Income Taxes

12 Months Ended

Dec. 31, 2021

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 2018 through 2021, 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, 2021, 2020 and 2019, are as follows:

Dollars in thousands	2021		2020		2019
Current
Federal	$	10,189	$	10,189	$	6,676
State	1,210		1,440		938
	11,399		11,629		7,614
Deferred
Federal	231		(3,673)		88
State	33		(528)		15
	264		(4,201)		103
Total	$	11,663	$	7,428	$	7,717

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, 2021, 2020 and 2019 is as follows:

	2021			2020			2019
Dollars in thousands	Amount		Percent	Amount		Percent	Amount		Percent
Computed tax at applicable statutory rate	$	12,054	21	$	8,138	21	$	8,313	21
Increase (decrease) in taxes resulting from:
Tax-exempt interest
and dividends, net	(829)		(1)	(788)		(2)	(728)		(2)
Low-income housing and rehabilitation tax credits	(206)		—	(248)		(1)	(177)		—
State income taxes, net
of Federal income tax benefit	982		2	720		2	753		2
Other, net	(338)		(1)	(394)		(1)	(444)		(1)
Applicable income taxes	$	11,663	21	$	7,428	19	$	7,717	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, 2021 and 2020, are as follows:

Dollars in thousands	2021		2020
Deferred tax assets
Allowance for credit losses	$	9,497	$	8,553
Foreclosed properties	2,089		2,703
Deferred compensation	4,803		4,384
Other deferred costs and accrued expenses	970		1,053
Net unrealized loss on derivative financial instruments	—		357
Total	17,359		17,050
Deferred tax liabilities
Depreciation	630		288
Accretion on tax-exempt securities	9		19
Net unrealized gain on debt securities available for sale	590		2,153
Net unrealized gain on interest rate swaps	1,136		—
Other post-retirement benefits	12		—
Acquisition accounting adjustments and goodwill	2,440		2,241
Total	4,817		4,701
Net deferred tax assets	$	12,542	$	12,349

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, 2018 through 2020.  Tax years 2019 through 2020 remain subject to West Virginia State examination.