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INCOME TAXES
 12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
INCOME TAXES

Note 15—INCOME TAXES

Income tax expense for the years ended December 31, 2020, 2019 and 2018 consists of the following:

    Year ended December 31  
(Dollars in thousands)   2020     2019     2018  
Current                        
Federal   $ 2,724     $ 2,299     $ 2,244  
State     523       541       351  
Total     3,247       2,840       2,595  
Deferred                        
Federal    

(751

 )      18       99  
State    

(34

 )      —       —  
Total    

(785

 )      18       99  
Income tax expense   $ 2,496     $ 2,858     $ 2,694  

 

Reconciliation from expected federal tax expense to effective income tax expense for the periods indicated are as follows:

  

    Year ended December 31  
(Dollars in thousands)   2020     2019     2018  
Expected federal income tax expense   $ 2,645     $ 2,904     $ 2,924  
State income tax net of federal benefit    

386

       427       277  
Tax exempt interest     (316 )     (293 )     (353 )
Increase in cash surrender value life insurance     (153 )     (144 )     (152 )
Valuation allowance    

32

       52       68  
Life Insurance Proceeds    

(65

 )      —       —  
Excess tax benefit of stock compensation     (1 )     (56 )     (12 )
Other     (32 )     (32 )     (58 )
Income tax expense   $ 2,496     $ 2,858     $ 2,694  

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)   2020     2019  
Assets:                
Allowance for loan losses   $

2,235

     $ 1,426  
Excess tax basis of deductible intangible assets    

130

       261  
Excess tax basis of assets acquired    

57

       —  
Net operating loss carry forward    

757

       794  
Compensation expense deferred for tax purposes     1,125       1,054  
Deferred loss on other-than-temporary-impairment charges     5       5  
Tax credit carry-forwards    

33

       74  
Other    

645

       397  
Total deferred tax asset     4,987       4,011  
Valuation reserve    

857

       825  
Total deferred tax asset net of valuation reserve     4,130       3,186  
Liabilities:                
Tax depreciation in excess of book depreciation    

514

       303  
Excess financial reporting basis of assets acquired     1,005       1,057  
Unrealized gain on available-for-sale securities    

3,149

       811  
Total deferred tax liabilities    

4,668

       2,171  
Net deferred tax asset / (liability) recognized   $

(538

 )    $ 1,015  

At December 31, 2020 the Company has approximately $19.2 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.

 

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 gains on these securities of $2.3 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 benefit of $785 thousand. At December 31, 2020, the Company had no federal net operating loss carryforward.

Tax returns for 2017 and subsequent years are subject to examination by taxing authorities.

As of December 31, 2020, 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.