INCOME TAXES

3 Months Ended

Mar. 31, 2020

INCOME TAXES

The Company files a consolidated federal income tax return with its subsidiaries. Deferred tax assets and liabilities are determined using the liability (or balance sheet) method which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. If it is more likely than not that some portion or the entire deferred tax asset will not be realized, deferred tax assets will be reduced by a valuation allowance. It is the Company’s policy to recognize accrued interest and penalties related to unrecognized tax benefits as a component of tax expense.


(dollars in thousands)	Three Months Ended March 31,
				2020			2019
Current income tax expense	$	739		$	1,377
Deferred income tax expense (benefit)	(796)			(61)
Income tax (benefit) expense as reported	$	(57)		$	1,316

Effective tax rate	(2.1)		%	25.3		%

Net deferred tax assets totaled $6.4 million at March 31, 2020 and $6.2 million at December 31, 2019. No valuation allowance for deferred tax assets was recorded at March 31, 2020 as management believes it is more likely than not that deferred tax assets will be realized against deferred tax liabilities and projected future taxable income.

The decrease in income tax expense for the three months ended March 31, 2020 was primarily due to a change in the Company's state tax apportionment approach which was implemented during the first quarter of 2020 and included the impact of amended income tax filings of the Company and Bank. Management determined the change in tax position qualified as a change in estimate under FASB ASC Section 250.

The effective income tax rates differed from the statutory federal and state income tax rates during 2020 primarily due to an adjustment of $743,000 related to state apportionment of interest income on loans. The Company’s consolidated effective tax rate is expected to be between 25.40% and 26.06% in 2020. In addition, the effective income tax rates differed from the statutory federal and state income tax rates due to the effect of tax-exempt loans, life insurance policies, the income tax effects associated with stock-based compensation and certain non-deductible expenses for state income taxes.

The effective tax rate differed from the statutory federal and state income rates during 2019 primarily due to the effect of tax-exempt loans, life insurance policies, the income tax effects associated with stock-based compensation and certain non-deductible expenses for state income taxes.