Note 15 - Income Taxes

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE 15.  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 2020 through 2023, 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, 2023, 2022 and 2021, are as follows:

Dollars in thousands	2023			2022		2021
Current
Federal	$	13,432		$	12,222	$	10,189
State		2,034			1,654		1,210
		15,466			13,876		11,399
Deferred
Federal		(265	)		191		231
State		(38	)		27		33
		(303	)		218		264
Total	$	15,163		$	14,094	$	11,663

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, 2023, 2022 and 2021 is as follows:

	2023						2022						2021
Dollars in thousands	Amount			Percent			Amount			Percent			Amount			Percent
Computed tax at applicable statutory rate	$	14,784			21		$	14,135			21		$	12,054			21
Increase (decrease) in taxes resulting from:
Tax-exempt interest and dividends, net		(1,216	)		(2	)		(1,005	)		(2	)		(829	)		(1	)
Low-income housing and rehabilitation tax credits		(200	)		—			(214	)		—			(206	)		—
State income taxes, net of Federal income tax benefit		1,577			2			1,328			2			982			2
Other, net		218			—			(150	)		—			(338	)		(1	)
Applicable income taxes	$	15,163			21		$	14,094			21		$	11,663			21

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, 2023 and 2022, are as follows:

Dollars in thousands	2023		2022
Deferred tax assets
Allowance for credit losses	$	13,400	$	11,003
Foreclosed properties		504		789
Deferred compensation		5,156		4,830
Other deferred costs and accrued expenses		1,343		1,096
Lease liability		2,141		—
Net unrealized loss on debt securities available for sale		9,224		11,968
Net unrealized loss on equity investments		49		17
Acquisition accounting adjustments and goodwill		434		—
Total		32,251		29,703
Deferred tax liabilities
Depreciation		627		726
Accretion on tax-exempt securities		73		8
Right of use asset		2,088		—
Net unrealized gain on interest rate swaps		6,811		8,299
Other post-retirement benefits		52		46
Acquisition accounting adjustments and goodwill		—		2,944
Total		9,651		12,023
Net deferred tax assets	$	22,600	$	17,680

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, 2020 through 2022.