INCOME TAXES

12 Months Ended

Dec. 31, 2020

For the years ended December 31, 2020, 2019 and 2018, income tax expense attributable to income from operations consisted of the following (in thousands):


	2020		2019		2018
Current expense:
Federal	$	4,413	$	4,603	$	1,732
State	280		395		124
Total current	4,693		4,998		1,856
Deferred expense/(benefit):
Federal	(136)		(1,126)		2,253
State	50		(438)		345
Remeasurement of deferred tax assets	—		—		(445)
Total deferred	(86)		(1,564)		2,153
Income tax expense	$	4,607	$	3,434	$	4,009

Income tax expense differed from the amounts computed by applying the U.S. Federal statutory income tax rate to income before income tax expense as follows (in thousands):


	2020			2019			2018
Statutory federal tax rate	21		%	21		%	21		%
Tax computed at statutory rate	$	5,013		$	3,999		$	4,963
Increase (reduction) resulting from:
Tax-exempt income	(395)			(424)			(430)
831(b) premium adjustment	(296)			(189)			(167)
Dividend exclusion	(5)			(7)			(7)
State taxes, net of Federal impact	118			(86)			262
Nondeductible interest expense	5			9			7
Remeasurement of deferred tax assets	—			—			(445)
Other items, net	167			132			(174)
Income tax expense	$	4,607		$	3,434		$	4,009
Effective tax rate	19.3		%	18.0		%	17.0		%

The higher tax expense in 2020 when compared to 2019 can be attributed to an increase in pretax income. The lower tax expense in 2019 when compared to 2018 can be attributed to a decrease in pretax income.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2020 and 2019, are presented below (in thousands):


	2020		2019
Deferred tax assets:
Allowance for loan losses	$	5,393	$	6,046
Accrual for employee benefit plans	47		92
Depreciation	681		379
Deferred compensation and directors' fees	1,045		765
Operating lease liabilities	1,831		2,050

Purchase accounting adjustment – loans	1		1
Purchase accounting adjustment – fixed assets	149		149
Gain on deemed sale of securities	54		71

Accounting for defined benefit pension and other benefit plans	2,302		2,448

Nonaccrued interest	687		695
Accrued expense	158		179
Other items, net	48		38
Total gross deferred tax assets	12,396		12,913

Deferred tax liabilities:
Deferred loan fees and costs	274		592
Prepaid pension	3,344		3,189
Net unrealized gains on securities available for sale	3,124		468
Discount accretion	50		24
Core deposit intangible	1,353		1,213
REIT dividend	616		922
Operating lease right-of-use assets	1,831		2,050
Other	168		103
Total gross deferred tax liabilities	10,760		8,561
Net deferred tax asset	$	1,636	$	4,352

Realization of deferred tax assets is dependent upon the generation of future taxable income. A valuation allowance is recognized when it is more likely than not that some portion of the deferred tax assets will not be realized. In assessing the need for a valuation allowance, management considers the scheduled reversal of the deferred tax assets, the level of historical taxable income and projected future taxable income over the periods in which the temporary differences comprising the deferred tax assets will be deductible. Based on its assessment, management determined that no valuation allowance is necessary.

As of December 31, 2020, 2019 and 2018, the Corporation did not have any unrecognized tax benefits.

The Corporation accounts for interest and penalties related to uncertain tax positions as part of its provision for Federal and State income taxes. As of December 31, 2020, 2019 and 2018, the Corporation did not accrue any interest or penalties related to its uncertain tax positions.

The Corporation is not currently subject to examinations by Federal taxing authorities for the years prior to 2017 and for New York State taxing authorities for the year prior to 2017.