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Note 8 - Income Taxes | 12 Months Ended
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Dec. 31, 2021
Notes to Financial Statements |
Income Tax Disclosure [Text Block] | Note 8 – Income Taxes At year-end, components of income tax expense consist of the following:
|  | (Dollars in thousands) |
|  | 2021 |  |  | 2020 |
Federal: |  |  |  |  |  |  |  |
Current |  | $ | 1,021 |  |  | $ | 2,202 |
Deferred |  |  | 154 |  |  |  | (197 | )
State: |  |  |  |  |  |  |  |
Current |  |  | 256 |  |  |  | - |
Deferred, net of valuation allowance |  |  | (17 | ) |  |  | 769 |
Income tax expense |  | $ | 1,414 |  |  | $ | 2,774 |
Effective tax rates differ from the federal statutory rate of 21% for 2021 and 2020 applied to income before income taxes due to the following:
|  | (Dollars in thousands) |
|  | 2021 |  |  | 2020 |
Federal statutory rate |  |  | 21 | % |  |  | 21 | %
Tax expense at statutory rate |  | $ | 3,439 |  |  | $ | 3,928 |
State tax, net of federal effect |  |  | 189 |  |  |  | 607 |
Tax exempt income |  |  | (1,297 | ) |  |  | (887 | )
Bank owned life insurance |  |  | (150 | ) |  |  | (149 | )
Captive insurance |  |  | (212 | ) |  |  | (188 | )
Tax credit investments |  |  | (415 | ) |  |  | (415 | )
Other |  |  | (140 | ) |  |  | (122 | )
Total income tax expense |  | $ | 1,414 |  |  | $ | 2,774 |
At December 31, the components of the net deferred tax asset recorded in other assets in the consolidated balance sheets are as follows:
|  | (Dollars in thousands) |
|  | 2021 |  |  | 2020 |
Deferred tax assets: |  |  |  |  |  |  |  |
Bad debts |  | $ | 3,385 |  |  | $ | 3,090 |
Deferred compensation |  |  | 352 |  |  |  | 343 |
Net operating loss |  |  | 2,238 |  |  |  | 2,553 |
Tax credits |  |  | 73 |  |  |  | 70 |
Nonaccrual loan interest income |  |  | 244 |  |  |  | 206 |
Share based compensation |  |  | 255 |  |  |  | 256 |
REO writedowns |  |  | - |  |  |  | 23 |
Unqualified deferred compensation plan |  |  | 61 |  |  |  | 60 |
Other-than-temporary impairment |  |  | 39 |  |  |  | 39 |
Accrued vacation |  |  | 56 |  |  |  | 75 |
Nondeductible transaction costs |  |  | 74 |  |  |  | - |
Deferred loan costs, net of fees |  |  | 288 |  |  |  | 75 |
Other |  |  | 92 |  |  |  | 84 |
Total deferred tax assets |  |  | 7,157 |  |  |  | 6,874 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Depreciation |  |  | (1,134 | ) |  |  | (1,147 | )
Prepaids |  |  | (510 | ) |  |  | (443 | )
Mortgage servicing rights |  |  | (289 | ) |  |  | (163 | )
Deferred stock dividends |  |  | (100 | ) |  |  | (100 | )
Unrealized appreciation on securities available-for-sale, net |  |  | (1,129 | ) |  |  | (2,767 | )
Purchase accounting |  |  | (708 | ) |  |  | (492 | )
Partnership |  |  | (311 | ) |  |  | (280 | )
Other |  |  | (119 | ) |  |  | (116 | )
Total deferred tax liabilities |  |  | (4,300 | ) |  |  | (5,508 | )
Valuation allowance |  |  | (12 | ) |  |  | (22 | )
Net deferred tax asset |  | $ | 2,845 |  |  | $ | 1,344 |
At December 31, 2021, the Bancorp has Indiana net operating loss carry forwards of approximately $186 which will begin to expire in 2026 if not used. The Bancorp also has a state tax credit carry forward of approximately $86 thousand which began to expire in 2017 and will continue to expire if not used. Management has concluded that the state net operating losses will be fully utilized and therefore no valuation allowance is necessary on the state net operating loss. A valuation allowance remains in place on the state tax credit carryforward that is not expected to be utilized before expiration. A valuation allowance of $12 thousand and $22 thousand was provided at December 31, 2021, and 2020, respectively, for the state tax credits net of federal benefit. The Bancorp acquired $3.3 million of federal net operating loss carryforwards and $7.2 million of Illinois net operating loss carryforwards with the acquisition of First Personal Financial Corp during 2018 of which $2.2 million of the federal losses expire in years ranging from 2028 to 2035, $1.1 million of the federal losses do not expire, and the Illinois losses expire in years ranging from 2019 to 2031. Under Section 382 of the Internal Revenue Code, the annual limitation on the use of the federal losses is $362 thousand for First Personal while there is no limitation on the use of the Illinois losses. Management has determined that all of the losses are more likely than not to be utilized before expiration. The Bancorp acquired $7.2 million of federal net operating loss carryforwards and $11.4 million of Illinois net operating loss carryforwards with the acquisition of AJS Bancorp Inc. during 2019 of which $3.6 million of the federal losses expire in years ranging from 2030 to 2037, $3.6 million of the federal losses do not expire, and the Illinois losses expire in years ranging from 2020 to 2031. Under Section 382 of the Internal Revenue Code, the annual limitation on the use of the federal losses is $834 thousand for AJS, while there is no limitation on the use of the Illinois losses. Management has determined that all of the losses are more likely than not to be utilized before expiration. At December 31, 2021 $6.9 million of the federal loss carryforwards and $10.4 million of the Illinois loss carryforward remain; the benefit of which is reflected in deferred tax assets. The Bancorp qualified under provisions of the Internal Revenue Code, to deduct from taxable income a provision for bad debts in excess of the provision for such losses charged to income in the financial statements, if any. Accordingly, retained earnings at December 31, 2021, and 2020, includes, approximately $8.4 million for which no provision for federal income taxes has been made. If, in the future this portion of retained earnings is used for any purpose other than to absorb bad debt losses, federal income taxes would be imposed at the then applicable rate. The unrecorded deferred income tax liability on the above amounts was approximately $2.2 million at both December 31, 2021, and 2020. The Bancorp had no unrecognized tax benefits at any time during 2021 or 2020 and does not anticipate any significant increase or decrease in unrecognized tax benefits during 2021. Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is the Bancorp's policy to record such accruals through income tax accounts; no such accruals existed at any time during 2021 or 2020. The Bancorp and its subsidiaries are subject to US Federal income tax as well as income tax of the states of Indiana and Illinois. The Bancorp is no longer subject to examination by taxing authorities for the years before 2018.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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