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Note 12 - Income Taxes

12 Months Ended

Dec. 31, 2020

(12) INCOME TAXES

The Company and its corporate subsidiaries file consolidated tax returns. The components of consolidated income tax expense for the years ended December 31, 2020, 2019 and 2018 were as follows:

(In thousands)	2020			2019		2018

Current	$	1,771		$	1,505	$	1,789
Deferred		(79	)		482		(395	)

Totals	$	1,692		$	1,987	$	1,394

The reconciliation of income tax expense with the amount which would have been provided at the federal statutory rate of 21% for the years ended December 31, 2020, 2019, and 2018 follows:

(In thousands)	2020			2019			2018

Provision at federal statutory tax rate	$	2,486		$	2,588		$	2,239
State income tax-net of federal tax benefit		85			121			100
Tax-exempt interest income		(476	)		(379	)		(328	)
Bank-owned life insurance income		(44	)		(44	)		(67	)
Captive insurance net premiums		(200	)		(209	)		(195	)
Investment in tax credit entities		(117	)		(114	)		(272	)
Other		(42	)		24			(83	)
Totals	$	1,692		$	1,987		$	1,394

Effective tax rate		14.3	%		16.1	%		13.1	%

Significant components of the deferred tax assets and liabilities as of December 31, 2020 and 2019 were as follows:

(In thousands)	2020			2019

Deferred tax assets (liabilities):
Deferred compensation plans	$	95		$	101
Allowance for loan losses		1,544			1,122
Unrealized loss on equity securities		87			42
Restricted stock		57			48
Interest on nonaccrual loans		161			185
Other		11			21
Deferred tax assets		1,955			1,519

Unrealized gain on securities available for sale		(1,971	)		(601	)
Depreciation		(994	)		(691	)
Deferred loan fees and costs		(247	)		(247	)
FHLB stock dividends		(37	)		(35	)
Prepaid expenses		(346	)		(276	)
Acquisition purchase accounting adjustments		(400	)		(419	)
Other		(9	)		(8	)
Deferred tax liabilities		(4,004	)		(2,277	)

Net deferred tax liability	$	(2,049	)	$	(758	)

At December 31, 2020 and 2019, the Company had no liability for unrecognized income tax benefits related to uncertain tax positions and does not anticipate any increase in the liability for unrecognized tax benefits during the next twelve months. The Company believes that its income tax positions would be sustained upon examination and does not anticipate any adjustments that would result in a material change to its financial position or results of operations. The Company files consolidated U.S. federal income tax returns and Indiana state income tax returns. Returns filed in these jurisdictions for tax years ended on or after December 31, 2017 are subject to examination by the relevant taxing authorities. Each entity included in the consolidated federal and Indiana state income tax returns filed by the Company are charged or given credit for the applicable tax as though separate returns were filed.

Retained earnings of the Bank at December 31, 2020 and 2019 include approximately $909,000 for which no deferred federal income tax liability has been recognized. This amount represents an allocation of income to bad debt deductions as of December 31, 1987 for tax purposes only. Reduction of such allocated amounts for purposes other than tax bad debt losses, including redemption of bank stock, excess dividends or loss of “bank” status, would create income for tax purposes only, subject to the then-current corporate income tax rate. The unrecorded deferred liability on these amounts was approximately $191,000 at December 31, 2020 and 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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