Income Taxes

12 Months Ended

Dec. 31, 2023

Income Taxes

Income Taxes

Note 17—Income Taxes

The components of the income tax expense (benefit) are as follows:

	Year Ended December 31,
	2023		2022		2021
Current:
Federal	$	(760)	$	1,636	$	4,814
State		(1,015)		214		1,429
Deferred:
Federal		3,290		3,251		2,088
State		1,634		1,528		1,312
Total income tax expense	$	3,149	$	6,629	$	9,643

The reconciliation between income taxes computed at the U.S. federal statutory income tax rate to our income tax expense is as follows:

	Year Ended December 31,
	2023		2022		2021
Income tax expense (benefit) at U.S. federal statutory rate of 21%	$	2,218	$	(1,589)	$	6,937
Effect of:
State taxes, net of federal benefit		489		1,376		2,165
Taxable income on surrender of company-owned life insurance		—		2,760		—
Contingent loss		—		3,830		—
Nontaxable cancellation of split-dollar life insurance		—		(863)		—
Nondeductible items		447		731		480
Other, net		(5)		384		61
Total income tax expense	$	3,149	$	6,629	$	9,643

The components of deferred tax assets and liabilities at December 31, 2023 and 2022 comprised the following:

	December 31,
	2023		2022
Deferred tax assets:
Allowance for credit losses	$	8,162	$	12,518
Net unrealized loss on investment securities		5,815		7,594
Operating lease liabilities		3,377		4,402
Compensation plans		1,535		963
Tax loss carryforwards		1,128		205
Depreciation		469		482
State franchise tax		1		358
Mortgage repurchase liability		203		223
Interest on nonaccrual loans		108		1,031
Accrued expenses		—		980
Loans held for sale valuation allowance		—		121
Other		305		186
Total deferred tax assets		21,103		29,063
Less: valuation allowance		(158)		(120)
Total deferred tax assets, net of valuation allowance		20,945		28,943
Deferred tax liabilities:
Operating lease right-of-use asset		(3,086)		(4,075)
Mortgage servicing rights		(415)		(494)
Other		(485)		(670)
Total deferred tax liabilities		(3,986)		(5,239)
Deferred tax asset, net	$	16,959	$	23,704

At December 31, 2023, the Company had federal net operating loss carryforwards of $2,126 that can be carried forward indefinitely. The Company also had state net operating loss carryforwards of $6,114 that will expire in 2043. A capital loss of $608 can be carried forward and utilized against capital gains during the carryforward period which expires in December 2025. The Company has recorded a deferred tax asset of $1,128 reflecting the benefit of the tax loss carryforwards. As of December 31, 2023, a valuation allowance of $158 has been established against the portion of the deferred tax asset that is more likely than not to be realized.

Realization of the remaining deferred tax assets is dependent upon the generation of future taxable income. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. Management evaluated the deferred tax assets for recoverability by considering negative and positive evidence. Based on the weight of all available evidence, the Company believes it is more likely than not that the deferred tax asset at December 31, 2023 will be realized through the future reversals of existing taxable temporary differences and projected future taxable income.

The Company is subject to U.S. federal income tax as well as income taxes of the state of New York and California. The Company’s federal income tax returns are subject to examination by the taxing authorities for the years after 2019.

There were no unrecognized tax benefits at December 31, 2023, and the Company does not expect the total amount of unrecognized tax benefits to significantly increase in the next twelve months.