Income Taxes

12 Months Ended

Dec. 31, 2020

Note 16 - Income Taxes

The components of income tax expense are summarized as follows:



		Years Ended December 31,
		2020		2019
		(In Thousands)
Current income tax expense:
Federal	$	6,407	$	4,761
State		4,172		3,268
		10,579		8,029
Deferred income tax (benefit) expense:
Federal		(1,122)		935
State		(891)		345
		(2,013)		1,280
Total Income Tax Expense	$	8,566	$	9,309

Note 16 - Income Taxes (continued)

The tax effects of existing temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities are as follows:



		December 31,
		2020		2019
Deferred income tax assets:		(In Thousands)
Allowance for loan losses	$	8,884	$	6,374
Other real estate owned expenses		9		-
Non-accrual interest		755		762
Depreciation		181		391
Benefit plan-accumulated other comprehensive loss		884		685
Valuation adjustment on loans receivable acquired		1,810		2,379
Unrealized loss on securities available for sale		-		162
Net operating loss carry forwards		1,455		1,551
Lease liability		4,352		3,880
Other		997		697
		19,327		16,881
Deferred income tax liabilities:
Valuation adjustment on premises and equipment acquired		145		479
Right-of-use assets		4,284		3,841
Unrealized gain on securities		1,088		-
SBA servicing asset		688		805
Benefit plans		548		576
		6,753		5,701
Net Deferred Tax Asset	$	12,574	$	11,180

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. In making this assessment, management has considered the profitability of current core operations, future market growth, forecasted earnings, future taxable income, and ongoing, feasible and permissible tax planning strategies. If the Company was to determine that it would not be able to realize a portion of its net deferred tax asset in the future for which there is currently no valuation allowance, an adjustment to the net deferred tax asset would be charged to earnings in the period such determination was made. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible and carry forwards are available.

In conjunction with the Company’s acquisition of IA Bancorp in 2018, the Company acquired a federal net operating loss carry forward of $8.7 million. This carry forward is available for use through 2035; however, in accordance with Internal Revenue Code Section 382, usage of the carry forward is limited to $459,000 annually on a cumulative basis (portions of the $459,000 not used in a particular year may be added to subsequent usage). At December 31, 2020 and 2019, the Company had approximately $6.9 million and $7.4 million remaining of this federal net operating loss carry forward available to offset future taxable income for federal tax reporting purposes.

The following table presents a reconciliation between the reported income tax expense and the income tax expense which would be computed by applying the normal federal income tax rate of 21 percent to income before income tax expense.



		Years Ended December 31,
		2020			2019
		(In Thousands)
Federal income tax expense at statutory rate	$	6,179		$	6,372
Increases in income taxes resulting from:
State income tax , net of federal income tax effect		2,592			2,854
Tax-exempt income		(99)			(102)
Meals and entertainment		110			203
Bank-owned life insurance earnings		(217)			-
Other items, net		1			(18)
Effective Income Tax Expense	$	8,566		$	9,309
Effective Income Tax Rate		29.1	%		30.7	%