Income Taxes

12 Months Ended

Dec. 31, 2021

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,
	2021		2020
Current
Federal	$	5,500	$	6,412
State	2,065		839
	7,565		7,251
Deferred
Federal	949		(2,018)
State	202		(739)
	1,151		(2,757)
Income tax expense	$	8,716	$	4,494

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

	2021				2020
	Amount		Percent of Pre-Tax Income		Amount		Percent of Pre-Tax Income
Expected income tax expense at federal tax rate	$	7,267	21.00	%	$	4,332	21.00	%
State taxes net of federal benefit	1,631		4.71	%	1,071		5.19	%
Nondeductible expenses	71		0.21	%	85		0.41	%
Nontaxable income	(411)		(1.19	%)	(396)		(1.91	%)
Income tax apportionment adjustment	—		0.00	%	(743)		(3.60)	%
Other	158		0.46	%	145		0.70	%
	$	8,716	25.19	%	$	4,494	21.79	%

Income tax expense for 2020 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 effect of three years 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:

	2021		2020
Deferred tax assets
Allowance for loan losses	$	4,758	$	5,018
Deferred compensation	3,509		3,218
Lease liability	1,639		2,090
OREO valuation allowance & expenses	92		718
Unrealized loss on investment securities	684		—
Depreciation	159		158
Deferred fees	—		283
Other	—		287
	10,841		11,772
Deferred tax liabilities
Fair value adjustments for acquired assets and liabilities	92		111
FHLB stock dividends	102		102
Unrealized gain on investment securities	—		1,627
Right of use asset	1,582		2,023
Other	32		—
	1,808		3,863
	$	9,033	$	7,909

Retained earnings at December 31, 2021 and 2020 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, 2021 and 2020.

The Company does not have uncertain tax positions that are deemed material and did not recognize any adjustments for unrecognized tax benefits. The Company is no longer subject to U.S. Federal tax examinations by tax authorities for years before 2018.