Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The provision for federal and state income taxes included in the accompanying consolidated statement of income consists of the following:

	For the Years Ended December 31,
(Dollars in thousands)	2021		2020		2019
Current:
Federal	$	17,611	$	18,498	$	15,043
State	1,365		1,337		1,098
Deferred:
Federal	3,440		(9,288)		(1,068)
State	113		(566)		(739)
	$	22,529	$	9,981	$	14,334

The provision for income taxes differs from the expected statutory provision as follows:

	For the Years Ended December 31,
	2021		2020		2019
Expected provision at statutory rate	21.0	%	21.0	%	21.0	%
Difference resulting from:
Tax exempt interest income, net of disallowance	(1.6)		(3.8)		(3.2)
Increase in value of bank owned life insurance assets	(0.7)		(1.1)		(0.8)
Stock-based compensation	(0.2)		0.2		—
State income taxes, net of federal benefits	1.0		1.1		0.4
Changes in valuation allowance	0.2		0.2		0.2
Other	—		(0.1)		0.3
Effective tax rate	19.7	%	17.5	%	17.9	%

On March 27, 2020, the CARES Act was enacted into law in response to the COVID-19 pandemic. The CARES Act contains numerous income tax provisions, such as enhanced interest reducibility, repeal of the 80% limitation with respect to net operating losses arising in taxable years 2018, 2019 and 2020, and additional depreciation deductions related to qualified improvement property. The Corporation has concluded its analysis of these provisions as of December 31, 2020 and determined they did not have a material impact on the Corporation's income taxes for 2020.

Retained earnings included $6.0 million at December 31, 2021, 2020 and 2019, which was originally generated by Fox Chase Bank (acquired in 2016), for which no provision for federal income tax has been made. This amount represents deductions for bad debt reserves for tax purposes, which were only allowed to savings institutions that met certain criteria prescribed by the Internal Revenue Code of 1986, as amended. The Small Business Job Protection Act of 1996 eliminated the special bad debt deduction granted solely to thrifts. Under the terms of the Small Business Job Protection Act, there would be no recapture of the pre-1988 (base year) reserves. However, these pre-1988 reserves would be subject to recapture under the rules of the Internal Revenue Code if the Corporation pays a cash dividend in excess of cumulative retained earnings or liquidates.

At December 31, 2021 and 2020, the Corporation had no material unrecognized tax benefits or accrued interest and penalties recorded. The Corporation does not expect the total amount of unrecognized tax benefits to significantly increase within the next twelve months. Interest and penalties are recorded in noninterest expense in the year they are assessed. For tax purposes, interest is treated as a deductible expense and penalties are treated as a non-deductible expense.

The Corporation and its subsidiaries are subject to U.S. federal income tax, as well as income tax of the Commonwealth of Pennsylvania and various other state and local jurisdictions. The Corporation and its subsidiaries are generally no longer subject to examination by federal, state and local taxing authorities for years prior to December 31, 2018.

Deferred income taxes reflect the 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. Deferred state taxes are combined with federal deferred taxes (net of the impact of deferred state tax on the deferred federal tax) and are shown in the table below by major category.

The Corporation has a state net operating loss carry-forward of $80.4 million which will begin to expire in 2022 if not utilized. A valuation allowance at December 31, 2021 and 2020 was attributable to deferred tax assets generated in certain state jurisdictions for which management believes it is more likely than not that such deferred tax assets will not be realized. Other than the valuation allowance on certain state deferred tax assets, management has determined that no additional valuation allowance is necessary for deferred tax assets because it is more likely than not that these assets will be realized through future reversals of existing temporary differences and through future taxable income. The Corporation will continue to review the criteria related to the recognition of deferred tax assets on a regular basis.

The assets and liabilities giving rise to the Corporation's deferred tax assets and liabilities are as follows:

	At December 31,
(Dollars in thousands)	2021		2020
Deferred tax assets:
Allowance for credit losses, loans and leases	$	15,739	$	18,113
Deferred compensation	2,004		1,625
Actuarial adjustments on retirement benefits*	3,982		5,408
State net operating losses	6,348		5,621
Other-than-temporary impairments on equity securities	120		151
Net unrealized holding losses on securities available-for-sale and swaps*	370		483
Lease liability	7,317		8,227
Deferred loan fees and costs	—		583
Other deferred tax assets	1,526		2,148
Gross deferred tax assets	37,406		42,359
Valuation allowance	(5,558)		(4,766)
Total deferred tax assets, net of valuation allowance	31,848		37,593
Deferred tax liabilities:
Mortgage servicing rights	1,671		1,370
Retirement plans	5,419		5,309
Deferred loan fees and costs	65		—
Acquisition-related fair value adjustments	1,093		1,236
Intangible assets	3,204		2,580
Accounting method change adjustment	—		385
Depreciation	1,083		888
Right of use asset	6,650		7,491
Other deferred tax liabilities	1,241		1,820
Total deferred tax liabilities	20,426		21,079
Net deferred tax assets	$	11,422	$	16,514

*Represents the amount of deferred taxes recorded in accumulated other comprehensive income.