Quarterly report pursuant to Section 13 or 15(d)

FEDERAL INCOME TAXES

v3.20.1
FEDERAL INCOME TAXES
3 Months Ended
Mar. 31, 2020
FEDERAL INCOME TAXES [Abstract]  
FEDERAL INCOME TAXES
NOTE 9 - FEDERAL INCOME TAXES
 
Income tax expense was as follows (dollars in thousands):

   
Three Months
Ended
March 31, 2020
   
Three Months
Ended
March 31, 2019
 
Current
 
$
1,700
   
$
1,469
 
Deferred
   
(271
)
   
245
 
   
$
1,429
   
$
1,714
 

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
March 31, 2020
   
Three Months
Ended
March 31, 2019
 
Statutory rate
   
21
%
   
21
%
Statutory rate applied to income before taxes
 
$
1,646
   
$
1,966
 
Deduct
               
Tax-exempt interest income
   
(178
)
   
(167
)
Bank-owned life insurance
   
(51
)
   
(50
)
Other, net
   
12
     
(35
)
 
 
$
1,429
   
$
1,714
 

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 March 31, 2020 and December 31, 2019, 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):

   
March 31,
2020
   
December 31,
2019
 
Deferred tax assets
           
Allowance for loan losses
 
$
3,966
   
$
3,612
 
Nonaccrual loan interest
   
161
     
182
 
Valuation allowance on other real estate owned
   
83
     
76
 
Unrealized loss on securities available for sale
   
     
 
Other
   
271
     
248
 
Gross deferred tax assets
   
4,481
     
4,118
 
Valuation allowance
   
(92
)
   
(92
)
Total net deferred tax assets
   
4,389
     
4,026
 
Deferred tax liabilities
               
Depreciation
   
(1,141
)
   
(1,053
)
Prepaid expenses
   
(172
)
   
(172
)
Unrealized gain on securities available for sale
   
(1,028
)
   
(406
)
Other
   
(320
)
   
(317
)
Gross deferred tax liabilities
   
(2,661
)
   
(1,948
)
Net deferred tax asset
 
$
1,728
   
$
2,078
 

There were no unrecognized tax benefits at March 31, 2020 or December 31, 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.