Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Income taxes, computed on the separate return basis with the benefit of filing a consolidated return being recorded at the holding company, include Federal and state income taxes and are based on pretax net income reported in the consolidated financial statements, adjusted for transactions that may never enter into the computation of income taxes payable (permanent differences).  Deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.  Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.  Valuation allowances are established, when deemed necessary, to reduce deferred tax assets to the amount expected to be realized.

A tax position that meets a "probable recognition threshold" for the benefit of the uncertain tax position is recognized in the financial statements. A tax position that fails to meet the probable recognition threshold will result in either reduction of a current or deferred tax asset or receivable, or recording a current or deferred tax liability.  We concluded that there were no significant uncertain tax positions requiring recognition in the consolidated financial statements.  The evaluation was performed for the years ended 2017 through 2020, the tax years which remain subject to examination by major tax jurisdictions.

The components of applicable income tax expense(benefit) for the years ended December 31, 2020, 2019 and 2018, are as follows:

Dollars in thousands	2020		2019		2018
Current
Federal	$	10,189	$	6,676	$	6,400
State	1,440		938		973
	11,629		7,614		7,373
Deferred
Federal	(3,673)		88		(304)
State	(528)		15		(45)
	(4,201)		103		(349)
Total	$	7,428	$	7,717	$	7,024

Reconciliation between the amount of reported income tax expense and the amount computed by multiplying the statutory income tax rates by book pretax income for the years ended December 31, 2020, 2019 and 2018 is as follows:

	2020			2019			2018
Dollars in thousands	Amount		Percent	Amount		Percent	Amount		Percent
Computed tax at applicable statutory rate	$	8,138	21	$	8,313	21	$	7,370	21
Increase (decrease) in taxes
resulting from:
Tax-exempt interest
and dividends, net	(788)		(2)	(728)		(2)	(1,011)		(3)
Non-deductible merger-related expenses	29		—	—		—	—		—
Low-income housing and rehabilitation tax credits	(248)		(1)	(177)		—	(286)		(1)
State income taxes, net
of Federal income tax benefit	720		2	753		2	734		2
Other, net	(423)		(1)	(444)		(1)	217		1
Applicable income taxes	$	7,428	19	$	7,717	20	$	7,024	20

Deferred income taxes reflect the impact of "temporary differences" between amounts of assets and liabilities for financial reporting purposes and such amounts as measured for tax purposes.  Deferred tax assets and liabilities represent the future tax return consequences of temporary differences, which will either be taxable or deductible when the related assets and liabilities are recovered or settled.   

The tax effects of temporary differences, which give rise to our deferred tax assets and liabilities as of December 31, 2020 and 2019, are as follows:

Dollars in thousands	2020		2019
Deferred tax assets
Allowance for credit losses	$	8,553	$	3,017
Depreciation	—		29
Foreclosed properties	2,703		2,659
Deferred compensation	4,384		3,296
Other deferred costs and accrued expenses	1,053		534
Net unrealized loss on derivative financial instruments	357		163
Total	17,050		9,698
Deferred tax liabilities
Depreciation	288		—
Accretion on tax-exempt securities	19		62
Net unrealized gain on debt securities available for sale	2,153		994
Other post-retirement benefits	—		15
Acquisition accounting adjustments and goodwill	2,241		2,099
Total	4,701		3,170
Net deferred tax assets	$	12,349	$	6,528

We may from time to time be assessed interest or penalties associated with tax liabilities by major tax jurisdictions, although any such assessments are estimated to be minimal and immaterial.  To the extent we have received an assessment for interest and/or penalties; it has been classified in the consolidated statements of income as a component of other noninterest expense.

We are currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended December 31, 2017 through 2019.  Tax years 2018 through 2019 remain subject to West Virginia State examination.