NOTE 15 – INCOME TAXES

Effective October 11, 2019, the Company voluntarily revoked its S Corporation status and became a taxable entity (C Corporation). As such, any periods prior to October 11, 2019 will only reflect an effective state income tax rate. In connection with the conversion of tax status, the Company recognized a deferred tax asset of $534,000 and an income tax benefit of $534,000.

In recording the impact of the conversion to a C Corporation, the Company recorded a deferred income tax expense of $2,741,000 related to the unrealized gains (losses) on securities and derivatives, through the income statement in accordance with ASC 740-20-45-8; therefore, the amount shown in other comprehensive income has not been reduced by the above expense. This difference will remain in accumulated other comprehensive income until the underlying securities are sold or mature and the underlying cash flow hedging relationships terminate in accordance with the portfolio approach allowed under ASC 740.

Allocation of income tax expense between current and deferred portions for the years ended December 31 is as follows:


	2019		2018		2017
	(dollars in thousands)
Current
Federal	$	4,849	$	—	$	—
State		3,102		869		870
Total current		7,951		869		870

Deferred
Federal		(1,437)		—		—
State		(724)		—		—
Change in tax status		(534)		—		—
Total deferred		(2,695)		—		—
Income tax expense	$	5,256	$	869	$	870

Income tax expense differs from the statutory federal rate for the years ended December 31 due to the following:


	2019				2018				2017
	Amount		Percentage		Amount		Percentage		Amount		Percentage
	(dollars in thousands)
Federal income tax, at statutory rate	$	3,933	5.5	%	$	—	—	%	$	—	—	%
Increase (decrease) resulting from:
State taxes, net of federal benefit		2,212	3.1			869	1.3			870	1.5
Change in tax status		(534)	(0.8)			—	—			—	—
Other		(355)	(0.5)			—	—			—	—
Income tax expense	$	5,256	7.3	%	$	869	1.3	%	$	870	1.5	%

The components of the net deferred tax asset as of December 31, 2019 are as follows (dollars in thousands):


Deferred tax assets
Allowance for loan losses	$	6,309
Compensation related		5,859
Nonaccrual interest		858
Foreclosed assets		574
Goodwill		531
Other		1,282
Total deferred tax assets		15,413

Deferred tax liabilities
Fixed asset depreciation		4,201
Mortgage servicing rights		2,428
Other purchase accounting adjustments		1,356
Intangible assets		841
Prepaid assets		504
Net unrealized gain on securities available-for-sale		2,251
Other		426
Total deferred tax liabilities		12,007
Net deferred tax asset	$	3,406

Prior to the Company becoming a taxable entity (C Corporation) on October 11, 2019, the Company’s deferred tax assets and liabilities were not considered material.