Quarterly report pursuant to Section 13 or 15(d)

FEDERAL INCOME TAXES

v3.19.2
FEDERAL INCOME TAXES
6 Months Ended
Jun. 30, 2019
FEDERAL INCOME TAXES [Abstract]  
FEDERAL INCOME TAXES
NOTE 9 - FEDERAL INCOME TAXES
 
Income tax expense was as follows (dollars in thousands):

   
Three Months
Ended
June 30, 2019
   
Three Months
Ended
June 30, 2018
   
Six Months
Ended
June 30, 2019
   
Six Months
Ended
June 30, 2018
 
Current
 
$
1,851
   
$
1,294
   
$
3,319
   
$
2,232
 
Deferred
   
65
     
140
     
311
     
427
 
   
$
1,916
   
$
1,434
   
$
3,630
   
$
2,659
 

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):

   
Three Months
Ended
June 30, 2019
   
Three Months
Ended
June 30, 2018
   
Six Months
Ended
June 30, 2019
   
Six Months
Ended
June 30, 2018
 
Statutory rate
   
21
%
   
21
%
   
21
%
   
21
%
Statutory rate applied to income before taxes
 
$
2,083
   
$
1,714
   
$
4,049
   
$
3,180
 
Deduct
                               
Tax-exempt interest income
   
(173
)
   
(183
)
   
(340
)
   
(362
)
Bank-owned life insurance
   
(52
)
   
(50
)
   
(102
)
   
(100
)
Other, net
   
58
     
(47
)
   
23
     
(59
)
   
$
1,916
   
$
1,434
   
$
3,630
   
$
2,659
 

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 June 30, 2019 and 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.  Management believes it is more likely than not that all of the remaining 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):

   
June 30,
2019
   
December 31,
2018
 
Deferred tax assets
           
Allowance for loan losses
 
$
3,546
   
$
3,544
 
Nonaccrual loan interest
   
209
     
268
 
Valuation allowance on other real estate owned
   
184
     
218
 
Unrealized loss on securities available for sale
   
     
606
 
Other
   
237
     
302
 
Gross deferred tax assets
   
4,176
     
4,938
 
Valuation allowance
   
(92
)
   
(92
)
Total net deferred tax assets
   
4,084
     
4,846
 
Deferred tax liabilities
               
Depreciation
   
(1,139
)
   
(1,005
)
Prepaid expenses
   
(200
)
   
(200
)
Unrealized gain on securities available for sale
   
(357
)
   
 
Other
   
(281
)
   
(261
)
Gross deferred tax liabilities
   
(1,977
)
   
(1,466
)
Net deferred tax asset
 
$
2,107
   
$
3,380
 

There were no unrecognized tax benefits at June 30, 2019 or December 31, 2018 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 2015.