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Income Taxes

12 Months Ended

Dec. 31, 2020

NOTE 14: Income Taxes

Principal components of income tax expense as reflected in the Consolidated Statements of Income are as follows:


	Year Ended December 31,
(Dollars in thousands)	2020		2019		2018
Current taxes	$	7,612	$	4,728	$	3,889
Deferred taxes		(817)		354		632
	$	6,795	$	5,082	$	4,521

Income tax expense for the years ended December 31, 2020, 2019 and 2018 differed from the federal statutory rate applied to income before income taxes for the following reasons:


	Year Ended December 31,
		2020				2019				2018
(Dollars in thousands)	Amount		Percent		Amount		Percent		Amount		Percent
Income tax at statutory rates	$	6,136	21.0	%	$	5,026	21.0	%	$	4,734	21.0	%
State income taxes		1,449	5.0			695	2.9			575	2.6
Tax-exempt interest income		(493)	(1.7)			(453)	(1.9)			(574)	(2.5)
Excess compensation		328	1.1			—	—			—	—
Change in tax law		(326)	(1.1)			—	—			—	—
Income from bank-owned life insurance		(107)	(0.4)			(149)	(0.6)			(89)	(0.4)
Investments in qualified housing projects		(82)	(0.3)			(93)	(0.4)			(85)	(0.4)
Share based compensation		(77)	(0.3)			(126)	(0.5)			(103)	(0.5)
Merger related expenses		29	0.1			96	0.4			—	—
Other		(62)	(0.2)			86	0.3			63	0.3
	$	6,795	23.2	%	$	5,082	21.2	%	$	4,521	20.1	%

The CARES Act, enacted in March 2020, included a provision that allowed net operating losses generated in years prior to 2020 to be carried back for up to five tax years. Previously, tax law only allowed for net operating losses to be carried forward to future tax years. During 2020 the Corporation recognized income tax benefits of $326,000 related to net operating losses generated by Peoples in 2019, which were able to be applied to years prior to 2018 at higher income tax rates than the current statutory rate as a result of the CARES Act.

The Corporation’s net deferred income taxes totaled $13.56 million and $11.22 million at December 31, 2020 and 2019, respectively. The tax effects of each type of significant item that gave rise to deferred taxes are:


	December 31,
(Dollars in thousands)	2020		2019
Deferred tax asset
Allowances for loan losses and OREO losses	$	9,743	$	8,227
Nonqualified defined contribution plan		3,595		3,247
Lease liabilities		1,906		667
Fair value adjustments related to business combinations		1,716		1,053
Share-based compensation		920		863
Reserve for indemnification losses		879		645
Accrued expenses		779		426
Cash flow hedges		471		24
Other		1,364		1,359
Deferred tax asset		21,373		16,511
Deferred tax liability
Goodwill and other intangible assets		(3,164)		(2,818)
Right of use assets		(1,868)		(664)
Depreciation		(1,272)		(972)
Net unrealized gain on securities available for sale		(1,169)		(415)
Defined benefit plan		(345)		(423)
Deferred tax liability		(7,818)		(5,292)
Net deferred tax asset	$	13,555	$	11,219

The Corporation files income tax returns in the U.S. federal jurisdiction and several states. With few exceptions, the Corporation is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to 2017.

- 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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