Income Taxes

12 Months Ended

Dec. 31, 2020

NOTE 9 — INCOME TAXES

The components of income tax expense are as follows for the years ended December 31, 2020 and 2019:



(In thousands)	2020		2019
Current tax expense (benefit):
Federal	$	4,906	$	3,477
State		1,928		1,392
Net operating loss carryforward		(7)		(9)
		6,827		4,860
Deferred tax benefit:
Federal		(1,525)		(724)
State		(677)		(325)
		(2,202)		(1,049)
Income tax expense	$	4,625	$	3,811

The following is a summary of the differences between the statutory federal income tax rate and the effective tax rates for the years ended December 31, 2020 and 2019:




	2020		2019
Federal income tax at statutory rate	21.0	%	21.0	%
Increase (decrease) in tax resulting from:
State tax, net of federal tax benefit	6.0		5.8
Tax exempt income and dividends received deduction	(0.4)		(0.6)
Other	1.2		(0.1)
Effective tax rate	27.8	%	26.1	%

The following is a summary of the Company’s gross deferred tax assets and gross deferred tax liabilities at December 31, 2020 and 2019:




(In thousands)	2020		2019
Deferred tax assets:
Allowance for loan losses	$	5,132	$	3,837
Depreciation		—		71
Net operating loss carryforward		—		7
Employee benefit plans and share-based compensation plans		2,849		2,707
Deferred loan fees, net		1,174		613
Write down of other assets and receivables		111		—
Reserve for unfunded commitments		37		31
Net unrealized loss on securities		—		—
Other		344		164
Gross deferred tax assets		9,647		7,430
Deferred tax liabilities:
Depreciation		(5)		—
Prepaid expenses		(60)		(43)
FHLB restructure fees		—		(8)
Net unrealized holding gain on securities		(342)		(137)
Gross deferred tax liabilities		(407)		(188)
Net deferred tax asset	$	9,240	$	7,242

The Company reduces the deferred tax asset by a valuation allowance if, based on the weight of the available evidence, it is not “more likely than not” that some portion or all of the deferred tax assets will be realized. The Company assesses the realizability of its deferred tax assets by assessing the likelihood of the Company generating federal and state income tax, as applicable, in future periods in amounts sufficient to offset the deferred tax charges in the periods they are expected to reverse. Based on this assessment, management concluded that a valuation allowance was not required as of December 31, 2020 or 2019.

It is the Company’s policy to provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. At December 31, 2020 and 2019, there was no material uncertain tax positions related to federal and state income tax matters. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service and state taxing authorities for the years ended December 31, 2017 through December 31, 2019.

- 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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