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Note 10 - Income Taxes
 12 Months Ended
Dec. 31, 2021
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

NOTE 10 – INCOME TAXES

 

The income tax expense is as follows:

 

  

For the years ended December 31,

 
  

2021

  

2020

 

Current expense

 $2,320  $2,460 

Deferred expense

  28   1,137 

Total income tax expense

 $2,348  $3,597 

 

A reconciliation of the provision for income taxes computed at the statutory federal corporate tax rate of 21% for 2021 and 2020, to the income tax expense in the Consolidated Statements of Operations follows:

 

  

For the years ended December 31,

 
  

2021

  

2020

 

Expense computed at the statutory federal tax rate

 $2,048  $2,680 

State and local taxes, net of federal income tax effect

  504   720 

Other, net

  (4)  (3)

Valuation allowance for deferred tax assets

  (200)  200 
  $2,348  $3,597 

Effective income tax rate

  24.07%  28.18%

 

Retained earnings at December 31, 2021 and 2020 include $14.9 million for which no deferred federal income tax liability has been recorded. This amount represents an allocation of income to bad debt deductions for tax purposes alone.

 

The net deferred tax asset is as follows:

 

  

December 31,

 
  

2021

  

2020

 

Gross deferred tax assets

        

Allowance for loan losses

 $1,798  $2,075 

Alternative minimum tax and net operating loss carryforwards

  3,938   3,999 

Lease liability

  1,306   1,358 

Other

  854   568 
   7,896   8,000 

Gross deferred tax liabilities

        

Net deferred loan origination costs

  (808)  (873)

Purchase accounting adjustments

  (1,516)  (1,570)

Right of use asset

  (1,306)  (1,358)

Other

  (1,475)  (1,180)

Unrealized gain on securities

  (29)  (78)
   (5,134)  (5,059)

Valuation allowance

  —   (200)
  $2,762  $2,741 

 

As of December 31, 2021 and 2020, the Company’s net deferred tax asset (“DTA”) was $2.8 million and $2.7 million, respectively.

 

A DTA valuation allowance is required under ASC 740 when the realization of a DTA is assessed and the assessment indicates that it is “more likely than not” (i.e., more than 50% likely) that all or a portion of the DTA will not be realized. All available evidence, both positive and negative must be considered to determine whether, based on the weight of that evidence, a valuation allowance against the net DTA is required. Objectively verifiable evidence is assigned greater weight than evidence that is not objectively verifiable. The valuation allowance is analyzed quarterly for changes affecting the DTA.

 

The Company’s ability to realize the DTA is dependent upon the generation of future taxable income during the periods in which the tax attributes underlying the DTA become deductible. The amount of the DTA that will ultimately be realized will be impacted by the Company’s future taxable income, any changes to the many variables that could impact future taxable income and the then applicable corporate tax rate. As of December 31, 2020, a valuation allowance of $200,000 was attributed to the Illinois net loss deduction carryforwards, this was recovered in 2021 and there was no valuation allowance at  December 31, 2021.

 

At December 31, 2021, the Company had a federal net operating loss carryforward of $7.0 million relating to its acquisition of Downers Grove National Bank, which is subject to utilization limitations under Section 382 of the Internal Revenue Code, and will begin to expire in 2030, and $225,000 of alternative minimum tax credit carryforward that does not expire and is subject to utilization limitations under Section 382 of the Internal Revenue Code. At December 31, 2021, the Company had a state net operating loss carryforward for the State of Illinois of $44.5 million, which will begin to expire in 2031 and fully expires in 2033.

 

Unrecognized Tax Benefits

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

 

  

December 31,

 
  

2021

  

2020

 

Beginning of year

 $277  $244 

Additions based on tax positions related to the current year

  34   61 

Additions for tax positions of prior years

  10   2 

Reductions due to the statute of limitations and reductions for tax positions of prior years

  (38)  (30)

End of year

 $283  $277 

 

The Company does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months. The Company recognizes interest and/or penalties related to income tax matters in income tax expense. At December 31, 2021 and 2020, the Company had immaterial amounts accrued for potential interest and penalties.

 

The Company and its subsidiary are subject to U.S. federal income tax as well as income tax of the various states where the Company does business. The Company is no longer subject to examination by the federal taxing authorities for years before 2018 and the Illinois taxing authorities for years before 2018.