NOTE 11 – 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 replacement tax rate. The consolidated statements of income present unaudited pro forma C Corp equivalent information for the three months ended March 31, 2019.

Allocation of income tax expense between current and deferred portions for the three months ended March 31 is as follows:


	Three Months Ended
	March 31,
	2020		2019
	(dollars in thousands)
Current
Federal	$	1,721	$	—
State		988		215
Total current		2,709		215

Deferred
Federal		(457)		—
State		(221)		—
Total deferred		(678)		—
Income tax expense	$	2,031	$	215

Income tax expense differs from the statutory federal rate for the three months ended March 31 due to the following:


	Three Months Ended March 31,
	2020				2019
	Amount		Percentage		Amount		Percentage
	(dollars in thousands)
Federal income tax, at statutory rate	$	1,733	21.0	%	$	—	—	%
Increase (decrease) resulting from:
Federally tax exempt interest income		(357)	(4.3)			—	—
State taxes, net of federal benefit		631	7.6			215	1.1
Other		24	0.3			—	—
Income tax expense	$	2,031	24.6	%	$	215	1.1	%

The components of the net deferred tax asset as of March 31, 2020 and December 31, 2019 are as follows:


	March 31,		December 31,
	2020		2019
	(dollars in thousands)
Deferred tax assets
Allowance for loan losses	$	7,378	$	6,309
Compensation related		5,482		5,859
Nonaccrual interest		631		858
Foreclosed assets		74		574
Goodwill		482		531
Other		1,460		1,282
Total deferred tax assets		15,507		15,413

Deferred tax liabilities
Fixed asset depreciation		4,146		4,201
Mortgage servicing rights		1,809		2,428
Other purchase accounting adjustments		1,327		1,356
Intangible assets		773		841
Prepaid assets		425		504
Net unrealized gain on debt securities available-for-sale		4,418		2,251
Other		413		426
Total deferred tax liabilities		13,311		12,007
Net deferred tax asset	$	2,196		3,406