Income Taxes

12 Months Ended

Dec. 31, 2022

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,
	2022		2021
Current
Federal	$	7,933	$	5,500
State	2,077		2,065
	10,010		7,565
Deferred
Federal	(274)		949
State	(152)		202
	(426)		1,151
Income tax expense	$	9,584	$	8,716

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

	2022				2021
	Amount		Percent of Pre-Tax Income		Amount		Percent of Pre-Tax Income
Expected income tax expense at federal tax rate	$	7,959	21.00	%	$	7,267	21.00	%
State taxes net of federal benefit	1,645		4.34	%	1,631		4.71	%
Nondeductible expenses	262		0.69	%	71		0.21	%
Nontaxable income	(437)		(1.15	%)	(411)		(1.19	%)
Other	155		0.41	%	158		0.46	%
	$	9,584	25.29	%	$	8,716	25.19	%

The net deferred tax assets in the accompanying balance sheets include the following components:

	2022		2021
Deferred tax assets
Allowance for credit losses	$	5,657	$	4,758
Deferred compensation	3,426		3,509
Lease liability	1,533		1,639
OREO valuation allowance & expenses	20		92
Unrealized loss on investment securities	15,321		684
Depreciation	277		159
Deferred fees	—		—
Other	54		—
	26,288		10,841
Deferred tax liabilities
Fair value adjustments for acquired assets and liabilities	70		92
FHLB stock dividends	98		102
Unrealized gain on investment securities	—		—
Right of use asset	1,463		1,582
Other	—		32
	1,631		1,808
	$	24,657	$	9,033

Retained earnings at December 31, 2022 and 2021 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, 2022 and 2021.

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 2019.