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Note 12 - Income Taxes
 12 Months Ended
Dec. 31, 2022
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

Note 12 – Income Taxes

 

Information as of December 31 and for the year follows:

 

(Dollars in thousands)

            
  

2022

  

2021

  

2020

 

Provision for Income Taxes

            

Current federal income tax expense

 $4,033  $3,532  $3,070 

Deferred federal income tax expense/(benefit)

  (15)  924   202 

Income tax expense

 $4,018  $4,456  $3,272 
             

Reconciliation of Income Tax Provision to Statutory Rate

            

Income tax computed at statutory federal rate of 21%

 $5,808  $5,565  $3,966 

Tax exempt interest income

  (1,323)  (1,190)  (574)

Tax exempt earnings on bank-owned life insurance

  (276)  (170)  (162)

Tax credits

  (289)  (284)  (240)

Nondeductible merger expenses

  -   -   182 

Disallowed interest expense

  179   74   64 

Other items

  (81)  461   36 

Income tax expense

 $4,018  $4,456  $3,272 
             

Effective income tax rate

  15

%

  17

%

  17

%

 

(Dollars in thousands)

                
                 

Components of Deferred Tax Assets and Liabilities

  

2022

    

2021

  

Deferred tax assets:

                

Purchase accounting adjustments from mergers with County

                

and Community Shores

   $ 945     $ 1,374  

Allowance for loan losses

     1,600       1,614  

Unrealized losses on securities available for sale

     19,745       685  

Net operating loss carryforward

     505       544  

Deferred loan fees and costs, net

     -       319  

Compensation

     299       286  

Other

     716       68  

Total deferred tax assets

     23,810       4,890  
                 

Deferred tax liabilities:

                

Purchase accounting adjustments from mergers with County

                

and Community Shores

     844       1,107  

Loan servicing rights

     908       980  

Depreciation

     605       540  

Interest rate derivative contracts

     660       -  

Deferred loan fees and costs, net

     15       -  

Other

     404       323  

Total deferred tax liabilities

     3,436       2,950  

Net deferred tax asset (liability)

   $ 20,374     $ 1,940  

 

As of December 31, 2022, deferred tax assets included federal net operating loss carryforwards of approximately $2.4 million which was acquired through the merger with Community Shores.  The loss carryforwards expire at various dates from 2031 to 2035.  Deferred tax assets are recognized for net operating losses because the benefit is more likely than not to be realized.  Under Code Section 382, ChoiceOne is limited to applying approximately $185,000 of net operating losses per year.