Federal Income Taxes

12 Months Ended

Dec. 31, 2019

Note 10 – Federal Income Taxes

The Tax Cuts and Jobs Act was enacted on December 22, 2017. Among other things, the new law (i) establishes a new, flat corporate federal statutory income tax rate of 21%, (ii) eliminates the corporate alternative minimum tax and allows the use of any such carryforwards to offset regular tax liability for any taxable year, (iii) limits the deduction for net interest expense incurred by U.S. corporations, (iv) allows businesses to immediately expense, for tax purposes, the cost of new investments in certain qualified depreciable assets, (v) eliminates or reduces certain deductions related to meals and entertainment expenses, (vi) modifies the limitation on excessive employee remuneration to eliminate the exception for performance-based compensation and clarifies the definition of a covered employee and (vii) limits the deductibility of deposit insurance premiums. The Tax Cuts and Jobs Act also significantly changes U.S. tax law related to foreign operations, however, such changes do not currently impact us.

As stated above, as a result of the enactment of the Tax Cuts and Jobs Act on December 22, 2017, we remeasured our deferred tax assets and liabilities based upon the newly enacted U.S. statutory federal income tax rate of 21%, which is the tax rate at which these assets and liabilities are expected to reverse in the future. We recognized a net tax benefit related to the remeasurement of our deferred tax assets and liabilities totaling $8 thousand in 2017.

The components of income tax expense (benefit) for the years ended December 31 are as follows:

	(In Thousands)
	2019		2018		2017
Current:
Federal	$	4,005	$	2,755	$	5,162
Deferred:
Federal		227		472		29
Federal - impact of enacted changes in tax law		-		-		(8	)
	$	4,232	$	3,227	$	5,183

The following is a reconciliation of the statutory federal income tax rate to the effective tax rate:

	(In Thousands)
	2019			2018			2017
Income tax at statutory rates	$	4,753		$	3,758		$	6,045
Decrease resulting from:
Tax exempt interest		(170	)		(220	)		(413	)
Adjustment of deferred taxes for enacted changes in tax law		-			-			(8	)
Section 831 deduction		(268	)		(236	)		(318	)
Change in other		(83	)		(75	)		(123	)
	$	4,232		$	3,227		$	5,183

Deferred tax assets and liabilities at December 31 are comprised of the following:

	(In Thousands)
	2019			2018
Deferred Tax Assets:
Allowance for loan losses	$	1,612		$	1,444
Other		540			505
Net unrealized loss on available-for-sale securities		292			802
Total deferred tax assets		2,444			2,751
Deferred Tax Liabilities:
Accreted discounts on bonds		43			29
FHLB stock dividends		491			462
Mortgage servicing rights		586			508
Other		2,678			1,751
Total deferred tax liabilities		3,798			2,750
Net Deferred Tax Asset (Liability)	$	(1,354	)	$	1