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Note 14 - Federal and State Income Taxes | 12 Months Ended
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Dec. 31, 2021
Notes to Financial Statements |
Federal and State Income Taxes | Note 14. Federal and State Income Taxes Federal and state income tax expense was comprised of the following components for the years ended December 31, 2021, 2020, and 2019: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | 2021 |  | 2020 |  | 2019
​ | ​ | (dollars in thousands)
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Current | ​ | $ | 7,290 | ​ | $ | 27,237 | ​ | $ | 8,255
Deferred | ​ |  | 15,272 | ​ |  | (14,530) | ​ |  | 6,364
​ | ​ | $ | 22,562 | ​ | $ | 12,707 | ​ | $ | 14,619
​ A reconciliation of the expected federal income tax expense to the income tax expense included in the consolidated statements of income was as follows for the years ended December 31, 2021, 2020, and 2019: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | Year Ended December 31, |
​ | ​ | ​ | 2021 | ​ | 2020 | ​ | 2019 |
​ | ​ | ​ | ​ | ​ | ​ | % of | ​ | ​ | ​ | ​ | % of | ​ | ​ | ​ | ​ | % of |
​ | ​ | ​ | ​ | ​ | ​ | Pretax | ​ | ​ | ​ | ​ | Pretax | ​ | ​ | ​ | ​ | Pretax |
​ |  |  | Amount |  | Income |  | Amount |  | Income |  | Amount |  | Income |
​ | ​ | ​ | (dollars in thousands)
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Computed "expected" tax expense | ​ | ​ | $ | 25,508 |  | 21.0 | % | $ | 15,391 |  | 21.0 | % | $ | 15,126 |  | 21.0 | %
Tax exempt income, net | ​ | ​ |  | (7,537) |  | (6.2) | ​ |  | (5,943) |  | (8.1) | ​ |  | (4,470) |  | (6.2) | ​
Bank-owned life insurance | ​ | ​ |  | (386) |  | (0.3) | ​ |  | (308) |  | (0.4) | ​ |  | (360) |  | (0.5) | ​
State income taxes, net of federal benefit, current year | ​ | ​ |  | 5,089 |  | 4.2 | ​ |  | 3,622 |  | 4.9 | ​ |  | 3,668 |  | 5.1 | ​
Change in unrecognized tax benefits | ​ | ​ |  | 578 |  | 0.5 | ​ |  | 546 |  | 0.7 | ​ |  | (93) |  | (0.1) | ​
Goodwill impairment | ​ | ​ | ​ | — | ​ | — | ​ | ​ | 105 | ​ | 0.1 | ​ | ​ | 630 | ​ | 0.9 | ​
Intended liquidation of bank-owned life insurance | ​ | ​ | ​ | — | ​ | — | ​ | ​ | — | ​ | — | ​ | ​ | 790 | ​ | 1.1 | ​
Tax credits | ​ | ​ |  | 34 |  | — | ​ |  | (456) |  | (0.6) | ​ |  | (705) |  | (1.0) | ​
Acquisition costs | ​ | ​ |  | 95 |  | 0.1 | ​ |  | — |  | — | ​ |  | — |  | — | ​
Excess tax benefit on stock options exercised and restricted stock awards vested | ​ | ​ |  | (436) |  | (0.4) | ​ |  | (242) |  | (0.3) | ​ |  | (287) |  | (0.4) | ​
Re-measurement of deferred tax asset to incorporate newly enacted tax rates | ​ | ​ |  | — |  | — | ​ |  | 207 |  | 0.3 | ​ |  | — |  | — | ​
Other | ​ | ​ |  | (383) |  | (0.3) | ​ |  | (215) |  | (0.3) | ​ |  | 320 |  | 0.4 | ​
Federal and state income tax expense | ​ | ​ | $ | 22,562 |  | 18.6 | % | $ | 12,707 |  | 17.3 | % | $ | 14,619 |  | 20.3 | %
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ Changes in the unrecognized tax benefits included in other liabilities are as follows for the years ended December 31, 2021 and 2020: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | 2021 |  | 2020
​ | ​ | (dollars in thousands)
​ | ​ | ​ | ​ | ​ | ​ | ​
Balance, beginning | ​ | $ | 1,893 | ​ | $ | 1,254
Impact of tax positions taken during current year | ​ |  | 1,326 | ​ |  | 787
Gross increase (decrease) related to tax positions of prior years | ​ |  | (646) | ​ |  | 39
Reduction as a result of a lapse of the applicable statute of limitations | ​ |  | (391) | ​ |  | (187)
Balance, ending | ​ | $ | 2,182 | ​ | $ | 1,893
​ Included in the unrecognized tax benefits liability at December 31, 2021 are potential benefits of approximately $1.7 million that, if recognized, would affect the effective tax rate. Note 14. Federal and State Income Taxes (continued) The liability for unrecognized tax benefits includes accrued interest for tax positions, which either do not meet the more-likely-than-not recognition threshold or where the tax benefit is measured at an amount less than the tax benefit claimed or expected to be claimed on an income tax return. At December 31, 2021 and 2020, accrued interest on uncertain tax positions was approximately $236 thousand and $277 thousand, respectively. Estimated interest related to the underpayment of income taxes is classified as a component of “income tax expense” in the statements of income. The Company’s federal income tax returns are open and subject to examination from the 2018 tax return year and later. Various state franchise and income tax returns are generally open from the 2017 and later tax return years based on individual state statutes of limitations. The net deferred tax liabilities consisted of the following as of December 31, 2021 and 2020: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | 2021 |  | 2020
