Note 12. Income Taxes

The provision for income taxes consists of the following for the years ended June 30, 2021 and 2020:

(In thousands)	2021			2020
Current expense:
Federal	$	5,171		$	3,621
State		568			434
Total current expense		5,739			4,055
Deferred benefit		(2,066	)		(1,026	)
Total provision for income taxes	$	3,673		$	3,029

The effective tax rate differs from the federal statutory rate as follows for the years ended June 30, 2021 and 2020:

	2021			2020
Tax based on federal statutory rate		21.00	%		21.00	%
State income taxes, net of federal benefit		0.20			0.54
Tax-exempt income		(6.34	)		(6.91	)
Captive insurance premium income		(1.22	)		(1.37	)
Other, net		(0.34	)		0.66
Total income tax expense		13.30	%		13.92	%

The components of the deferred tax assets and liabilities at June 30 were as follows:

(In thousands)	2021		2020
Deferred tax assets:
Allowance for loan losses	$	5,257	$	4,284
Pension benefits		138		337
Other benefit plans		3,584		2,995
Total deferred tax assets		8,979		7,616

Deferred tax liabilities:
Depreciation		998		958
Net loan costs		220		914
Real estate investment trust income		2,907		2,774
Unrealized gains on securities		192		673
Other		245		218
Total deferred tax liabilities		4,562		5,537
Net deferred tax asset included in prepaid expenses and other assets	$	4,417	$	2,079

Income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled.

Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of the evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

The Company accounts for uncertain tax positions if it is more likely than not, based on technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgments.

The Company recognizes interest and penalties on income taxes, if any, as a component of the provision for income taxes.

As of June 30, 2021 and 2020, the Company did not have any uncertain tax positions. The Company does not expect to have any changes in unrecognized tax benefits as a result of settlements with taxing authorities during the next twelve months. At June 30, 2021, The Bank of Greene County had an unrecaptured pre-1988 Federal bad debt reserve of approximately $1.8 million for which no Federal income tax provision has been made. A deferred tax liability has not been provided on this amount as management does not intend to redeem stock, make distributions or take other actions that would result in recapture of the reserve. As of June 30, 2021, tax years ended June 30, 2018 through June 30, 2020, remain open and are subject to Federal and New York State taxing authority examination.