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INCOME TAXES
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
INCOME TAXES

Note 14—INCOME TAXES

Income tax expense for the years ended December 31, 2021, 2020 and 2019 consists of the following:

             
   Year ended December 31 
(Dollars in thousands)  2021   2020   2019 
Current            
Federal   $3,653   $2,724   $2,299 
State    749    523    541 
    4,402    3,247    2,840 
Deferred               
Federal    (167)   (751)   18 
State    (53)   (34)   — 
    (220)   (785)   18 
Income tax expense   $4,182   $2,496   $2,858 

 

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)  2021   2020   2019 
Expected federal income tax expense   $4,126   $2,645   $2,904 
State income tax net of federal benefit    550    386    427 
Tax exempt interest    (396)   (316)   (293)
Increase in cash surrender value life insurance    (146)   (153)   (144)
Valuation allowance    32    32    52 
Life Insurance Proceeds   —    (65)   — 
Excess tax benefit of stock compensation    (11)   (1)   (56)
Other    27    (32)   (32)
Income tax expense  $4,182   $2,496   $2,858 

 

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)  2021   2020 
Assets:        
Allowance for loan losses   $2,415   $2,235 
Excess tax basis of deductible intangible assets    98    130 
Excess tax basis of assets acquired    28    57 
Net operating loss carry forward    792    757 
Compensation expense deferred for tax purposes    1,221    1,125 
Deferred loss on other-than-temporary-impairment charges    5    5 
FASB 91 - Origination Income & Costs   296    253 
Tax credit carry-forwards    33    33 
Other Real Estate Owned   230    229 
Other    183    163 
Total deferred tax asset    5,301    4,987 
Valuation reserve    889    857 
Total deferred tax asset net of valuation reserve    4,412    4,130 
Liabilities:          
Tax depreciation in excess of book depreciation    612    514 
Excess financial reporting basis of assets acquired    969    1,005 
Unrealized gain on available-for-sale securities    1,021    3,149 
Total deferred tax liabilities    2,602    4,668 
Net deferred tax asset / (liability) recognized   $1,810   $(538)

 

At December 31, 2021 the Company has approximately $20.1 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 on securities available-for-sale. The tax benefit related to the change in unrealized gain on these securities of $2.1 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 $220 thousand. At December 31, 2021, the Company had no federal net operating loss carryforward.

Tax returns for 2018 and subsequent years are subject to examination by taxing authorities.

As of December 31, 2021, 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.