Income Taxes

12 Months Ended

Dec. 31, 2019

NOTE 12: INCOME TAXES

For the years ended December 31, 2019 and 2018 the components of income tax expense from continuing operations are presented below.

				Year ended December 31
(Dollars in thousands)			2019		2018
Current income tax expense:
	Federal		$	1,939		1,685
	State			584		431
		Total current income tax expense		2,523		2,116
Deferred income tax (benefit) expense:
	Federal			(136)		56
	State			(17)		15
		Total deferred income tax (benefit) expense		(153)		71

	Total income tax expense		$	2,370		2,187

Total income tax expense differs from the amounts computed by applying the statutory federal income tax rate of 21% to earnings before income taxes. A reconciliation of the differences for the years ended December 31, 2019 and 2018, is presented below.

				2019			2018
					Percent of			Percent of
					pre-tax			pre-tax
(Dollars in thousands)				Amount	earnings		Amount	earnings
Earnings before income taxes			$	12,111			11,021

Income taxes at statutory rate				2,543	21.0	%	2,315	21.0	%
	Tax-exempt interest			(508)	(4.1)		(515)	(4.7)
	State income taxes, net of
		federal tax effect		440	3.6		361	3.3
	Bank-owned life insurance			(92)	(0.8)		(92)	(0.8)
	Other			(13)	(0.1)		118	1.0

Total income tax expense			$	2,370	19.6	%	2,187	19.8	%

The Company had a net deferred tax liability of $9 thousand included in other liabilities and a net deferred tax asset of $1.8 million included in other assets on the consolidated balance sheets at December 31, 2019 and 2018, respectively. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2019 and 2018 are presented below:

				December 31
(Dollars in thousands)			2019		2018
Deferred tax assets:
	Allowance for loan losses		$	1,102		1,203
	Unrealized loss on securities			—		1,262
	Accrued bonus			296		8
	Right of use liability			198		—
	Other			88		127
		Total deferred tax assets		1,684		2,600

Deferred tax liabilities:
	Premises and equipment			315		280
	Unrealized gain on securities			690		—
	Originated mortgage servicing rights			326		362
	Right of use asset			197		—
	Other			165		168
		Total deferred tax liabilities		1,693		810

		Net deferred tax (liability) asset	$	(9)		1,790

A valuation allowance is recognized for a deferred tax asset if, based on the weight of available evidence, it is more-likely-than-not that some portion of the entire deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projection for future taxable income over the periods which the temporary differences resulting in the remaining deferred tax assets are deductible, management believes it is more-likely-than-not that the Company will realize the benefits of these deductible differences at December 31, 2019. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced.

The change in the net deferred tax asset for the years ended December 31, 2019 and 2018, is presented below.

		Year ended December 31
(Dollars in thousands)	2019		2018
Net deferred tax (liability) asset:
Balance, beginning of year	$	1,790		789
Deferred tax benefit (expense) related to continuing operations		153		(71)
Stockholders' equity, for accumulated other comprehensive (income) loss		(1,952)		1,072
Balance, end of year	$	(9)		1,790

ASC 740, Income Taxes, defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authority. This section also provides guidance on the de-recognition, measurement, and classification of income tax uncertainties in interim periods. As of December 31, 2019, the Company had no unrecognized tax benefits related to federal or state income tax matters. The Company does not anticipate any material increase or decrease in unrecognized tax benefits during 2020 relative to any tax positions taken prior to December 31, 2019. As of December 31, 2019, the Company has accrued no interest and no penalties related to uncertain tax positions. It is the Company’s policy to recognize interest and penalties related to income tax matters in income tax expense.

The Company and its subsidiaries file consolidated U.S. federal and State of Alabama income tax returns. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service and the State of Alabama for the years ended December 31, 2016 through 2019.