Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

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

	For the Years Ended December 31,
(In thousands)	2023		2022		2021
Current:
Federal	$	6,378	$	7,794	$	5,018
State	1,203		1,365		897
Deferred:
Federal	(242)		(990)		(608)
State	(42)		(173)		(90)
Total income tax expense	$	7,297	$	7,996	$	5,217

A reconciliation of expected income tax expense (benefit), computed by applying the effective federal statutory rate of 21% for each year to income before income tax expense is as follows:

	For the Years Ended December 31,
(In thousands)	2023		2022		2021
Expected income tax expense	$	7,885	$	9,035	$	7,103
(Reductions) increases resulting from:
Tax-exempt income	(1,104)		(1,571)		(1,673)
State taxes, net of federal benefit	917		942		638
Share-based compensation adjustment	298		258		92
Federal tax credits	(643)		(473)		(357)
Other, net	(56)		(195)		(586)
Total income tax expense	$	7,297	$	7,996	$	5,217

Income tax expense in 2023 totaled $7.3 million compared to $8.0 million in 2022 and $5.2 million in 2021. When measured as a percent of pre-tax income, the Company’s effective tax rate was 19.5% in 2023, 18.6% in 2022, and 15.4% in 2021.

The tax effects of temporary differences which give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:

	December 31,
(In thousands)	2023		2022
Deferred tax assets:
Allowance for credit losses	$	3,115	$	3,222
ASC 715 pension funding liability	987		1,594
Supplemental executive retirement plan accrual	2,328		2,311
Stock compensation	2,988		2,745
Unrealized loss on investment securities available-for-sale (1)	13,756		16,798
Research and development expenses	604		772
Lease liability	2,020		2,261
Other	330		640
Total deferred tax assets	$	26,128	$	30,343
Deferred tax liabilities:
Premises and equipment	$	(1,144)	$	(1,710)
Pension	(967)		(1,141)
Intangible assets	(1,828)		(1,744)
Right of use asset	(1,927)		(2,178)
Prepaid expenses	(765)		(847)
Other	(283)		(144)
Total deferred tax liabilities	$	(6,914)	$	(7,764)
Net deferred tax assets	$	19,214	$	22,579

(1)The deferred tax asset associated with the unrealized losses on securities is mainly a result of changes in interest rates, and the unrealized losses are considered to be temporary as the fair value is expected to recover as the securities approach their respective maturity dates. The issuers of the securities are of high credit quality and all principal amounts are expected to be paid when the securities mature. The Company does not intend to sell and it is more likely than not that the Company will not be required to sell the securities prior to their anticipated recovery.

A valuation allowance would be provided on deferred tax assets when it is more likely than not that some portion of the assets will not be realized. The Company has not established a valuation allowance at December 31, 2023 or 2022, due to management’s belief that it is more likely than not that the deferred tax asset is realizable.

The reconciliation of the beginning unrecognized tax benefits balance to the ending balance is presented in the following table:

(In thousands)	2023		2022		2021
Balance at January 1	$	1,252	$	1,405	$	1,231
Changes in unrecognized tax benefits as a result of tax positions taken during a prior year	99		(176)		165
Changes in unrecognized tax benefits as a result of tax position taken during the current year	300		222		239
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations	(254)		(199)		(230)
Balance at December 31	$	1,397	$	1,252	$	1,405

At December 31, 2023, 2022 and 2021, the balances of the Company’s unrecognized tax benefits which would, if recognized, affect the Company’s effective tax rate were $1,285,000, $1,129,000 and $1,134,000, respectively. These amounts are net of the offsetting expense from other taxing jurisdictions.

As of December 31, 2023, 2022 and 2021, the Company had $117,000, $84,000 and $85,000, respectively, in accrued interest related to unrecognized tax benefits.

The Company believes it is reasonably possible that the total amount of unrecognized tax benefits will decrease by approximately $285,000 over the next 12 months. The reduction primarily relates to the anticipated lapse in the statute of limitations. The unrecognized tax benefits relate primarily to apportionment of taxable income among various state tax jurisdictions.

The Company is subject to income tax in the U.S. federal jurisdiction, numerous state jurisdictions, and a foreign jurisdiction. The Company’s federal income tax returns for tax years 2020, 2021 and 2022 remain subject to examination by the Internal Revenue Service. In addition, the Company is subject to state tax examinations for the tax years 2019 through 2022.