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Income Taxes

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

Note 11 – Income Taxes

Information as of December 31 and for the year follows:

(Dollars in thousands)
		2018				2017				2016
Provision for Income Taxes
Current federal income tax expense		$	946			$	2,325			$	2,244
Deferred federal income tax expense/(benefit)			209				62				(82	)
Income tax expense		$	1,155			$	2,387			$	2,162

Reconciliation of Income Tax Provision to Statutory Rate
Income tax computed at statutory federal rate of 21% in 2018 and 34% in 2017 and 2016		$	1,783			$	2,909			$	2,806
Tax exempt interest income			(309	)			(486	)			(496	)
Tax exempt earnings on bank-owned life insurance			(81	)			(135	)			(121	)
Low income housing tax credits			(154	)			(85	)			(45	)
Deferred tax adjustment related to reduction in U.S. federal statutory income income tax rate			—				206				—
Other items			(84	)			(22	)			18
Income tax expense		$	1,155			$	2,387			$	2,162

Effective income tax rate			14	%			28	%			26	%

(Dollars in thousands)

Components of Deferred Tax Assets and Liabilities		2018				2017
Deferred tax assets:
Allowance for loan losses		$	981			$	961
Unrealized losses on securities available for sale			233				—
Deferred compensation			102				125
Stock compensation			22				55
Loan costs/fees deferred			66				45
Other			72				123
Total deferred tax assets			1,476				1,309

Deferred tax liabilities:
Depreciation			797				644
Loan servicing rights			220				191
Unrealized gains on securities available for sale			—				35
Other			88				106
Total deferred tax liabilities			1,105				976
Net deferred tax asset		$	371			$	333

On December 22, 2017, H.R. 1, commonly known as the Tax Cuts and Jobs Act (the “Tax Act”), was signed into law. The Tax Act reduced the corporate income tax rate to 21% effective January 1, 2018 and changed certain other provisions. Accounting guidance required the Company to remeasure its deferred tax assets and liabilities as of the date of the Tax Act’s enactment using the new effective tax rate. The effect of the remeasurement is recognized in income tax expense in the year of enactment. The Company recorded $206,000 in additional income tax expense in 2017 as a result of the remeasurement of its net deferred tax asset.

Concurrent with the enactment of the Tax Act, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB 118”), which allows companies to recognize the cumulative impact of the income tax effects triggered by the enactment of the Tax Act over a period of up to twelve months in the reporting period in which the adjustment is identified. The Company applied SAB 118 and continued to refine measurement of its deferred tax asset balance during the preparation of its 2017 tax return and review of additional information throughout 2018. No significant adjustments were made to the preliminary calculations.