Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Allocation of federal and state income taxes between current and deferred portions is as follows:

	Years Ended December 31,
	2020		2019
Current
Federal	$	6,412	$	4,234
State	839		2,179
	7,251		6,413
Deferred
Federal	(2,018)		(547)
State	(739)		(201)
	(2,757)		(748)
Income tax expense	$	4,494	$	5,665

The reasons for the differences between the statutory federal income tax rate and the effective tax rates are summarized as follows:

	2020				2019
	Amount		Percent of Pre-Tax Income		Amount		Percent of Pre-Tax Income
Expected income tax expense at federal tax rate	$	4,332	21.00	%	$	4,397	21.00	%
State taxes net of federal benefit	1,071		5.19	%	1,745		8.33	%
Nondeductible expenses	85		0.41	%	103		0.49	%
Nontaxable income	(396)		(1.91	%)	(277)		(1.31	%)
Income tax apportionment adjustment	(743)		(3.60)	%	—		—	%
Other	145		0.70	%	(303)		(1.45	%)
	$	4,494	21.79	%	$	5,665	27.06	%

Income tax expense for 2019 was impacted by 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 net deferred tax assets in the accompanying balance sheets include the following components:

	2020		2019
Deferred tax assets
Allowance for loan losses	$	5,018	$	3,011
Deferred compensation	3,218		3,239
Lease liability	2,090		2,338
OREO valuation allowance & expenses	718		457
Depreciation	158		50
Deferred fees	283		—
Other	287		189
	11,772		9,284
Deferred tax liabilities
Fair value adjustments for acquired assets and liabilities	111		115
FHLB stock dividends	102		109
Unrealized gain on investment securities	1,627		585
Right of use asset	2,023		2,307
	3,863		3,116
	$	7,909	$	6,168

Retained earnings at December 31, 2020 and 2019 included approximately $1.2 million of bad debt deductions allowed for federal income tax purposes (the “base year tax reserve”) for which no deferred income tax has been recognized. If, in the future, this portion of retained earnings is used for any purpose other than to absorb bad debt losses, it would create income for tax purposes only and income taxes would be imposed at the then prevailing rates. The unrecorded income tax liability on the above amount was approximately $0.3 million at December 31, 2020 and 2019.

The Company does not have uncertain tax positions that are deemed material and did not recognize any adjustments for unrecognized tax benefits. The Company’s policy is to recognize interest and penalties on income taxes as a component of tax expense. The Company is no longer subject to U.S. Federal tax examinations by tax authorities for years before 2017.