Income Taxes

12 Months Ended

Jun. 30, 2023

Income Taxes

Income Taxes

Note 11 — Income Taxes

The components of income tax expense for the years ended June 30, 2023 and 2022 are as follows:

	Year end June 30,
(Dollars in thousands)	2023		2022
Federal:
Current	$	(430)	$	(215)
Deferred		570		683
		140		468
State, current		60		100
	$	200	$	568

A reconciliation of the statutory federal income tax at a rate of 21.0% in 2023 and 2022 to the income tax expense included in the consolidated statements of income is as follows:

	Year ended June 30,
	2023				2022
			% of				% of
			Pretax				Pretax
(Dollars in thousands)	Amount		Income		Amount		Income
Federal income tax at statutory rate	$	630	21.0	%	$	1,009	21.0	%
State tax, net of federal benefit		47	1.6			79	1.6
Bank owned-life insurance		(232)	(7.7)			(218)	(4.5)
Income tax benefit		(211)	(7.1)			(288)	(6.0)
Other		(34)	(1.1)			(14)	(0.3)
	$	200	6.7	%	$	568	11.8	%

Income tax expense for the years ended June 30, 2023 and 2022 included $211 thousand and $288 thousand one-time income tax benefits related to refunds received associated with the carryback of net operating losses under the CARES Act.

Items that gave rise to significant portions of deferred tax assets and liabilities are as follows:

	June 30,
(Dollars in thousands)	2023		2022
Deferred tax assets:
Loan origination fees	$	150	$	172
Allowance for loan losses		762		784
Deferred director’s fees		261		271
Deferred compensation		357		478
Purchase accounting adjustments		499		593
NOL carry forward		231		631
Net unrealized loss on securities		6,983		4,587
Stock based compensation		234		—
Other		344		227
Total deferred tax assets		9,821		7,743
Deferred tax liabilities:
Premises and equipment		(336)		(284)
Total deferred tax liabilities		(336)		(284)
Net deferred tax asset	$	9,485	$	7,459

Deferred income taxes reflect temporary differences in the recognition of revenue and expenses for tax reporting and financial statement purposes, principally because certain items, such as the allowance for loan losses and loan fees are recognized in different periods for financial reporting and tax return purposes. As of June 30, 2023, the Company has a $1.1 million net operating loss carryforward that will begin to expire by December 31, 2033.  A valuation allowance has not been established for deferred tax assets. Realization of the deferred tax assets is dependent on generating sufficient taxable income. Although realization is not assured, management believes it is more likely than not that all of the deferred tax asset will be realized.

GAAP prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. Accounting literature also provides guidance on the accounting for and disclosure of unrecognized tax benefits, interest, and penalties. In accordance with GAAP, interest or penalties incurred for income taxes will be recorded as a component of other expenses. There are no material uncertain tax positions at June 30, 2023 or 2022. With few exceptions, the Company is no longer subject to U.S. Federal income tax examinations by taxing authorities for years before 2019.

Retained earnings included $2.8 million at June 30, 2023 and 2022, respectively, for which no provision for federal income tax has been made. These amounts represent deductions for bad debt reserves for tax purposes which were only allowed to savings institutions which met certain definitional tests prescribed by the Internal Revenue Code of 1986, as amended. The Small Business Job Protection Act of 1996 eliminated the special bad debt deduction granted solely to thrifts. Under the terms of the Act, there would be no recapture of the pre-1988 (base year) reserves. However, these pre-1988 reserves would be subject to recapture under the rules of the Internal Revenue Code if the Bank itself pays a cash dividend in excess of earnings and profits, or liquidates. The Act also provides for the recapture of deductions arising from “applicable excess reserve” defined as the total amount of reserve over the base year reserve. The Bank’s total reserve exceeds the base year reserve and deferred taxes have been provided for this excess.