Income Tax

3 Months Ended

Mar. 31, 2020

A reconciliation of the income tax expense at the statutory rate to the Company’s actual income tax expense is shown below:


	Three months ended
	March 31,
	2020		2019
	(Dollars in thousands)
Computed at the statutory rate (21%)	$	872	$	2,051
Increase (decrease) resulting from
Tax-exempt income	(790)		(713)
Nondeductible expenses	64		73
State tax credit	—		(1,361)
State income taxes	142		441
Equity based compensation	26		(55)
Other adjustments	(21)		(17)
Actual tax expense	$	293	$	419

The tax effects of temporary differences related to deferred taxes shown on the consolidated Balance Sheets are presented below:



	March 31, 2020		December 31, 2019
	(Dollars in thousands)
Deferred tax assets

Allowance for loan losses	$	12,597	$	13,928
Lease incentive	287		294
Impairment of available-for-sale securities	—		493

Loan fees	2,134		2,317
Net operating loss carryover	650		339
Accrued expenses	801		2,131
Deferred compensation	2,088		2,444

State tax credit	3,288		3,287
Other	420		81
Total deferred tax asset	22,265		25,314
Deferred tax liability
Fair market value adjustments - trust preferred securities	(346)		(348)
Net unrealized gain on securities available-for-sale	(7,327)		(5,339)
FHLB stock basis	(1,068)		(996)
Premises and equipment	(3,462)		(3,620)
Other	(1,148)		(1,229)
Total deferred tax liability	(13,351)		(11,532)
Net deferred tax asset	$	8,914	$	13,782

CARES Act

The CARES Act, which was enacted on March 27, 2020 in the U.S., includes many measures to assist companies, including temporary changes to income and non-income-based tax laws. Some of the key tax-related provisions of the bill include:

•Allowing NOLs originating in 2018, 2019 or 2020 to be carried back five years; and

•Increasing the net interest expense deduction limit to 50% of adjusted taxable income from 30% for tax years beginning January 1, 2019 and 2020.

•The Company plans to carry back a portion of any net operating loss incurred during 2020 to offset income during the prior year.