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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes

(8) Income Taxes

The components of income tax expense for the years ended December 31, 2021 and 2020 are as follows: (in thousands)

 

 

 

Year Ended
December 31, 2021

 

 

Year Ended
December 31, 2020

 

Current

 

$

2,565

 

 

$

865

 

Deferred

 

 

(227

)

 

 

(73

)

 

 

$

2,338

 

 

$

792

 

 

The difference between income tax expense and the amount computed by applying the statutory federal income tax rate to income before taxes for the years ended December 31, 2021 and 2020 is as follows (in thousands):

 

 

 

Year Ended
December 31, 2021

 

 

Year Ended
December 31, 2020

 

Statutory Federal tax rate

 

 

21

%

 

 

21

%

Pretax income at statutory rate

 

$

2,082

 

 

$

815

 

State income tax, net of federal benefit

 

 

265

 

 

 

(95

)

Cash surrender value of life insurance

 

 

(117

)

 

 

(83

)

Permanent adjustments

 

 

41

 

 

 

26

 

Other

 

 

67

 

 

 

129

 

Actual tax expense 24% and 20%, respectively

 

$

2,338

 

 

$

792

 

 

The following summarizes the sources and expected tax consequences of future deductions or income for income tax purposes which comprised the net deferred taxes at December 31, 2021 and 2020: (in thousands)

 

 

 

Year Ended
December 31, 2021

 

 

Year Ended
December 31, 2020

 

Deferred income tax assets:

 

 

 

 

 

 

Allowance for loan losses

 

$

2,195

 

 

$

1,625

 

Deferred compensation

 

775

 

 

873

 

Net operating losses

 

 

1,849

 

 

 

1,683

 

Unrealized loss on investment securities available-for-sale

 

 

122

 

 

 

—

 

State tax credits

 

 

—

 

 

358

 

Fair value adjustments

 

 

522

 

 

 

673

 

Other

 

182

 

 

199

 

Total deferred income tax assets

 

 

5,645

 

 

 

5,411

 

Deferred income tax liabilities:

 

 

 

 

 

 

Core deposit intangible

 

 

391

 

 

 

440

 

Premises and equipment

 

498

 

 

533

 

Unrealized gain on investment securities available-for-sale

 

 

—

 

 

52

 

Other

 

123

 

 

154

 

Total deferred income tax liabilities

 

 

1,012

 

 

 

1,179

 

Net deferred income tax asset

 

$

4,633

 

 

$

4,232

 

 

The Company establishes a valuation allowance if, based on the weight of the available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of December 31, 2021 and 2020, the Company believes that it will have sufficient earnings to realize its deferred tax asset and has not provided an allowance.

 

The Company is subject to federal income tax and income tax of state taxing authorities. The Company's federal and state income tax returns for the years ended December 31, 2020, 2019 and 2018 are open to audit under the statutes of limitations.

 

Prior to January 1, 1996, the Bank was permitted under the Internal Revenue Code (the “Code”) a special bad debt deduction related to additions to tax bad debt reserves established for the purpose of absorbing losses. The provisions of the Code permitted the Bank to deduct from taxable income an allowance for bad debts based on the greater of a percentage of taxable income before such deduction or actual loss experience. Retained earnings at December 31, 2021 includes approximately $3,625,000 for which no deferred Federal income tax liability has been recognized. The amounts represent an allocation of income for bad debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses would create income for tax purposes only, which would be subject to the then current corporate income tax rate.

 

On August 20, 1996, legislation was passed which eliminated the percentage of taxable income bad debt deduction for thrift institutions for tax years beginning after December 31, 1995. This legislation also requires a thrift to generally recapture the excess of its current tax reserves over its 1987 base year reserves whereas the base year reserves are frozen from taxation. No additional financial statement tax expense resulted from this legislation as the Bank had previously provided deferred taxes on this recaptured amount.