Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes

Income Taxes Text Block

NOTE 11: INCOME TAXES

For the years ended December 31, 2021 and 2020 the components of income tax expense from continuing operations are

presented below.

Year ended December 31

(Dollars in thousands)

2021

2020

Current income tax expense:

Federal

$

833

1,459

State

295

476

Total current income tax expense

1,128

1,935

Deferred income tax benefit:

Federal

220

(262)

State

58

(68)

Total deferred income tax expense (benefit)

278

(330)

Total income tax expense 

$

1,406

1,605

Total income tax expense differs from the amounts computed by applying the statutory federal income tax rate of 21% to

earnings before income taxes. A reconciliation of the differences for the years ended December 31, 2021 and 2020, is

presented below.

2021

2020

Percent of

Percent of

pre-tax

pre-tax

(Dollars in thousands)

Amount

earnings

Amount

earnings

Earnings before income taxes

$

9,445

9,059

Income taxes at statutory rate

1,983

21.0

%

1,902

21.0

%

Tax-exempt interest

(514)

(5.4)

(489)

(5.4)

State income taxes, net of 

federal tax effect

352

3.7

345

3.8

New Markets Tax Credit

(356)

(3.8)

—

—

Bank-owned life insurance

(85)

(0.9)

(152)

(1.7)

Other

26

0.3

(1)

—

Total income tax expense 

$

1,406

14.9

%

1,605

17.7

%

At December 31, 2021, the Company had a net deferred tax asset of $0.4 million included in other assets on the

consolidated balance sheet and at December 31, 2020, a deferred tax liability of $1.5 million included in other liabilities on

the consolidated balance sheet. The tax effects of temporary differences that give rise to significant portions of the deferred

tax assets and deferred tax liabilities at December 31, 2021 and 2020 are presented below.

December 31

(Dollars in thousands)

2021

2020

Deferred tax assets:

Allowance for loan losses

$

1,240

1,411

Accrued bonus 

192

183

Right of use liability

178

204

Other

77

91

Total deferred tax assets

1,687

1,889

Deferred tax liabilities:

Premises and equipment

200

199

Unrealized gain on securities

298

2,548

Originated mortgage servicing rights

329

334

Right of use asset

173

198

New Markets Tax Credit investment

89

—

Other

163

147

Total deferred tax liabilities

1,252

3,426

Net deferred tax asset (liability)

$

435

(1,537)

A valuation allowance is recognized for a deferred tax asset if, based on the weight of available evidence, it is more-likely-

than-not that some portion of the entire deferred tax asset will not be realized. The ultimate realization of deferred tax

assets is dependent upon the generation of future taxable income during the periods in which those temporary differences

become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable

income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and

projection for future taxable income over the periods which the temporary differences resulting in the remaining deferred

tax assets are deductible, management believes it is more-likely-than -not that the Company will realize the benefits of these

deductible differences at December 31, 2021. The amount of the deferred tax assets considered realizable, however, could

be reduced in the near term if estimates of future taxable income are reduced.

The change in the net deferred tax asset for the years ended December 31, 2021 and 2020, is presented

Year ended December 31

(Dollars in thousands)

2021

2020

Net deferred tax asset (liability):

Balance, beginning of year

$

(1,537)

(9)

Deferred tax (expense) benefit related to continuing operations

(278)

330

Stockholders' equity, for accumulated other comprehensive loss (income)

2,250

(1,858)

Balance, end of year

$

435

(1,537)

ASC 740,

Income Taxes,

 defines the threshold for recognizing the benefits of tax return positions in the financial statements

as “more-likely-than-not” to be sustained by the taxing authority. This section also provides guidance on the de-

recognition, measurement, and classification of income tax uncertainties in interim periods. As of December 31, 2021, the

Company had no unrecognized tax benefits related to federal or state income tax matters. The Company does not anticipate

any material increase or decrease in unrecognized tax benefits during 2022 relative to any tax positions taken prior to

December 31, 2021. As of December 31, 2021, the Company has accrued no interest and no penalties related to uncertain

tax positions. It is the Company’s policy to recognize interest and penalties related to income tax matters in income tax

expense. 

The Company and its subsidiaries file consolidated U.S. federal and State of Alabama income tax returns. The Company is

currently open to audit under the statute of limitations by the Internal Revenue Service and the State of Alabama for the

years ended December 31, 2018 through 2021.