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Income Taxes | 12 Months Ended
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Dec. 31, 2021
Income Taxes [Abstract] |
Income Taxes | Note 17 – Income Taxes The Company and its subsidiary are subject to U.S. federal and state income taxes. Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Income tax (benefit) expense was as follows:
|  | 2021 |  |  | 2020 |
|  | (In thousands) |
Current |  |  |  |  |  |
Federal |  | $ | 4 |  |  | $ | (59 | )
State |  |  | (38 | ) |  |  | 144 |
Deferred |  |  |  |  |  |  |  |
Federal |  |  | (909 | ) |  |  | 7 |
State |  |  | (363 | ) |  |  | (499 | )
Change in Valuation Allowance |  |  | 369 |  |  |  | - |
Total |  | $ | (937 | ) |  | $ | (407 | )
Effective tax rates differ from the federal statutory rate of 21% applied to income before income taxes due to the following:
|  | 2021 |  |  | 2020 |
|  | (In thousands) |
Federal statutory rate times financial statement net loss |  | $ | (1,026 | ) |  | $ | (220 | )
Effect of: |  |  |  |  |  |  |  |
State taxes, net of federal benefit |  |  | (292 | ) |  |  | (7 | )
Earnings from bank owned life insurance |  |  | (9 | ) |  |  | (10 | )
Merger-related expense |  |  | 195 |  |  |  | 200 |
Low income housing credits |  |  | (58 | ) |  |  | (117 | )
Change in valuation allowance |  |  | 369 |  |  |  | - |
Tax effect of stock-based compensation |  |  | (129 | ) |  |  | - |
Tax benefit from tax positions taken in prior years |  |  | - |  |  |  | (273 | )
Other, net |  |  | 13 |  |  |  | 20 |
Total |  | $ | (937 | ) |  | $ | (407 | )
Year‑end deferred tax assets and liabilities were due to the following:
|  | 2021 |  |  | 2020 |
|  | (In thousands) |
Deferred tax assets: |  |  |  |  |  |
Allowance for loan losses |  | $ | 677 |  |  | $ | 909 |
Accrued liabilities |  |  | 954 |  |  |  | 139 |
State income taxes |  |  | 1 |  |  |  | 58 |
Stock compensation |  |  | 154 |  |  |  | 310 |
Net operating loss carryforward |  |  | 3,946 |  |  |  | 3,437 |
Non‑accrual loan interest |  |  | 51 |  |  |  | 1 |
Partnership investment |  |  | 155 |  |  |  | 188 |
General business credit |  |  | 2,006 |  |  |  | 1,969 |
Alternative minimum tax credit |  |  | 5 |  |  |  | 34 |
Net unrealized loss on securities available-for-sale |  |  | 464 |  |  |  | - |
Right of use liability |  |  | 319 |  |  |  | - |
Fair value adjustment on acquired loans |  |  | 521 |  |  |  | - |
Other |  |  | 363 |  |  |  | 40 |
Total deferred tax assets |  |  | 9,616 |  |  |  | 7,085 |
Less: valuation allowance |  |  | (369 | ) |  |  | - |
Total deferred tax assets, net of valuation allowance |  |  | 9,247 |  |  |  | 7,085 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Section 481 Adjustments to bad debts |  |  | (6 | ) |  |  | (334 | )
Deferred loan fees/costs |  |  | (750 | ) |  |  | (651 | )
Basis difference on fixed assets |  |  | (702 | ) |  |  | (18 | )
Net unrealized appreciation on available‑for‑sale securities |  |  | - |  |  |  | (138 | )
FHLB stock dividends |  |  | (98 | ) |  |  | (266 | )
Mortgage servicing rights |  |  | - |  |  |  | (1 | )
Prepaid expenses |  |  | (220 | ) |  |  | (44 | )
Right of use assets |  |  | (317 | ) |  |  | - |
Core deposit intangibles |  |  | (1,053 | ) |  |  | - |
Total deferred tax liabilities |  |  | (3,146 | ) |  |  | (1,452 | )
Net deferred tax assets |  | $ | 6,101 |  |  | $ | 5,633 |
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. In assessing the realization of deferred tax assets, management evaluated both positive and negative evidence, the amount of taxes paid in available carry‑back years, and the forecasts of future income and tax planning strategies. Based on this analysis, the Company determined that, as of December 31, 2021, a valuation allowance of $369 thousand was required on the Company’s deferred tax assets, which totaled $6.1 million (net of valuation allowance). As of December 31, 2020, no valuation allowance required on the Company’s deferred tax assets, which totaled $5.6 million. On June 29, 2020, the Assembly Bill No. 85 (AB 85) was signed into law by California Governor Gavin Newsom to raise additional income tax revenue to assist in balancing the California budget caused by the COVID-19 pandemic. The most significant provision of this bill is the suspension of the net operating loss (NOL) deduction for tax years beginning on or after January 1, 2020 and before January 1, 2023. The existing 20-year carry forward period for NOLs (10 years for losses incurred in the tax years 2000 through 2007) would be extended for up to three years if losses are not used due to the NOL suspension. This means the Bank cannot take California NOL deductions for 2020-2022 if its California taxable income is more than $1 million. The life of the 2011 NOL will be extended for up to three years. This also means the Bank could have more cash tax liability for 2020-2022. As of December 31, 2021, the Company had federal net operating loss carryforwards of $7.4 million. Approximately $2.1 million of the federal net operating loss carryforwards can be carried forward indefinitely. The remaining $5.3 million will begin to expire, if not utilized, in 2032 through 2037. The Company also had California net operating loss carryforwards of $27.6 million which will begin to expire in 2032 through 2041 if not utilized, and D.C. net operating loss carryforwards of $0.6 million which can be carried forward indefinitely. The Company also had federal general business credits of $2.0 million, which will begin to expire in 2030 through 2041, if not utilized. Prior to 2018, the Company computed its bad debt deduction for income tax purposes under the reserve method. In 2018, the Company requested, and the IRS consented to a change in accounting method used for computing its tax bad debt deduction from the reserve method to the charge-off method as defined under Internal Revenue Code Section 166. As a result, the Company computes its tax bad debt deduction under the new method and recaptures its excess tax bad debt reserve of $4.3 million into taxable income evenly over a 4 year period starting in 2018. The Company did not have any unrecognized tax benefits as of December 31, 2021 and 2020. Federal tax years 2018 through 2021 remain open for the assessment of Federal income tax. California tax years 2017 through 2021 remain open for the assessment of California franchise tax. The Company is not currently under examinations by any tax authorities.

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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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