​ | ​ | (dollars in thousands)
Deferred tax assets: |  | ​ |  |  | ​ |
Historic tax credits | ​ | $ | 68 | ​ | $ | 68
Compensation | ​ |  | 11,912 | ​ |  | 10,288
Loan/lease losses | ​ |  | 19,023 | ​ |  | 20,016
Net operating loss carryforwards, federal and state | ​ |  | 1,354 | ​ |  | 628
Premises and equipment | ​ | ​ | — | ​ | ​ | 16,509
Other | ​ |  | 17 | ​ |  | 71
​ | ​ |  | 32,374 | ​ |  | 47,580
Deferred tax liabilities: | ​ |  |  | ​ |  |
Net unrealized gains on securities available for sale and derivative instruments | ​ | ​ | 747 | ​ | ​ | 869
Premises and equipment | ​ |  | 6,099 | ​ |  | —
Equipment financing leases | ​ |  | 6,462 | ​ |  | 13,373
Acquisition fair value adjustments | ​ |  | 3,269 | ​ |  | 3,351
Investment accretion | ​ |  | 27 | ​ |  | 28
Deferred loan origination fees, net | ​ |  | 1,403 | ​ |  | 197
Other | ​ |  | 677 | ​ |  | 922
​ | ​ |  | 18,684 | ​ |  | 18,740
Net deferred tax assets | ​ | $ | 13,690 | ​ | $ | 28,840
​ | ​ | ​ | ​ | ​ | ​ | ​
​ During the third quarter of 2021, effective January 1, 2020, the Company elected a tax accounting method change for identifying costs for self-constructed assets. The change resulted in an increase in capitalized costs for tax purposes in the amount of $88.0 million as of January 1, 2020, which, in turn, resulted in the recording of a deferred tax asset. A change from one generally accepted accounting principle to another is applied retrospectively, therefore deferred income taxes as of December 31, 2020, shown in the table above, have been adjusted retrospectively to reflect this change. The impact of the change was an increase in the deferred tax asset for premises and equipment in the amount of $22.2 million. The Company has concluded it qualifies for another automatic federal income tax accounting method change for self-constructed assets and intends to elect such, effective January 1, 2021, with the filing of its 2021 income tax return. This resulted in a reversal of the deferred tax asset as of January 1, 2021. ​ At December 31, 2021, the Company had $4.8 million of federal tax net operating loss carryforwards and $10.9 million of state tax net operating loss carryforwards. $3.0 million of the federal tax net operating loss carryforwards are related to the acquisition of Community National and CNB and these losses are set to expire in varying amounts between 2029 and 2033. $2.1 million of the state tax net operating loss carryforwards are also related to the acquisition of Community National and CNB and are set to expire in varying amounts between 2023 and 2028. An additional Note 14. Federal and State Income Taxes (continued) $1.8 million of federal tax net operating loss carryforwards and an additional $8.8 million of state tax net operating loss carryforwards were generated in 2021. All of these net operating losses generated in 2021 are expected to be utilized in 2022. The change in deferred income taxes was reflected in the Consolidated Financial Statements as follows for the years ended December 31, 2021, 2020, and 2019: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | 2021 |  | 2020 |  | 2019
​ | ​ | (dollars in thousands)
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Provision for income taxes | ​ | $ | 15,272 | ​ | $ | (14,530) | ​ | $ | 6,364
Net deferred tax asset resulting from market value adjustments of acquisitions | ​ |  | — | ​ |  | — | ​ |  | (381)
Net deferred tax assets resulting from sale of other subsidiary | ​ | ​ | — | ​ | ​ | 363 | ​ | ​ | —
Net deferred tax liabilities resulting from sale of bank subsidiary | ​ | ​ | — | ​ | ​ | — | ​ | ​ | (1,644)
Statement of stockholders' equity- Other comprehensive income (loss) | ​ |  | (122) | ​ |  | 837 | ​ |  | 1,433
​ | ​ | $ | 15,150 | ​ | $ | (13,330) | ​ | $ | 5,772
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​

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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://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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