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Note 12 - Income Taxes
 12 Months Ended
Dec. 31, 2023
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

NOTE 12 - INCOME TAXES

 

The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

 

Income tax expense consists of the following:

 

(dollars in thousands)

 

2023

  

2022

  

2021

 

Current:

            

Federal

 $10,804  $18,315  $16,037 

State

  6,761   10,952   9,087 

Total Current

  17,565   29,267   25,124 
             

Deferred:

            

Federal

  (288)  (1,756)  (1,148)

State

  504   (493)  55 

Total Deferred

  216   (2,249)  (1,093)

Total income tax expense

 $17,781  $27,018  $24,031 

 

A comparison of the federal statutory income tax rates to the Company's effective income tax rates for the years ended December 31 follows:

 

  

2023

  

2022

  

2021

 

(dollars in thousands)

 

Amount

  

Rate

  

Amount

  

Rate

  

Amount

  

Rate

 

Statutory federal tax

 $12,652  

21.0

% $19,182   21.0% $16,997   21.0%

State tax, net of federal benefit

  5,181  

8.6

%  8,278   9.1%  7,182   8.9%

Tax-exempt income

  (399) 

(0.7

)%  (355)  (0.4)%  (285)  (0.4)%

Stock-based compensation

  54  

0.1

%  (396)  (0.4)%  (404)  (0.5)%

Other items, net

  293  

0.5

%  309   0.3%  541   0.7%

Total income tax expense

 $17,781   29.5% $27,018   29.6% $24,031   29.7%

 

Deferred taxes are a result of differences between income tax accounting and generally accepted accounting principles with respect to income and expense recognition. The following is a summary of the components of the net deferred tax asset accounts recognized in the accompanying balance sheets as of  December 31:

 

(dollars in thousands)

 

2023

  

2022

 

Deferred tax assets:

        

Allowance for credit losses

 $13,011  $12,834 

Stock-based compensation

  472   546 

Operating loss carryforwards

  32   154 

Unrealized loss on AFS securities

  8,597   9,614 

Lease liability

  9,539   8,149 

State tax

  1,444   2,426 

Other

  1,237   917 
   34,332   34,640 

Deferred tax liabilities:

        

Depreciation

  (1,389)  (1,598)

Deferred loan costs

  (3,123)  (2,808)

Acquisition accounting fair value adjustments

  (2,794)  (3,052)

Mortgage servicing rights

  (1,991)  (2,259)

Right of use asset

  (9,115)  (7,818)

Other

  (155)  (128)
   (18,567)  (17,663)

Net deferred tax assets

 $15,765  $16,977 

 

At December 31, 2023, the Company has usable net operating loss carryforwards from acquisitions of $21,104 for federal and $5,570 for California income tax purposes. Net operating loss carry forwards, to the extent not used, will begin to expire in 2028. The net operating loss carryforwards were generated through acquisitions, and as a result, are substantially limited by Section 382 of the Internal Revenue Code. Benefits not expected to be realized due to the limitation have been excluded from the deferred tax asset and net operating loss carryforward amounts noted above. Based on management's assessment, the Company concluded that no valuation allowance was necessary for the Company's deferred tax assets as of December 31, 2023. 

 

The Company files income tax returns in federal and various state jurisdictions. The Company is subject to examinations in federal jurisdiction for the years ended after December 31, 2019. The statutes of limitations for state income tax returns remain open for tax years in accordance with each state's statutes. The audit of the Company's New York State tax returns for the tax period from January 1, 2018 to December 31, 2020 was completed in August 2023. The Company paid additional tax and interest of $70,000 without penalties to settle the tax audit findings with New York State. The Company had no material uncertain tax positions at December 31, 2023 and 2022, and recognized no material interest or penalties as part of income taxes for the years ended December 31, 2023, 2022, and 2021.