Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of income tax expense for the years ended December 31, were calculated using the asset and liability method as follows:

(Dollars in thousands)	2020		2019		2018
Current expense:
Federal	$	11,305	$	7,728	$	6,485
State	4,542		3,028		2,835
Total current expense	15,847		10,756		9,320
Deferred benefit:
Federal	(3,940)		(339)		(392)
State	(1,735)		(36)		(112)
Total deferred benefit	(5,675)		(375)		(504)
Total income tax expense	$	10,172	$	10,381	$	8,816

The provision for income taxes differs from the amount computed by applying the statutory U.S. federal income tax rate of 21% for 2020, 2019, and 2018 to income before taxes as follows: 

(Dollars in thousands)	2020			2019			2018
Computed income tax expense at statutory rate	$	8,742		$	9,362		$	7,916
State income taxes, net of federal tax benefit	2,218			2,364			2,151
Tax-exempt income, net of disallowance	(865)			(894)			(1,034)
Bank-owned life insurance income, net	(123)			(134)			(141)
Tax expense (benefit) from stock compensation	25			(137)			(302)
Other	175			(180)			226
Total income tax expense	$	10,172		$	10,381		$	8,816
Effective income tax rate	24.4		%	23.3		%	23.4		%

At December 31, the tax effects of each type of income and expense item that give rise to deferred taxes are as follows: 

(Dollars in thousands)	2020		2019
Deferred tax asset:
Allowance for loan losses	$	12,415	$	9,383
Depreciation	2,174		2,355
Supplemental employee retirement plans	717		695
Non-accrual interest	610		793
Stock-based compensation expense	662		573
Lease liability	4,886		5,054
Cashflow hedge swap	791		—
Deferred fees on PPP loans	2,808		—
Other	343		334
Total	25,406		19,187
Deferred tax liability:
Goodwill	1,576		1,579
Net unrealized gains on equity securities	31		37
Net unrealized gains on debt securities	6,896		2,988
Deferred origination costs	645		725
Lease ROU asset	4,886		5,054
Other	82		72
Total	14,116		10,455
Net deferred tax asset	$	11,290	$	8,732

Deferred income taxes are recognized based on the expected future tax consequences of differences between the financial statement and tax basis of assets and liabilities, calculated using currently enacted tax rates. Management records net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making this determination, we consider all available positive and negative evidence, including recent financial operations and projected future taxable income. Management believes based upon positive historical and expected future earnings that it is more likely than not the Company will generate sufficient taxable income to realize the deferred tax asset existing at December 31, 2020. However, factors beyond management's control, such as the general state of the economy, can

affect future levels of taxable income and there can be no assurances that sufficient taxable income will be generated to fully realize the deferred tax assets in the future. 

The Company paid total income taxes in 2020, 2019, and 2018 of $17.7 million, $10.6 million, and $8.7 million, respectively.

The Company did not have any unrecognized tax benefits accrued as income tax liabilities or receivables or as deferred tax items at December 31, 2020 or December 31, 2019.

The Company invests in qualified affordable housing projects as a limited partner. In 2020, 2019 and 2018, the Company recognized $71 thousand of Federal Low Income Housing tax credits per year. The Company anticipates that it will receive additional tax credits related to the Federal Low Income Housing Tax Credit program in the amount of $107 thousand which are expected to be realized over the next 2 years.