Income Taxes

12 Months Ended

Dec. 31, 2020

Note 19. Income Taxes

The difference between the provision for income taxes and the amounts computed by applying the statutory federal income tax rate of 21% for 2020 and 2019 to income before income taxes is summarized below:

(Dollars in thousands)	2020					2019
Income tax at federal statutory rate	$	4,725		21.0	%	$	1,171		21.0	%
Increase (decrease) resulting from:
State income taxes, net of federal tax effect		34		0.2	%		—		(—	%)
Tax-exempt interest income		(20	)	(0.1	%)		(74	)	(1.3	%)
Income from life insurance		(82	)	(0.4	%)		(196	)	(3.5	%)
Merger-related expenses		174		0.8	%		188		3.4	%
Other permanent differences		(31	)	(0.1	%)		(116	)	(2.2	%)
Provision for income taxes	$	4,800		21.4	%	$	973		17.4	%

The significant components of the provision for income taxes for the years ended December 31, 2020 and 2019 were as follows:

(Dollars in thousands)	2020			2019
Current tax provision
Federal	$	6,437		$	1,058
State		43			—
Total current tax provision		6,480			1,058
Deferred tax benefit
Federal		(1,680	)		(85	)
State		—			—
Total deferred tax provision		(1,680	)		(85	)
Provision for income taxes	$	4,800		$	973

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred taxes at December 31, 2020 and 2019 were as follows:

(Dollars in thousands)	2020			2019
Deferred tax assets relating to:
Allowance for loan losses	$	2,478		$	414
Compensation differences		892			19
Reserve for loan sale buy backs		341			—
Acquisition accounting		255			591
Loan origination costs		81			153
Pass-through entities		252			173
Unrealized losses on swaps and securities available for sale		108			—
Other		191			341
Total deferred tax assets		4,598			1,691
Deferred tax liabilities relating to:
Premises and equipment		(1,532	)		(1,473	)
Core deposit and customer based intangible assets		(464	)		(355	)
Mortgage servicing rights		(1,488	)		—
Unrealized gains on swaps and securities available for sale		—			(53	)
Other		(25	)		(561	)
Total deferred tax liabilities		(3,509	)		(2,442	)
Net deferred tax asset (liability), included in other assets (liabilities)	$	1,089		$	(751	)

Deferred income taxes are measured at the enacted tax rate for the period in which they are expected to reverse. State income taxes have been immaterial and ignored for purposes of computing deferred income taxes. Therefore, deferred income taxes as of December 31, 2020 have been measured using the federal income tax rate enacted for subsequent years of 21%.

The Company had no net operating losses which can be carried forward and applied against future taxable income. The Company’s policy is to report interest and penalties, if any, related to uncertain tax positions in income tax expense in the consolidated statements of income. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2016. As of December 31, 2020 and 2019, the Company has no uncertain tax positions.

The Company’s net deferred tax asset (liability) was $1.1 million and $(0.8) million at December 31, 2020 and 2019, respectively. In evaluating whether the Company will realize the full benefit of its net deferred tax assets, management considers both positive and negative evidence, including among other things recent earnings trends, projected earnings, and asset quality. As of December 31, 2020, management concluded that the Company’s net deferred tax assets were fully realizable. The Company will continue to monitor deferred tax assets to evaluate whether it will be able to realize the full benefit of the net deferred tax asset or whether there is any need for a valuation allowance. Significant negative trends in credit quality, losses from operations, or other factors could impact the realization of the deferred tax asset in the future.

- 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.

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