Income Taxes

12 Months Ended

Dec. 31, 2020

Income Taxes [Abstract]

Income Taxes

18. Income Taxes

The provision for income taxes consists of the following for the years ended December 31, 2020 and 2019:

(In thousands)	2020		2019
Current Tax expense:
Federal	$	1,957	$	1,547
State		1,463		836
	$	3,420	$	2,383
Deferred tax expense:
Federal	$	772	$	818
State		(245)		135
	$	527	$	953
Income tax expense for the year	$	3,947	$	3,336

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The reconciliation between the statutory federal income tax rate and effective income tax rate for the years ended December 31, 2020 and 2019 is as follows:

	2020		2019
Federal statutory rate		21.0%		21.0%
Tax-exempt income on securities and loans		(1.3)		(1.4)
Tax-exempt BOLI income		(1.5)		(2.9)
State income tax, net of federal tax benefit		5.1		4.8
Tax credits		(1.2)		(1.5)
Other		0.1		0.3
		22.2%		20.3%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Corporation’s temporary differences as of December 31, 2020 and 2019 are as follows:

(In thousands)	2020		2019
Deferred tax assets:
Allowance for loan losses	$	4,417	$	3,357
Deferred fees		490		193
Deferred compensation		1,019		852
Federal and state tax loss carry forwards		2,743		2,617
Tax credit carry forwards		—		1,853
Unrealized loss on investment securities		1,089		1,336
Pension/SERP		3,141		2,412
Lease liability		569		840
Low income housing tax credit		647		490
Other than temporary impairment on investment securities		643		655
Derivative contract		353		36
Other real estate owned		271		479
Other		115		158
Total deferred tax assets		15,497		15,278
Valuation allowance		(2,743)		(2,617)
Total deferred tax assets less valuation allowance		12,754		12,661
Deferred tax liabilities:
Goodwill		(2,805)		(2,805)
Lease right-of-use asset		(545)		(720)
Depreciation		(1,380)		(1,528)
Other		(52)		(167)
Total deferred tax liabilities		(4,782)		(5,220)
Net deferred tax assets	$	7,972	$	7,441

In assessing the ability to realize 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 the deferred tax assets is dependent upon the generation of future taxable income of the appropriate character (for example, ordinary income or capital gain) within the carry-back or carry-forward period available under the tax law during the periods in which temporary differences are deductible. The Corporation has considered future market growth, forecasted earnings, future taxable income, and feasible and permissible tax planning strategies in determining whether it will be able to realize the deferred tax asset. If the Corporation were to determine that it will not be able to realize a portion of its net deferred tax asset in the future for which there is currently no valuation allowance, an adjustment to the net deferred tax asset would be charged to earnings in the period such determination was made. Conversely, if the Corporation were to make a determination that it is more likely than not that the deferred tax assets for which there is a valuation allowance will be realized, the related valuation allowance would be reduced and a benefit would be recorded.

At December 31, 2020, the Corporation had Maryland net operating losses (“NOLs”) of $40.4 million for which a deferred tax asset of $2.7 million has been recorded. There has been and continues to be a full valuation allowance on these NOLs based on management’s belief that it is more likely than not that these NOLs will not be realized prior to the expiration of their carry-forward periods because the Corporation will not generate sufficient taxable income in the future to fully utilize the NOLs. The valuation allowance was $2.7 million at December 31, 2020 and $2.6 million at December 31, 2019.