Note 14 - Income Taxes

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE 14 - INCOME TAXES

Income tax expense was comprised of the following for the years indicated below:

	Year Ended December 31,
(Dollars in thousands)	2023			2022
Current:
Federal	$	2,510		$	2,321
State		79			444
Total Current Tax Expense		2,589			2,765
Deferred:
Federal		(287	)		(59	)
State		(14	)		3
Total Deferred Tax Benefit		(301	)		(56	)
Total Income Tax Expense	$	2,288		$	2,709

The Company's income taxes differ from those computed at the statutory federal income tax rate for the years indicated, as follows:

	Year Ended December 31,
(Dollars in thousands)	2023			2022
Tax at Statutory Income Tax Rate	$	2,620		$	2,717
State Tax		51			353
Tax Exempt Interest		(126	)		(253	)
Tax Credits		(75	)		—
Life Insurance		(133	)		(128	)
Valuation Allowance		(63	)		(4	)
Other		14			24
Total Income Tax Expense	$	2,288		$	2,709

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2023 and 2022 are presented below. Net deferred tax assets or liabilities were included in other assets or other liabilities at December 31, 2023 and 2022.

	December 31,
(Dollars in thousands)	2023			2022
Deferred Tax Assets:
Deferred Compensation	$	897		$	838
Provision for Credit Losses		2,722			2,420
Reserve for Unfunded Commitments		186			—
Other Real Estate Owned		96			10
Net Fees Deferred for Financial Reporting		58			66
Net Operating Losses		401			464
Unrealized Loss on AFS Securities		11,615			13,230
Tax Credits		268			—
Other		34			41
Total Gross Deferred Tax Assets		16,277			17,069
Less: Valuation Allowance		(401	)		(464	)
Total Deferred Tax Assets		15,876			16,605
Deferred Tax Liabilities:
FHLB Stock Basis Over Tax Basis		72			72
Depreciation		946			812
Prepaid Expenses		202			169
Total Deferred Tax Liability		1,220			1,053
Net Deferred Tax Asset	$	14,656		$	15,552

The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. Deferred tax assets represent the future tax benefit of deductible differences and, if it is more likely than not that a tax asset will not be realized, a valuation allowance is required to reduce the recorded deferred tax assets to net realizable value. As of December 31, 2023, management has determined that it is more likely than not that the total deferred tax asset will be realized except for the deferred tax asset associated with state net operating loss carryforwards, and, accordingly, has established a valuation allowance only for this item. The change in the valuation allowance was approximately $63,000. The Company had state net operating losses attributable to the non-bank entities of $10.2 million and $11.7 million for the years ended December 31, 2023 and 2022, respectively.

Retained earnings at December 31, 2023 included tax bad debt reserves of $2.1 million, for which no provision for federal income tax has been made. If, in the future, these amounts are used for any purpose other than to absorb bad debt losses, including dividends, stock redemptions, or distributions in liquidation, or the Company ceases to be qualified as a bank holding company, they may be subject to federal income tax at the prevailing corporate tax rate.  At December 31, 2023, the Company had no material unrecognized tax benefits or accrued interest and penalties. It is the Company's policy to account for interest and penalties accrued relative to unrecognized tax benefits as a component of income tax expense. Tax returns for 2020 and subsequent years are subject to examination by taxing authorities.