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Income Taxes
 12 Months Ended
Dec. 31, 2022
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)202220212020
Current:
Federal$18,188 $17,611 $18,498 
State1,447 1,365 1,337 
Deferred:
Federal(458)3,440 (9,288)
State(87)113 (566)
$19,090 $22,529 $9,981 

The provision for income taxes differs from the expected statutory provision as follows:
For the Years Ended December 31,
202220212020
Expected provision at statutory rate21.0 %21.0 %21.0 %
Difference resulting from:
Tax exempt interest income, net of disallowance(1.7)(1.6)(3.8)
Increase in value of bank owned life insurance assets(0.8)(0.7)(1.1)
Stock-based compensation(0.2)(0.2)0.2 
State income taxes, net of federal benefits1.1 1 1.1 
Changes in valuation allowance0.7 0.2 0.2 
Federal benefit of state deferred tax asset revaluation(0.8)— — 
Other0.3 — (0.1)
Effective tax rate19.6 %19.7 %17.5 %
On August 16, 2022, the Inflation Reduction Act (the IRA) was signed into law. The IRA includes climate and energy provisions, introduces a 15% corporate alternative minimum tax (CAMT) on corporations whose average annual adjusted financial statement income exceeds $1 billion, and a 1% excise tax on stock repurchases made by publicly traded US corporations. Most provisions above are effective for tax years beginning after December 31, 2022. The Corporation has concluded its analysis of these provisions as of December 31, 2022 and determined they did not have a material impact of the Corporation's income taxes for 2022.

On July 8, 2022, the Commonwealth of Pennsylvania enacted a corporate income tax rate reduction. Beginning January 1, 2023, the corporate income tax rate decreases 1% for 2023 and will decrease 0.5% each year until it reaches 4.99% in 2031. As such, the Corporation revalued the deferred tax assets associated with the Commonwealth and adjusted the associated valuation allowance established against those DTAs.

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, 2022, 2021 and 2020, 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, 2022 and 2021, 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, 2019. The Corporation is currently under examination by the state of Wisconsin for the tax years ended December 31, 2017 through 2020.

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 $84.9 million which will begin to expire in 2023 if not utilized. A valuation allowance at December 31, 2022 and 2021 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)20222021
Deferred tax assets:
Allowance for credit losses, loans and leases$17,343 $15,739 
Deferred compensation1,959 2,004 
Actuarial adjustments on retirement benefits*4,043 3,982 
State net operating losses3,348 6,348 
Other-than-temporary impairments on equity securities98 120 
Net unrealized holding losses on securities available-for-sale and swaps*12,471 370 
Lease liability7,275 7,317 
Other deferred tax assets2,016 1,526 
Gross deferred tax assets48,553 37,406 
Valuation allowance(2,975)(5,558)
Total deferred tax assets, net of valuation allowance45,578 31,848 
Deferred tax liabilities:
Mortgage servicing rights1,785 1,671 
Retirement plans4,907 5,419 
Deferred loan fees and costs897 65 
Acquisition-related fair value adjustments902 1,093 
Intangible assets3,742 3,204 
Depreciation1,575 1,083 
Right of use asset6,596 6,650 
Other deferred tax liabilities1,045 1,241 
Total deferred tax liabilities21,449 20,426 
Net deferred tax assets$24,129 $11,422 
*Represents the amount of deferred taxes recorded in accumulated other comprehensive income.