Note 11 – Income Taxes

Information as of December 31 and for the year follows:

(Dollars in thousands)
	2019			2018			2017
Provision for Income Taxes
Current federal income tax expense	$	984		$	946		$	2,325
Deferred federal income tax expense/(benefit)		310			209			62
Income tax expense	$	1,294		$	1,155		$	2,387

Reconciliation of Income Tax Provision to Statutory Rate
Income tax computed at statutory federal rate of 21% in 2019 and 2018 and 34% in 2017	$	1,778		$	1,783		$	2,909
Tax exempt interest income		(320	)		(309	)		(486	)
Tax exempt earnings on bank-owned life insurance		(162	)		(81	)		(135	)
Tax credits		(218	)		(154	)		(85	)
Deferred tax adjustment related to reduction in U.S. federal statutory income income tax rate		—			—			206
Nondeductible merger expenses		164			—			—
Other items		52			(84	)		(22	)
Income tax expense	$	1,294		$	1,155		$	2,387

Effective income tax rate		15	%		14	%		28	%

(Dollars in thousands)

Components of Deferred Tax Assets and Liabilities	2019			2018
Deferred tax assets:
Purchase accounting adjustments from merger with County	$	1,129		$	—
Allowance for loan losses		585			981
Alternative minimum tax credit carryforward		301			—
Unrealized losses on securities available for sale		—			233
Deferred compensation		169			102
Other		198			160
Total deferred tax assets		2,382			1,476

Deferred tax liabilities:
Purchase accounting adjustments from merger with County		1,285			—
Depreciation		778			797
Loan servicing rights		447			220
Unrealized gains on securities available for sale		360			—
Other		235			88
Total deferred tax liabilities		3,105			1,105
Net deferred tax (liability) asset	$	(723	)	$	371

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.