Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of the provision for income taxes for the years ended December 31, were as follows:

	2020		2019
	(Dollars in thousands)
Current federal tax provision	$	3,134	$	1,351
Current state tax provision	62		41
Deferred tax (benefit) provision	(777)		438
	$	2,419	$	1,830

The total provision for income taxes differs from the amounts computed at the statutory federal income tax rate of 21% primarily due to the following for the years ended December 31:

	2020		2019
	(Dollars in thousands)
Computed “expected” tax expense	$	3,197	$	2,620
State taxes	49		32
Tax exempt interest	(555)		(513)
Increase in cash surrender value of COLI	(67)		(59)
Tax credits	(1,013)		(857)
Equity in losses of limited partnerships	788		640
Non-deductible expenses	44		46
Other	(24)		(79)
	$	2,419	$	1,830

Listed below are the significant components of the net deferred tax liability at December 31:

	2020		2019
	(Dollars in thousands)
Components of the deferred tax asset
Bad debts	$	1,798	$	1,329
Deferred compensation	300		227
Loans held for sale	271		32
Core deposit intangible	119		106
Other	55		37
Total deferred tax asset	2,543		1,731
Components of the deferred tax liability
Depreciation	(1,254)		(1,402)
Mortgage servicing rights	(490)		(371)
Limited partnership investments	(86)		(50)
Unrealized gain on investment securities available-for-sale	(701)		(262)
Goodwill	(309)		(276)
Prepaid expenses	(132)		(136)
Total deferred tax liability	(2,972)		(2,497)
Net deferred tax liability	$	(429)	$	(766)

Deferred tax assets are recognized subject to management's judgment that it is more likely than not that the deferred tax asset will be realized. Based on the temporary taxable items, historical taxable income and estimates of future taxable income, the Company believes that it is more likely than not that the deferred tax assets at December 31, 2020 will be realized and therefore no valuation allowance is warranted.

The net deferred income tax liability is included in Accrued interest and other liabilities in the consolidated balance sheets at December 31, 2020 and 2019.

Based on management's evaluation, management has concluded that there were no significant uncertain tax positions requiring recognition in the Company's financial statements at December 31, 2020 and 2019. The Company is subject to income tax at the federal level and in the state of New Hampshire. Although the Company is not currently the subject of an examination by taxing authorities, the Company's tax years ended December 31, 2017 through 2019 are open to examination under the applicable statute of limitations. The 2020 tax return has not yet been filed.

The Company may from time to time be assessed interest and/or penalties by federal or state tax jurisdictions, although any such assessments historically have been minimal and immaterial to the Company's financial results. In the event that the Company receives an assessment for interest and/or penalties, it will be classified in the financial statements as Other expenses.