Quarterly report pursuant to Section 13 or 15(d)

FEDERAL INCOME TAXES

v3.20.2
FEDERAL INCOME TAXES
 9 Months Ended
Sep. 30, 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
September 30, 2020
    
Three Months
Ended
September 30, 2019
    
Nine Months
Ended
September 30, 2020
    
Nine Months
Ended
September 30, 2019
  
Current
  
$
1,304
    
$
1,971
    
$
5,974
    
$
5,290
  
Deferred
    
309
      
(89
)
    
(1,174
)
    
222
  
   
$
1,613
    
$
1,882
    
$
4,800
    
$
5,512
  

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
September 30, 2020
    
Three Months
Ended
September 30, 2019
    
Nine Months
Ended
September 30, 2020
    
Nine Months
Ended
September 30, 2019
  
Statutory rate
    
21
%
    
21
%
    
21
%
    
21
%
Statutory rate applied to income before taxes
  
$
1,834
    
$
2,108
    
$
5,454
    
$
6,157
  
Deduct
                                
Tax-exempt interest income
    
(178
)
    
(183
)
    
(533
)
    
(523
)
Bank-owned life insurance
    
(45
)
    
(53
)
    
(144
)
    
(155
)
Other, net
    
2
      
10
      
23
      
33
  
   
$
1,613
    
$
1,882
    
$
4,800
    
$
5,512
  

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 September 30, 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):

   
September 30,
2020
    
December 31,
2019
  
Deferred tax assets
            
Allowance for loan losses
  
$
3,477
    
$
3,612
  
Net deferred loan fees
    
1,516
      
—
  
Nonaccrual loan interest
    
134
      
182
  
Valuation allowance on other real estate owned
    
83
      
76
  
Other
    
541
      
248
  
Gross deferred tax assets
    
5,751
      
4,118
  
Valuation allowance
    
(92
)
    
(92
)
Total net deferred tax assets
    
5,659
      
4,026
  
Deferred tax liabilities
                
Depreciation
    
(1,329
)
    
(1,053
)
Prepaid expenses
    
(170
)
    
(172
)
Unrealized gain on securities available for sale
    
(1,221
)
    
(406
)
Net deferred loan costs
    
—
      
(67
)
Other
    
(502
)
    
(250
)
Gross deferred tax liabilities
    
(3,222
)
    
(1,948
)
Net deferred tax asset
  
$
2,437
    
$
2,078
  

There were no unrecognized tax benefits at September 30, 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 2015.