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Income Taxes | 12 Months Ended
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Dec. 31, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The components of income tax expense for the years ended December 31, 2020, 2019, and 2018 are as follows:
($ in thousands) | 2020 |  | 2019 |  | 2018
Current | - Federal | $ | 27,799 |  |  | 19,920 |  |  | 19,188 |
| - State | 3,909 |  |  | 2,499 |  |  | 3,187 |
Deferred | - Federal | (8,893) |  |  | 1,572 |  |  | 1,658 |
| - State | (1,161) |  |  | 239 |  |  | 156 |
Total | $ | 21,654 |  |  | 24,230 |  |  | 24,189 |
The sources and tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) at December 31, 2020 and 2019 are presented below:
($ in thousands) | 2020 |  | 2019
Deferred tax assets: |  |  |
Allowance for loan losses | $ | 12,031 |  |  | 4,916 |
Excess book over tax pension plan cost | 367 |  |  | 241 |
Deferred compensation | 257 |  |  | 293 |
Federal & state net operating loss and tax credit carryforwards | 282 |  |  | 376 |
Accruals, book versus tax | 3,232 |  |  | 2,833 |
Pension liability adjustments | 418 |  |  | 710 |
Foreclosed real estate | 123 |  |  | 87 |
Basis differences in assets acquired in FDIC transactions | 647 |  |  | 416 |
Equity compensation | 661 |  |  | 370 |
Partnership investments | 258 |  |  | 254 |
Leases | 120 |  |  | — |
SBA servicing asset | 358 |  |  | 400 |
All other | 3 |  |  | 3 |
Gross deferred tax assets | 18,757 |  |  | 10,899 |
Less: Valuation allowance | (14) |  |  | (40) |
Net deferred tax assets | 18,743 |  |  | 10,859 |
Deferred tax liabilities: |  |  |
Loan fees | (1,011) |  |  | (2,428) |
Depreciable basis of fixed assets | (4,809) |  |  | (4,995) |
Amortizable basis of intangible assets | (7,965) |  |  | (7,844) |
FHLB stock dividends | (236) |  |  | (472) |
Trust preferred securities | (473) |  |  | (548) |
Purchase accounting adjustments | — |  |  | (84) |
Unrealized gain on securities available for sale | (4,699) |  |  | (2,239) |
Gross deferred tax liabilities | (19,193) |  |  | (18,610) |
Net deferred tax liability - included in other liabilities | $ | (450) |  |  | (7,751) |
A portion of the annual change in the net deferred tax asset relates to unrealized gains and losses on securities available for sale. The related 2020 and 2019 deferred tax expense (benefit) of approximately $2,460,000 and $5,135,000 respectively, has been recorded directly to shareholders’ equity. Additionally, a portion of the annual change in the net deferred tax asset relates to pension adjustments. The related 2020 and 2019 deferred tax expense (benefit) of $292,000 and $42,000 respectively, has been recorded directly to shareholders’ equity. The balance of the 2020 increase in the net deferred tax liability of $10,054,000 is reflected as deferred income tax expense, and the balance of the 2019 increase in the net deferred tax liability of $1,811,000 is reflected as deferred income tax expense in the consolidated statement of income. The valuation allowances for 2020 and 2019 relate primarily to state net operating loss carryforwards. It is management’s belief that the realization of the remaining net deferred tax assets is more likely than not. The Company adjusted its net deferred income tax asset as a result of reductions in the North Carolina income tax rate, which reduced the state income tax rate to 2.5% effective January 1, 2019. The Company had no significant uncertain tax positions, and thus no reserve for uncertain tax positions has been recorded. Additionally, the Company determined that it has no material unrecognized tax benefits that if recognized would affect the effective tax rate. The Company’s general policy is to record tax penalties and interest as a component of “other operating expenses”. The Company is subject to routine audits of its tax returns by the Internal Revenue Service and various state taxing authorities. The Company’s tax returns are subject to income tax audit by federal and state agencies beginning with the year 2017. There are no indications of any material adjustments relating to any examination currently being conducted by any taxing authority. Retained earnings at December 31, 2020 and 2019 include approximately $6,869,000 representing pre-1988 tax bad debt reserve base year amounts for which no deferred income tax liability has been provided since these reserves are not expected to reverse or may never reverse. Circumstances that would require an accrual of a portion or all of this unrecorded tax liability are a reduction in qualifying loan levels relative to the end of 1987, failure to meet the definition of a bank, dividend payments in excess of accumulated tax earnings and profits, or other distributions in dissolution, liquidation or redemption of the Bank’s stock. The following is a reconcilement of federal income tax expense at the statutory rate of 21% at December 31, 2020 and December 31, 2019 and December 31, 2018, to the income tax provision reported in the financial statements.
($ in thousands) | 2020 |  | 2019 |  | 2018
Tax provision at statutory rate | $ | 21,657 |  |  | 24,418 |  |  | 23,830 |
Increase (decrease) in income taxes resulting from: |  |  |  |  |
Tax-exempt interest income | (1,050) |  |  | (1,186) |  |  | (1,117) |
Low income housing tax credits | (772) |  |  | (756) |  |  | (698) |
Bank-owned life insurance income | (532) |  |  | (538) |  |  | (532) |
Non-deductible interest expense | 23 |  |  | 43 |  |  | 27 |
State income taxes, net of federal benefit | 2,117 |  |  | 2,178 |  |  | 2,639 |
Change in valuation allowance | (20) |  |  | 4 |  |  | (8) |
Impact of tax reform | — |  |  | (73) |  |  | — |
Other, net | 231 |  |  | 140 |  |  | 48 |
Total | $ | 21,654 |  | 21654000 | $ | 24,230 |  |  | $ | 24,189 |

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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