INCOME TAXES

12 Months Ended

Dec. 31, 2021

INCOME TAXES

INCOME TAXES

NOTE 9 — INCOME TAXES

The current and deferred components of the income tax expense consisted of the following:

(Dollars in thousands)

	2021		2020
Federal
Current	$	2,432	$	2,168
Deferred		(111)		(591)
Income tax expense	$	2,321	$	1,577

The following is a reconciliation between the income tax expense and the amount of income taxes which would have been provided at the statutory rate of 21%:

(Dollars in thousands)

	2021				2020
	Amount		Rate		Amount		Rate
Federal income tax at statutory rate	$	3,572	21.0	%	$	2,817	21.0	%
Tax-exempt income		(761)	(4.5)			(664)	(4.9)
Low-income housing credits		(405)	(2.4)			(405)	(3.0)
Bank owned life insurance income		(126)	(0.7)			(128)	(1.0)
Other		41	0.2			(43)	(0.3)
Income tax expense and rate	$	2,321	13.6	%	$	1,577	11.8	%

The components of the net deferred tax liability at December 31, 2021 and 2020 are as follows:

(Dollars in thousands)

	2021		2020
Deferred Tax Assets:
Allowance for loan losses	$	1,823	$	1,666
Provision for unfunded commitments		37		27
Deferred compensation		260		251
Contributions		8		—
Accrued rent expense		100		95
Operating lease liabilities		315		318
Finance lease liabilities		3		18
Limited partnership investments		283		252
Impairment loss on securities		4		4
Writedowns on OREO properties		—		2
Deferred health insurance		37		17
Capital and net operating loss carry forwards		438		88
Valuation allowance related to state net operating losses		(438)		(88)
Total		2,870		2,650
Deferred Tax Liabilities:
Net unrealized gains on debt securities available-for-sale		2,017		3,421
Loan fees and costs		164		171
Net unrealized gains on marketable equity securities		354		262
Operating lease right-of-use assets		315		318
Accumulated depreciation		300		307
Accretion		41		18
Mortgage servicing rights		53		42
Intangibles		257		257
Total		3,501		4,796
Net Deferred Tax Liability	$	(631)	$	(2,146)

A valuation allowance for deferred tax assets was recorded in the amount of $438,000 and $88,000 at December 31, 2021 and 2020, respectively. The valuation allowance relates to state net operating loss carryforwards for which realizability is uncertain. At December 31, 2021 and 2020, the Corporation had state net operating loss carryforwards, net of a valuation allowance, of $0, which are available to offset future state taxable income, and expire at various dates through 2041.

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. The ultimate realization of deferred tax assets is

dependent upon the generation of future taxable income during 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 on the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible and tax planning strategies, management believes it is more likely than not that the Corporation will realize the benefits of these deferred tax assets, net of any valuation allowance at December 31, 2021.

The Corporation did not have any uncertain tax positions at December 31, 2021 and 2020.

The Corporation and its subsidiary file a consolidated federal income tax return. The Corporation is no longer subject to examination by Federal or State taxing authorities for the years before 2018.