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Note 7 - Income Taxes | 12 Months Ended
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Dec. 31, 2022
Notes to Financial Statements |
Income Tax Disclosure [Text Block] | Note 7 – Income Taxes At year-end, components of income tax expense consist of the following:
|  | (Dollars in thousands) |
|  | 2022 |  |  | 2021 |
Federal: |  |  |  |  |  |  |  |
Current |  | $ | (169 | ) |  | $ | 1,021 |
Deferred |  |  | 1,074 |  |  |  | 154 |
State: |  |  |  |  |  |  |  |
Current |  |  | 460 |  |  |  | 256 |
Deferred, net of valuation allowance |  |  | 113 |  |  |  | (17 | )
Income tax expense |  | $ | 1,478 |  |  | $ | 1,414 |
Effective tax rates differ from the federal statutory rate of 21% for 2022 and 2021 applied to income before income taxes due to the following:
|  | (Dollars in thousands) |
|  | 2022 |  |  | 2021 |
Federal statutory rate |  |  | 21 | % |  |  | 21 | %
Tax expense at statutory rate |  | $ | 3,477 |  |  | $ | 3,439 |
State tax, net of federal effect |  |  | 453 |  |  |  | 189 |
Tax exempt income |  |  | (1,419 | ) |  |  | (1,297 | )
Bank owned life insurance |  |  | (153 | ) |  |  | (150 | )
Captive insurance |  |  | (282 | ) |  |  | (212 | )
Tax credit investments |  |  | (494 | ) |  |  | (415 | )
Non-deductible transaction costs |  |  | 98 |  |  |  | - |
Other |  |  | (202 | ) |  |  | (140 | )
Total income tax expense |  | $ | 1,478 |  |  | $ | 1,414 |
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) |
|  | 2022 |  |  | 2021 |
Deferred tax assets: |  |  |  |  |  |  |  |
Bad debts |  | $ | 3,346 |  |  | $ | 3,385 |
Deferred compensation |  |  | 361 |  |  |  | 352 |
Unrealized depreciation on securities available-for-sale, net |  |  | 20,280 |  |  |  | - |
Net operating loss |  |  | 7,010 |  |  |  | 2,238 |
Tax credits |  |  | 52 |  |  |  | 73 |
Nonaccrual loan interest income |  |  | 288 |  |  |  | 244 |
Share based compensation |  |  | 339 |  |  |  | 255 |
Unqualified deferred compensation plan |  |  | 65 |  |  |  | 61 |
Other-than-temporary impairment |  |  | 42 |  |  |  | 39 |
Accrued vacation |  |  | 55 |  |  |  | 56 |
Purchase accounting |  |  | 364 |  |  |  | - |
Nondeductible transaction costs |  |  | - |  |  |  | 74 |
Deferred loan costs, net of fees |  |  | 339 |  |  |  | 288 |
Other |  |  | 190 |  |  |  | 92 |
Total deferred tax assets |  |  | 32,731 |  |  |  | 7,157 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Depreciation |  |  | (1,322 | ) |  |  | (1,134 | )
Prepaids |  |  | (637 | ) |  |  | (510 | )
Mortgage servicing rights |  |  | (295 | ) |  |  | (289 | )
Deferred stock dividends |  |  | (121 | ) |  |  | (100 | )
Goodwill |  |  | (533 | ) |  |  | (317 | )
Unrealized appreciation on securities available-for-sale, net |  |  | - |  |  |  | (1,129 | )
Purchase accounting |  |  | - |  |  |  | (391 | )
Partnership |  |  | (366 | ) |  |  | (311 | )
Other |  |  | (213 | ) |  |  | (119 | )
Total deferred tax liabilities |  |  | (3,487 | ) |  |  | (4,300 | )
Valuation allowance |  |  | - |  |  |  | (12 | )
Net deferred tax asset |  | $ | 29,244 |  |  | $ | 2,845 |
At December 31, 2022, the Bancorp has Indiana net operating loss carry forwards of approximately $222 thousand which will begin to expire in 2037 if not used. The Bancorp also has a state tax credit carry forward of approximately $66 thousand which expire from 2023 to 2032. 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. Management also believes that the state tax credit carryforward is expected to be utilized before expiration. No valuation allowance remains on any state tax credit carryforward which expire after 2022. 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 2029 to 2035, $1.1 million of the federal losses do not expire, and the Illinois losses expire in years ranging from 2028 to 2036 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 2029 to 2034, $3.6 million of the federal losses do not expire, and the Illinois losses expire in years ranging from 2028 to 2037. 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. The Bancorp acquired $2.5 million of federal net operating loss carryforwards and $57.4 million of Illinois net operating loss carryforwards with the acquisition of Royal Financial, Inc. during 2022 of which $1.9 million of the federal losses expire in years ranging from 2030 to 2036, $623 thousand of the federal losses do not expire, and the Illinois losses expire in 2035. Under Section 382 of the Internal Revenue Code, the annual limitation on the use of the federal losses is $822 thousand for Royal, 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, 2022 $8.2 million of the federal loss carryforwards, $68.2 million of the Illinois loss carryforward remain and $222 thousand of Indiana loss carryforwards 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, 2022, and 2021, includes, approximately $14.5 million and $8.4 million, respectively, 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 $3.0 million and $1.8 million at both December 31, 2022, and 2021, respectively. The Bancorp had no unrecognized tax benefits at any time during 2022 or 2021 and does not anticipate any significant increase or decrease in unrecognized tax benefits during 2022. 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 2022 or 2021. 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 2019.

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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 https://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 https://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 https://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 https://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 https://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 https://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 https://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 https://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 https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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