INCOME TAXES

12 Months Ended

Dec. 31, 2021

INCOME TAXES

INCOME TAXES

NOTE 17 – INCOME TAXES

Effective October 11, 2019, the Company voluntarily revoked its S Corporation status and became a taxable entity (C Corporation). As such, any periods prior to October 11, 2019 will only reflect an effective state income tax rate. In connection with the conversion of tax status, the Company recognized a deferred tax asset of $534,000 and an income tax benefit of $534,000.

In recording the impact of the conversion to a C Corporation, the Company recorded a deferred income tax expense of $2,741,000 related to the unrealized gains (losses) on debt securities and derivatives, through the income statement in accordance with ASC 740-20-45-8; therefore, the amount shown in other comprehensive income has not been reduced by the above expense. This difference will remain in accumulated other comprehensive income until the underlying securities are sold or mature and the underlying cash flow hedging relationships terminate in accordance with the portfolio approach allowed under ASC 740.

Allocation of income tax expense between current and deferred portions for the years ended December 31 is as follows:

	Year Ended December 31,
	2021		2020		2019
	(dollars in thousands)
Current
Federal	$	11,330	$	8,358	$	4,849
State		6,053		4,709		3,102
Total current		17,383		13,067		7,951
Deferred
Federal		1,945		(226)		(1,437)
State		963		(113)		(724)
Change in tax status		—		—		(534)
Total deferred		2,908		(339)		(2,695)
Income tax expense	$	20,291	$	12,728	$	5,256

Income tax expense differs from the statutory federal rate for the years ended December 31 due to the following:

	Year Ended December 31,
	2021				2020				2019
	Amount		Percentage		Amount		Percentage		Amount		Percentage
	(dollars in thousands)
Federal income tax, at statutory rate	$	16,078	21.0	%	$	10,410	21.0	%	$	3,933	5.5	%
Increase (decrease) resulting from:
Federally tax exempt interest income		(1,426)	(1.9)			(1,470)	(3.0)			(372)	(0.5)
State taxes, net of federal benefit		5,430	7.1			3,631	7.4			2,212	3.1
Change in tax status		—	—			—	—			(534)	(0.8)
Other		209	0.3			157	0.3			17	—
Income tax expense	$	20,291	26.5	%	$	12,728	25.7	%	$	5,256	7.3	%

The components of the deferred tax assets and liabilities are as follows:

	December 31, 2021		December 31, 2020
	(dollars in thousands)
Deferred tax assets
Allowance for loan losses	$	6,756	$	9,046
Compensation related		2,314		2,301
Deferred loan fees		1,059		1,595
Nonaccrual interest		489		660
Foreclosed assets		43		45
Goodwill		316		336
Net unrealized losses on debt securities		304		—
Other		853		1,011
Total deferred tax assets		12,134		14,994
Deferred tax liabilities
Fixed asset depreciation		4,188		4,361
Mortgage servicing rights		2,262		1,692
Other purchase accounting adjustments		776		1,115
Intangible assets		374		580
Prepaid assets		664		685
Net unrealized gains on debt securities		—		6,569
Other		505		370
Total deferred tax liabilities		8,769		15,372
Net deferred tax asset (liability)	$	3,365	$	(378)