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Note 11 - Income Taxes

12 Months Ended

Dec. 31, 2020

Note 11 – Income Taxes

Information as of December 31 and for the year follows:

(Dollars in thousands)
	2020			2019			2018
Provision for Income Taxes
Current federal income tax expense	$	3,070		$	984		$	946
Deferred federal income tax expense/(benefit)		202			310			209
Income tax expense	$	3,272		$	1,294		$	1,155

Reconciliation of Income Tax Provision to Statutory Rate
Income tax computed at statutory federal rate of 21%	$	3,966		$	1,778		$	1,783
Tax exempt interest income		(574	)		(320	)		(309	)
Tax exempt earnings on bank-owned life insurance		(162	)		(162	)		(81	)
Tax credits		(240	)		(218	)		(154	)
Nondeductible merger expenses		182			164			-
Other items		100			52			(84	)
Income tax expense	$	3,272		$	1,294		$	1,155

Effective income tax rate		17	%		15	%		14	%

(Dollars in thousands)

Components of Deferred Tax Assets and Liabilities	2020			2019
Deferred tax assets:
Purchase accounting adjustments from mergers with County
and Community Shores	$	1,953		$	1,129
Allowance for loan losses		1,595			585
Net operating loss carryforward		851			-
Deferred loan fees		466			301
Write-downs of other real estate owned		326			169
Other		380			198
Total deferred tax assets		5,571			2,382

Deferred tax liabilities:
Unrealized gains on securities available for sale		2,931			360
Purchase accounting adjustments from mergers with County
and Community Shores		1,403			1,285
Loan servicing rights		833			447
Depreciation		653			778
Interest rate lock commitments		177			14
Other		230			221
Total deferred tax liabilities		6,227			3,105
Net deferred tax liability	$	(656	)	$	(723	)

As of December 31, 2020, deferred tax assets included federal net operating loss carryforwards of approximately $4.1 million which was acquired through the merger with Community Shores. The loss carryforwards expire at various dates from 2032 to 2036. Deferred tax assets are recognized for net operating losses because the benefit is more likely than not to be realized. Under Internal Revenue Service limitations, ChoiceOne is limited to applying approximately $185,000 of net operating losses per year.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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