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INCOME TAXES
12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES

Note 14—INCOME TAXES

Income tax expense for the years ended December 31, 2022, 2021 and 2020 consists of the following:

Schedule of Income Tax Expenses

             
   Year ended December 31 
(Dollars in thousands)  2022   2021   2020 
Current            
Federal  $3,429   $3,653   $2,758 
State   735    749    523 
Total Current   4,164    4,402    3,281 
Deferred               
Federal   (323)   (167)   (751)
State   (43)   (53)   (34)
Total Deferred   (366)   (220)   (785)
Income tax expense  $3,798   $4,182   $2,496 

 

Reconciliation from expected federal tax expense to effective income tax expense for the periods indicated are as follows:  

             
   Year ended December 31 
(Dollars in thousands)  2022   2021   2020 
Expected federal income tax expense  $3,866   $4,126   $2,645 
State income tax net of federal benefit   547    550    386 
Tax exempt interest   (404)   (396)   (316)
Increase in cash surrender value life insurance   (151)   (146)   (153)
Valuation allowance   27    32    32 
Life Insurance Proceeds           (65)
Excess tax benefit of stock compensation   (5)   (11)   (1)
Other   (82)   27    (32)
Total  $3,798   $4,182   $2,496 

The following is a summary of the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities:

   December 31, 
(Dollars in thousands)  2022   2021 
Assets:        
Allowance for loan losses  $2,464   $2,415 
Excess tax basis of deductible intangible assets   60    98 
Net operating loss carry forward   840    792 
Excess tax basis of assets acquired   18    28 
Unrealized losses on available-for-sale securities   5,169     
Unrealized losses on held-to-maturity securities   3,291     
Compensation expense deferred for tax purposes   1,348    1,221 
Deferred loss on other-than-temporary-impairment charges   5    5 
FASB 91 - Origination Income & Costs   405    296 
Tax credit carry-forwards       33 
Other Real Estate Owned   231    230 
Other   299    183 
Total deferred tax asset   14,130    5,301 
Valuation reserve   916    889 
Total deferred tax asset net of valuation reserve   13,214    4,412 
Liabilities:          
Tax depreciation in excess of book depreciation   619    612 
Excess financial reporting basis of assets acquired   938    969 
Unrealized gain on available-for-sale securities       1,021 
Total deferred tax liabilities   1,557    2,602 
Net deferred tax asset / (liability) recognized  $11,657   $1,810 

 

At December 31, 2022 the Company has approximately $21.3 million in State net operating losses. A valuation allowance is established to fully offset the deferred tax asset related to these net operating losses of the holding company. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Additional amounts of these deferred tax assets considered to be realizable could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced. The net deferred asset is included in other assets on the consolidated balance sheets.

 

A portion of the change in the net deferred tax asset relates to unrealized gains/losses on securities available-for-sale and held-to-maturity. The tax benefit related to the change of $9.5 million has been recorded directly to accumulated other comprehensive income within shareholders' equity. The balance in the change in net deferred tax asset results from the current period deferred tax benefit of $366 thousand. At December 31, 2022, the Company had no federal net operating loss carryforward.

Tax returns for 2019 and subsequent years are subject to examination by taxing authorities.

As of December 31, 2022, the Company had no material unrecognized tax benefits or accrued interest and penalties. It is the Company’s policy to account for interest and penalties accrued relative to unrecognized tax benefits as a component of income tax expense.