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INCOME TAXES

12 Months Ended

Dec. 31, 2020

14. INCOME TAXES

The net deferred tax asset at December 31, 2020 and 2019 represents the following temporary difference components:


	December 31,		December 31,
(In Thousands)	2020		2019
Deferred tax assets:
Allowance for loan losses	$	2,154	$	2,080
Purchase accounting adjustments on loans		1,930		640
Net operating loss carryforward		896		0
Operating leases liability		724		344
Other deferred tax assets		3,089		2,173
Total deferred tax assets		8,793		5,237

Deferred tax liabilities:
Unrealized holding gains on securities		3,104		934
Defined benefit plans - ASC 835		32		49
Bank premises and equipment		1,216		763
Core deposit intangibles		840		272
Right-of-use assets from operating leases		724		344
Other deferred tax liabilities		172		257
Total deferred tax liabilities		6,088		2,619
Deferred tax asset, net	$	2,705	$	2,618

The provision for income taxes includes the following:


(In Thousands)	2020		2019
Currently payable	$	4,230	$	3,618
Tax expense resulting from allocations of certain tax benefits to equity or as a reduction in other assets		121		115
Deferred		(361)		172
Total provision	$	3,990	$	3,905

A reconciliation of income tax at the statutory rate to the Corporation’s effective rate is as follows:


	2020			2019
(Dollars In Thousands)	Amount		%	Amount		%
Expected provision	$	4,875	21.0	$	4,916	21.0
Tax-exempt interest income		(808)	(3.5)		(853)	(3.6)
Increase in cash surrender value and other income from life insurance, net		(170)	(0.7)		(91)	(0.4)
ESOP Dividends		(110)	(0.5)		(113)	(0.5)
State income tax, net of Federal benefit		172	0.7		122	0.5
Other, net		31	0.1		(76)	(0.3)
Effective income tax provision	$	3,990	17.2	$	3,905	16.7

In connection with the Covenant merger, the Corporation received a net operating loss (“NOL”) available to be carried forward against future federal taxable income of $4.6 million. Availability of the NOL does not expire; however, the amount that may be offset against taxable income is limited to approximately $563,000 per year and further limited annually to no more than 80% of taxable income without regard to the NOL. At December 31, 2020, the unused amount of the NOL is $4.3 million.

The Corporation has no unrecognized tax benefits, nor pending examination issues related to tax positions taken in preparation of its income tax returns. With limited exceptions, the Corporation is no longer subject to examination by the Internal Revenue Service for years prior to 2017.

- 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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