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INCOME TAXES
 12 Months Ended
Dec. 31, 2020
INCOME TAXES [Abstract]  
INCOME TAXES
12. INCOME TAXES


The provision for income taxes consists of the following (in thousands):

  
Year Ended December 31,
  
   
2020
    
2019
    
2018
  
Currently payable
  
$
4,896
    
$
3,503
    
$
3,838
  
Deferred tax liability (asset)
    
367
      
317
      
(435
)
Provision for income taxes
  
$
5,263
    
$
3,820
    
$
3,403
  


The following temporary differences gave rise to the net deferred tax asset and liabilities at December 31, 2020 and 2019, respectively (in thousands):

  
2020
    
2019
  
Deferred tax assets:
            
Allowance for loan losses
  
$
5,135
    
$
3,470
  
Deferred compensation
    
520
      
500
  
Merger & acquisition costs
    
2
      
-
  
Allowance for losses on available-for-sale securities
    
15
      
-
  
Pension and other retirement obligation
    
599
      
368
  
Unrealized loss on interest rate swap
    
2
      
-
  
Interest on non-accrual loans
    
778
      
726
  
Incentive plan accruals
    
489
      
418
  
Other real estate owned
    
16
      
-
  
Low income housing tax credits
    
131
      
135
  
NOL carry forward
    
1,321
      
83
  
Lease liability
    
482
      
-
  
Accrued vacation
    
187
      
-
  
Other
    
224
      
146
  
Total
  
$
9,901
    
$
5,846
  
                 
Deferred tax liabilities:
                
Premises and equipment
  
$
(612
)
  
$
(662
)
Investment securities accretion
    
(68
)
    
(70
)
Loan fees and costs
    
(333
)
    
(238
)
Goodwill and core deposit intangibles
    
(2,293
)
    
(2,248
)
Mortgage servicing rights
    
(215
)
    
(134
)
Unrealized gains on available-for-sale securities
    
(1,612
)
    
(630
)
Right of use asset
    
(480
)
    
-
  
Other
    
(245
)
    
(1
)
Total
    
(5,858
)
    
(3,983
)
Deferred tax asset, net
  
$
4,043
    
$
1,863
  


No valuation allowance was established at December 31, 2020 and 2019, due to the Company’s ability to carryback to taxes paid in previous years and certain tax strategies, coupled with the anticipated future taxable income as evidenced by the Company’s earnings potential.


The total provision for income taxes is different from that computed at the statutory rates due to the following items (dollars in thousands):

  
Year Ended December 31,
  
   
2020
    
2019
    
2018
  
Provision at statutory rates on pre-tax income
  
$
6,377
    
$
4,895
    
$
4,502
  
Effect of tax-exempt income
    
(936
)
    
(920
)
    
(955
)
Low income housing tax credits
    
(141
)
    
(141
)
    
(141
)
Bank owned life insurance
    
(146
)
    
(131
)
    
(131
)
Nondeductible interest
    
44
      
52
      
41
  
Nondeductible merger and acquisition expenses
    
32
      
38
      
-
  
Other items
    
33
      
27
      
87
  
Provision for income taxes
  
$
5,263
    
$
3,820
    
$
3,403
  
Statutory tax rates
    
21
%
    
21
%
    
21
%
Effective tax rates
    
17.3
%
    
16.4
%
    
15.9
%


The Company prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. With limited exception, the Company’s federal and state income tax returns for taxable years through 2016 have been closed for purposes of examination by the federal and state taxing authorities.

Investments in Qualified Affordable Housing Projects


As of December 31, 2020 and 2019, the Company was invested in four partnerships that provide affordable housing. The balance of the investments, which is included within other assets in the Consolidated Balance Sheet, was $216,000 and $325,000 as of December 31, 2020 and 2019, respectively. Investments purchased prior to January 1, 2015, are accounted for utilizing the effective yield method. As of December 31, 2020, the Company has $282,000 of tax credits remaining that will be recognized over two years. Tax credits of $141,000 were recognized as a reduction of tax expense during 2020, 2019 and 2018. Included within other expenses on the Consolidated Statement of Income was $108,000 of amortization of the investments in qualified affordable housing projects for 2020, 2019 and 2018, respectively.