Annual report pursuant to Section 13 and 15(d)

FEDERAL INCOME TAXES

v3.20.4
FEDERAL INCOME TAXES
 12 Months Ended
Dec. 31, 2020
FEDERAL INCOME TAXES [Abstract]  
FEDERAL INCOME TAXES
NOTE 14 - FEDERAL INCOME TAXES

Income tax expense was as follows (dollars in thousands):

   
2020
    
2019
  
Current
  
$
7,318
    
$
7,172
  
Deferred
    
(603
)
    
290
  
Change in valuation allowance
    
(92
)
    
—
  
   
$
6,623
    
$
7,462
  

The difference between the financial statement tax expense and amount computed by applying the statutory federal tax rate to pretax income was reconciled as follows (dollars in thousands):

   
2020
    
2019
  
Statutory rate
    
21
%
    
21
%
Statutory rate applied to income before taxes
  
$
7,726
    
$
8,283
  
Adjust for:
                
Tax-exempt interest income
    
(700
)
    
(703
)
Bank-owned life insurance
    
(184
)
    
(204
)
Change in valuation allowance
    
(92
)
    
—
  
Other, net
    
(127
)
    
86
  
   
$
6,623
    
$
7,462
  

The realization of deferred tax assets (net of a recorded valuation allowance) is largely dependent upon future taxable income, future reversals of existing taxable temporary differences and the ability to carryback losses to available tax years. In assessing the need for a valuation allowance, we consider positive and negative evidence, including taxable income in carry-back years, scheduled reversals of deferred tax liabilities, expected future taxable income and tax planning strategies.  At December 31, 2018, a valuation allowance of $92,000 was established for a capital loss carryforward related to the liquidation of assets of a partnership interest the Bank acquired through a loan settlement.  In December 2020, the Bank received the final disbursement from liquidation of this partnership interest and the resulting capital loss will be carried back against the capital gain generated from sale of the business in 2018.  As such, the valuation allowance was reversed to zero at December 31, 2020.  Management believes it is more likely than not that all of the deferred tax assets will be realized against deferred tax liabilities and projected future taxable income.

The net deferred tax asset recorded included the following amounts of deferred tax assets and liabilities (dollars in thousands):

   
2020
    
2019
  
Deferred tax assets
            
Allowance for loan losses
  
$
3,656
    
$
3,612
  
Net deferred loan fees
  
$
822
      
—
  
Nonaccrual loan interest
    
120
      
182
  
Valuation allowance on other real estate owned and property held for sale
    
41
      
76
  
Unrealized loss on securities available for sale
    
—
      
—
  
Other
    
499
      
248
  
Gross deferred tax assets
    
5,138
      
4,118
  
Valuation allowance
    
—
      
(92
)
Total net deferred tax assets
    
5,138
      
4,026
  
                 
Deferred tax liabilities
                
Depreciation
  
$
(1,285
)
  
$
(1,053
)
Prepaid expenses
    
(170
)
    
(172
)
Unrealized gain on securities available for sale
    
(1,120
)
    
(406
)
Net deferred loan costs
    
—
      
(67
)
Other
    
(504
)
    
(250
)
Gross deferred tax liabilities
    
(3,079
)
    
(1,948
)
Net deferred tax asset
  
$
2,059
    
$
2,078
  

There were no unrecognized tax benefits at December 31, 2020 and 2019 and the Company does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months. The Company is no longer subject to examination by the Internal Revenue Service for years before 2016.