Income Taxes

12 Months Ended

Dec. 31, 2021

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)	2021		2020		2019
Current:
Federal	$	5,018	$	5,350	$	4,423
State	897		671		1,392
Deferred:
Federal	(608)		(636)		1,097
State	(90)		(220)		150
Total income tax expense	$	5,217	$	5,165	$	7,062

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)	2021		2020		2019
Expected income tax expense	$	7,103	$	6,385	$	7,868
(Reductions) increases resulting from:
Tax-exempt income	(1,673)		(1,588)		(1,755)
State taxes, net of federal benefit	638		356		1,218
Share-based compensation adjustment	92		70		(281)
Federal tax credits	(357)		(336)		(158)
Other, net	(586)		278		170
Total income tax expense	$	5,217	$	5,165	$	7,062

Income tax expense in 2021 totaled $5,217,000 compared to $5,165,000 and $7,062,000 in 2020 and 2019, respectively. When measured as a percent of pre-tax income, the Company’s effective tax rate was 15.4% in 2021, 17.0% in 2020, and 18.8% in 2019.

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)	2021		2020
Deferred tax assets:
Allowance for credit losses	$	2,866	$	2,858
ASC 715 pension funding liability	1,952		4,656
Supplemental executive retirement plan accrual	2,293		2,220
Stock compensation	1,875		1,794
Lease liability	1,145		1,436
Other	633		—
Total deferred tax assets	$	10,764	$	12,964
Deferred tax liabilities:
Premises and equipment	$	(2,235)	$	(2,693)
Pension	(531)		(14)
Intangible assets	(1,493)		(1,761)
Unrealized gain on investment securities available-for-sale	(2,185)		(4,684)
Right of use asset	(1,032)		(1,291)
Other	(497)		(224)
Total deferred tax liabilities	$	(7,973)	$	(10,667)
Net deferred tax assets	$	2,791	$	2,297

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, 2021 or 2020, 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)	2021		2020		2019
Balance at January 1	$	1,231	$	1,299	$	1,403
Changes in unrecognized tax benefits as a result of tax positions taken during a prior year	165		62		56
Changes in unrecognized tax benefits as a result of tax position taken during the current year	239		233		171
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations	(230)		(315)		(331)
Decreases in unrecognized tax benefits as a result of settlements with taxing authorities	—		(48)		—
Balance at December 31	$	1,405	$	1,231	$	1,299

At December 31, 2021, 2020 and 2019, the balances of the Company’s unrecognized tax benefits which would, if recognized, affect the Company’s effective tax rate were $1,134,000, $1,096,000 and $1,184,000, respectively. These amounts are net of the offsetting benefits from other taxing jurisdictions.

As of December 31, 2021, 2020 and 2019, the Company had $85,000, $114,000 and $151,000, 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 $199,000 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 2018, 2019 and 2020 remain subject to examination by the Internal Revenue Service. In addition, the Company is subject to state tax examinations for the tax years 2017 through 2020.