of income for the periods shown is summarized as follows:

	For the Year Ended December 31,
	2021			2020
	(In thousands)
Income taxes computed at statutory rates	$	3,909		$	2,792
Tax-exempt income		(218	)		(236	)
Bank-owned life insurance income		(203	)		(383	)
Bank-owned life insurance penalty for early surrender of contract		—			748
Other, net		(294	)		33
	$	3,194		$	2,954

As a result of the bad debt deductions taken in years prior to 1988, retained earnings include accumulated earnings of approximately $6.4 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 Company 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.

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.

On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits 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 has 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.

On December 27, 2020, the Consolidated Appropriations Act 2021 was signed into law and extends several provisions of the CARES Act. As of December 31, 2020, the Company determined that neither this Act nor changes to income tax laws or regulations in other jurisdictions will have a significant impact on our effective tax rate.

The Company applies the provisions of FASB ASC 740 that require the application of a more-likely-than-not recognition criterion for the reporting of uncertain tax positions on its financial statements. The Company had no unrecognized tax assets at December 31, 2021 and 2020. During the years ended December 31, 2021 and 2020, the Company recognized no interest and penalties. The Company recognizes interest and penalties in income tax expense. The Company files income tax returns in the U.S. federal jurisdiction and is no longer subject to U.S. federal income tax examinations by tax authorities for years ending before December 31, 2017.

The components of net deferred tax assets and liabilities at the periods shown are summarized as follows:

	December 31, 2021		December 31, 2020
	(In thousands)
Deferred tax assets
Allowance for loan losses	$	3,255	$	2,971
Accrued compensation		461		602
Nonaccrual loans		1		1
ESOP timing differences		173		159
Restricted stock awards		312		152
Deferred lease liabilities		1,654		868
Total deferred tax assets		5,856		4,753
Deferred tax liabilities
Deferred loan fees		702		605
Unrealized gain on securities available for sale		569		1,447
FHLB stock dividends		417		421
Accumulated depreciation		609		632
Deferred investment gain		341		58
Defined benefit plan		59		—
Right of use assets		1,595		840
Other, net		3		4
Total deferred tax liabilities		4,295		4,007
Deferred tax asset, net	$	1,561	$	746