XML 76 R16.htm IDEA: XBRL DOCUMENT v3.20.4
INCOME TAXES
 12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The Company files income tax returns in the U.S. federal jurisdiction, the Commonwealth of Pennsylvania and the State of Maryland. The Company is no longer subject to tax examination by tax authorities for years before 2017.
The following table summarizes income tax expense for the years ended December 31, 2020, 2019 and 2018.
202020192018
Current expense$6,602 $934 $1,097 
Deferred expense(554)1,776 543 
Income tax expense$6,048 $2,710 $1,640 
The following table reconciles the Company's effective income tax rate to its statutory federal rate for the years ended December 31, 2020, 2019 and 2018.
202020192018
Statutory federal tax rate21.0 %21.0 %21.0 %
Increase (decrease) resulting from:
State taxes, net of federal benefit1.0 %(0.1)%— %
Tax exempt interest income(2.0)%(4.2)%(7.7)%
Income from life insurance(1.1)%(1.7)%(1.7)%
Disallowed interest expense0.1 %0.3 %0.8 %
Low-income housing credits and related expense(0.8)%(1.3)%(2.5)%
Merger related— %0.7 %0.6 %
Other0.4 %(0.9)%0.9 %
Effective income tax rate18.6 %13.8 %11.4 %
Income tax expense includes $3 thousand related to net security losses for the year ended December 31, 2020 and $997 thousand and $211 thousand related to net security gains for the years ended December 31, 2019, and 2018, respectively.
The Company recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income taxes in the results of operations. There were no penalties or interest related to income taxes recorded in the consolidated income statements for the years ended December 31, 2020, 2019 and 2018 and no amounts accrued for penalties at December 31, 2020 and 2019.
The following table summarizes the Company's deferred tax assets and liabilities at December 31, 2020, and 2019.
20202019
Deferred tax assets:
Allowance for loan losses$4,457 $3,418 
Deferred compensation578 415 
Retirement and salary continuation plans2,536 2,357 
Share-based compensation735 631 
Off-balance sheet reserves345 234 
Nonaccrual loan interest395 697 
Deferred loan fees1,483 153 
Net unrealized losses on securities available for sale— 127 
Net unrealized losses on interest rate swaps258 — 
Purchase accounting adjustments1,886 4,081 
Bonus accrual622 493 
ROU liability2,003 2,123 
Net operating loss carryforward2,472 1,872 
Other448 417 
Total deferred tax assets18,218 17,018 
Deferred tax liabilities:
Depreciation74 452 
Net unrealized gains on securities available for sale1,148 — 
Mortgage servicing rights614 694 
Purchase accounting adjustments1,206 1,599 
ROU Asset1,903 2,021 
Other340 275 
Total deferred tax liabilities5,285 5,041 
Net deferred tax asset, included in other assets$12,933 $11,977 

At December 31, 2020, the Company had acquired federal and state net operating loss carryforwards of $11.2 million and $9.0 million, respectively, subject to annual loss limitation limits, that expire beginning in 2033. A deferred tax asset is recognized for these carryforwards because the benefit is more likely than not to be realized.
FASB ASC 740, Income Taxes, (“ASC 740”) clarifies the accounting for income taxes by prescribing a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined in ASC 740 as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 was applied to all existing tax positions upon initial adoption. There was no liability for uncertain tax positions and no known unrecognized tax benefits at December 31, 2020 or 2019.