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INCOME TAXES | 12 Months Ended
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Dec. 31, 2019
Income Tax Disclosure [Abstract] |
INCOME TAXES | Note 15—INCOME TAXES Income tax expense for the years ended December 31, 2019, 2018 and 2017 consists of the following:
|  | Year ended December 31 |
(Dollars in thousands) |  | 2019 |  |  | 2018 |  |  | 2017 |
Current |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 2,299 |  |  | $ | 2,244 |  |  | $ | 1,665 |
State |  |  | 541 |  |  |  | 351 |  |  |  | 92 |
|  |  | 2,840 |  |  |  | 2,595 |  |  |  | 1,757 |
Deferred |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 18 |  |  |  | 99 |  |  |  | 1,573 |
State |  |  | — |  |  |  | — |  |  |  | — |
|  |  | 18 |  |  |  | 99 |  |  |  | 1,573 |
Income tax expense |  | $ | 2,858 |  |  | $ | 2,694 |  |  | $ | 3,330 |
Reconciliation from expected federal tax expense to effective income tax expense (benefit) for the periods indicated are as follows:
|  | Year ended December 31 |
(Dollars in thousands) |  | 2019 |  |  | 2018 |  |  | 2017 |
Expected federal income tax expense |  | $ | 2,904 |  |  | $ | 2,924 |  |  | $ | 3,109 |
State income tax net of federal benefit |  |  | 427 |  |  |  | 277 |  |  |  | 61 |
Tax exempt interest |  |  | (293 | ) |  |  | (353 | ) |  |  | (593 | )
Increase in cash surrender value life insurance |  |  | (144 | ) |  |  | (152 | ) |  |  | (212 | )
Valuation allowance |  |  | 52 |  |  |  | 68 |  |  |  | 216 |
Merger expenses |  |  | — |  |  |  | — |  |  |  | 92 |
Low income housing tax credits |  |  | — |  |  |  | — |  |  |  | (186 | )
Excess tax benefit of stock compensation |  |  | (56 | ) |  |  | (12 | ) |  |  | (197 | )
Deferred tax adjustment resulting from tax rate change |  |  | — |  |  |  | — |  |  |  | 1,247 |
Other |  |  | (32 | ) |  |  | (58 | ) |  |  | (207 | )
|  | $ | 2,858 |  |  | $ | 2,694 |  |  | $ | 3,330 |
The following is a summary of the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities:
|  | December 31, |
(Dollars in thousands) |  | 2019 |  |  | 2018 |
Assets: |  |  |  |  |  |  |  |
Allowance for loan losses |  | $ | 1,426 |  |  | $ | 1,353 |
Excess tax basis of deductible intangible assets |  |  | 261 |  |  |  | 391 |
Excess tax basis of assets acquired |  |  | — |  |  |  | 8 |
Net operating loss carry forward |  |  | 794 |  |  |  | 852 |
Unrealized loss on available-for-sale securities |  |  | — |  |  |  | 471 |
Compensation expense deferred for tax purposes |  |  | 1,054 |  |  |  | 1,015 |
Deferred loss on other-than-temporary-impairment charges |  |  | 5 |  |  |  | 5 |
Tax credit carry-forwards |  |  | 74 |  |  |  | 4 |
Other |  |  | 397 |  |  |  | 438 |
Total deferred tax asset |  |  | 4,011 |  |  |  | 4,537 |
Valuation reserve |  |  | 825 |  |  |  | 773 |
Total deferred tax asset net of valuation reserve |  |  | 3,186 |  |  |  | 3,764 |
Liabilities: |  |  |  |  |  |  |  |
Tax depreciation in excess of book depreciation |  |  | 303 |  |  |  | 310 |
Excess financial reporting basis of assets acquired |  |  | 1,057 |  |  |  | 1,139 |
Unrealized gain on available-for-sale securities |  |  | 811 |  |  |  | — |
Total deferred tax liabilities |  |  | 2,171 |  |  |  | 1,449 |
Net deferred tax asset recognized |  | $ | 1,015 |  |  | $ | 2,315 |
At December 31, 2019 the Company has approximately $18.3 million in State net operating losses. A valuation allowance is established to fully offset the deferred tax asset related to these net operating losses of the holding company. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Additional amounts of these deferred tax assets considered to be realizable could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced. The net deferred asset is included in other assets on the consolidated balance sheets. On December 22, 2017, the Tax Act was signed into law. The Tax Act reduced the corporate tax rate to 21% from 35%, effective for 2018, among other things. As a result of the change in tax rates, we revalued our deferred tax assets and liabilities to reflect realization at the lower rate effective December 22, 2017, the date the law was enacted. The impact of this adjustment was to increase our deferred tax expense by approximately $1.2 million for the year ended December 31, 2017. The lower tax rate decreased the overall tax rate in 2018. A portion of the change in the net deferred tax asset relates to unrealized gains and losses on securities available-for-sale. The change in the tax expense related to the change in unrealized losses on these securities of $1.3 million has been recorded directly to shareholders’ equity. The balance in the change in net deferred tax asset results from the current period deferred tax expense of $18 thousand. At December 31, 2019, the Company had a federal net operating loss carryforward in the amount of $331 thousand acquired in the Cornerstone transaction. There are statutory limitations on the amount that can be utilized in each year. It is anticipated that all of the net operating loss will be utilized prior to expiration. Tax returns for 2016 and subsequent years are subject to examination by taxing authorities. As of December 31, 2019, the Company had no material unrecognized tax benefits or accrued interest and penalties. It is the Company’s policy to account for interest and penalties accrued relative to unrecognized tax benefits as a component of income tax expense.

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- 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. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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