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 and six months ended June 30, 2019.

Allocation of income tax expense between current and deferred portions for the three and six months ended June 30 is as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
	(dollars in thousands)
Current
Federal	$	977	$	—	$	2,698	$	—
State		637		305		1,625		520
Total current		1,614		305		4,323		520

Deferred
Federal		580		—		123		—
State		283		—		62		—
Total deferred		863		—		185		—
Income tax expense	$	2,477	$	305	$	4,508	$	520

Income tax expense differs from the statutory federal rate for the three and six months ended June 30 due to the following:


	Three Months Ended June 30,
	2020				2019
	Amount		Percentage		Amount		Percentage
	(dollars in thousands)
Federal income tax, at statutory rate	$	2,078	21.0	%	$	—	—	%
Increase (decrease) resulting from:
Federally tax exempt interest income		(370)	(3.7)			—	—
State taxes, net of federal benefit		727	7.3			305	2.0
Other		42	0.4			—	—
Income tax expense	$	2,477	25.0	%	$	305	2.0	%

	Six Months Ended June 30,
	2020				2019
	Amount		Percentage		Amount		Percentage
	(dollars in thousands)
Federal income tax, at statutory rate	$	3,811	21.0	%	$	—	—	%
Increase (decrease) resulting from:
Federally tax exempt interest income		(727)	(4.0)			—	—
State taxes, net of federal benefit		1,358	7.5			520	1.5
Other		66	0.3			—	—
Income tax expense	$	4,508	24.8	%	$	520	1.5	%

The components of the net deferred tax asset as of June 30, 2020 and December 31, 2019 are as follows:


	June 30,		December 31,
	2020		2019
	(dollars in thousands)
Deferred tax assets
Allowance for loan losses	$	8,398	$	6,309
Compensation related		2,035		5,859
Deferred loan fees		2,156		497
Nonaccrual interest		668		858
Foreclosed assets		65		574
Goodwill		434		531
Other		1,099		785
Total deferred tax assets		14,855		15,413

Deferred tax liabilities
Fixed asset depreciation		4,380		4,201
Mortgage servicing rights		1,665		2,428
Other purchase accounting adjustments		1,273		1,356
Intangible assets		709		841
Prepaid assets		678		504
Net unrealized gain on debt securities available-for-sale		6,296		2,251
Other		381		426
Total deferred tax liabilities		15,382		12,007
Net deferred tax asset (liability)	$	(527)		3,406