Income Taxes

12 Months Ended

Dec. 31, 2020

Income Taxes [Abstract]

Income Taxes

13. INCOME TAXES

The components of income tax (benefit) expense for the two years ended December 31 were:

(Dollars in thousands)	Years Ended December 31,
	2020		2019
Current tax expense	$	105	$	768
Deferred tax benefit		(155)		(782)
Total tax benefit	$	(50)	$	(14)

Federal credits are available for ten years for Juniata’s investment in two low income housing projects. Tax credits associated with phase I will continue through 2023, while phase II credits will run through 2027. The tax credits are included in the tax expense line item on the Consolidated Statements of Income. Amortization of the investments using the cost method is scheduled to occur over the same period as tax credits are earned. Juniata’s maximum exposure to loss is limited to the carrying value of the investment at year-end.

The total tax benefit during the year ended December 31, 2020 was $50,000 compared to a total tax benefit of $14,000 during the year ended December 31, 2019. In 2020, the Company was able to take advantage of a provision in the CARES Act, allowing the carryback of net operating losses (“NOLs”) from a prior period. Prior to the enactment of the CARES Act, Juniata had been carrying a deferred tax asset for an NOL that arose from a previous bank acquisition, which qualified for the new carryback rules and was able to carry back to years in which the statutory tax rate was 34%, as opposed to the current 21%. The reversal of a portion of the deferred tax asset carried for this NOL, at an amount in excess of its carrying amount, was recorded as a $57,000 credit to income tax expense during 2020.

A reconciliation of the statutory income tax (benefit) expense computed at 21% to the income tax expense included in the consolidated statements of income follows:

(Dollars in thousands)	Years Ended December 31,
	2020			2019
Income before income taxes	$	5,552		$	5,821
Statutory tax rate		21	%		21	%
Federal tax at statutory rate		1,166			1,222
Tax-exempt interest		(205)			(261)
Net earnings on BOLI		(45)			(49)
Stock-based compensation		(4)			(12)
Federal tax credits		(902)			(902)
CARES Act Loss Carryback		(57)			—
Other permanent differences		(3)			(12)
Total tax benefit	$	(50)		$	(14)
Effective tax rate		(0.9)	%		(0.2)	%

Deductible temporary differences and taxable temporary differences gave rise to a net deferred tax asset for the Company as of December 31, 2020 and 2019. The components giving rise to the net deferred tax asset are detailed below:

(Dollars in thousands)	Years Ended December 31,
	2020		2019
Deferred Tax Assets:
Allowance for loan losses	$	887	$	634
Deferred directors’ compensation		333		337
Employee and director benefits		279		288
Stock-based compensation		50		40
Investment in low income housing project		299		211
Fair value adjustments to acquired assets and liabilities		220		251
Tax credit carryforward		173		191
Net operating loss carryforward		—		29
Lease liability		82		98
Unrealized loss on derivatives		12		—
Total deferred tax assets		2,335		2,079
Deferred Tax Liabilities:
Depreciation		(227)		(197)
Right of use asset		(80)		(97)
Loan origination fees and costs		(463)		(418)
Prepaid expenses		(20)		(52)
Unrealized gains on debt securities available for sale		(947)		(136)
Unrealized gain from securities impairment		(44)		(54)
Annuity earnings		(64)		(60)
Fair value of mortgage servicing rights		(33)		(38)
Intangible assets		(47)		(56)
Goodwill		(411)		(382)
Other		(53)		—
Total deferred tax liabilities		(2,389)		(1,490)
Net deferred tax (liability) asset included in (other liabilities) other assets	$	(54)	$	589

The Company has concluded that the deferred tax assets are realizable (on a more likely than not basis) through the combination of future reversals of existing taxable temporary differences, certain tax planning strategies and expected future taxable income.

It is the Company’s policy to recognize interest and penalties on unrecognized tax benefits in income tax expense in the Consolidated Statements of Income. No significant income tax uncertainties were identified because of the Company’s evaluation of its income tax position. Therefore, the Company recognized no adjustment for unrecognized income tax benefits for the years ended December 31, 2020 and 2019. The Company is no longer subject to examination by taxing authorities for years before 2017. Tax years 2017 through the present, with limited exception, remain open to examination.