Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The following table presents the components of income tax expense (benefit):

(Dollars in thousands)
Years ended December 31,	2023	2022	2021
Current Tax Expense:
Federal	$10,494	$16,127	$17,032
State	1,501	2,202	2,130
Total current tax expense	11,995	18,329	19,162
Deferred Tax Expense (Benefit):
Federal	412	1,012	1,822
State	(4,102)	148	333
Total deferred tax expense (benefit)	(3,690)	1,160	2,155
Total income tax expense	$8,305	$19,489	$21,317

Total income tax expense varies from the amount determined by applying the Federal income tax rate to income before income taxes.  The following table presents the reasons for the differences:

Years ended December 31,	2023			2022			2021
(Dollars in thousands)	Amount	Rate		Amount	Rate		Amount	Rate
Tax expense at Federal statutory rate	$11,861	21.0	%	$19,146	21.0	%	$20,619	21.0	%
Increase (decrease) in taxes resulting from:
State income tax expense, net of federal tax benefit	1,107	2.0		1,856	2.1		1,943	2.0
Share-based compensation	29	0.1		(68)	(0.1)		(159)	(0.2)
Tax-exempt income, net	(543)	(1.0)		(721)	(0.8)		(772)	(0.8)
Investments in low-income housing tax credits and other benefits, net	(357)	(0.6)		(261)	(0.3)		(117)	(0.1)
BOLI	(732)	(1.3)		(544)	(0.6)		(614)	(0.6)
State valuation allowance adjustment, net	2,153	3.8		—	—		—	—
State net operating loss carryforward, net of federal tax	(1,312)	(2.3)		—	—		—	—
Adjustment to net deferred tax assets for enacted changes in state tax law	(4,093)	(7.2)		—	—		—	—
Other	192	0.2		81	0.1		417	0.4
Total income tax expense	$8,305	14.7	%	$19,489	21.4	%	$21,317	21.7	%

On October 6, 2023 the Commonwealth of Massachusetts enacted into law a tax bill, which made changes to how corporations calculate their Massachusetts taxable income. The law enacted a single sales factor apportionment formula and prescribed a method for sourcing of income from investment and trading activities, effective on January 1, 2025. Upon the enactment, the Corporation was required to revalue its deferred tax assets and liabilities reflecting the updated apportionment formula and income sourcing method. In addition, as further described below, the Corporation determined a portion of state deferred tax assets did not meet the more-likely-than-not realization threshold and a valuation allowance was required. As a result, the Corporation increased net deferred tax assets by $3.3 million with a corresponding decrease to income tax expense in 2023.

The following table presents the approximate tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities:

(Dollars in thousands)
December 31,	2023	2022
Deferred Tax Assets:
Net unrealized losses on available for sale debt securities	$38,823	$41,379
Allowance for credit losses on loans	10,470	9,127
Operating lease liabilities	8,167	7,094
Deferred compensation	5,258	4,486
Cash flow hedges	5,250	7,151
Deferred loan origination fees	2,356	2,106
Share-based compensation	1,806	1,884
Defined benefit pension obligations	1,425	—
State net operating loss carryforwards	1,312	—
Other	2,094	1,809
Deferred tax assets	76,961	75,036
Less: valuation allowance	(2,153)	—
Deferred tax assets, net of valuation allowance	74,808	75,036
Deferred Tax Liabilities:
Operating lease ROU assets	(7,488)	(6,518)
Deferred loan origination costs	(7,365)	(6,394)
Loan servicing rights	(2,171)	(2,163)
Depreciation of premises and equipment	(1,897)	(1,494)
Amortization of intangibles	(946)	(1,093)
Defined benefit pension obligations	—	(333)
Other	(1,133)	(669)
Deferred tax liabilities	(21,000)	(18,664)
Net deferred tax asset	$53,808	$56,372

The Corporation’s net deferred tax asset is included in other assets in the Consolidated Balance Sheets. Net deferred tax assets decreased by $2.6 million during 2023, including the establishment of a valuation allowance of $2.2 million.

Deferred tax assets are to be reduced by a valuation allowance if, based on the weight of available evidence, it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets are realized primarily through future reversals of existing taxable temporary differences or by offsetting projected future taxable income.

Management determined that no valuation allowance was required at December 31, 2022. The valuation allowance amounted to $2.2 million at December 31, 2023 and reflected management’s estimate regarding the realizability of a portion of the Corporation’s state deferred tax assets, largely associated with state net operating loss carryforwards. These operating loss carryforwards have various expirations beginning in 2028 through 2042, the majority of which are subject to annual usage limitations. Management’s assessment considered the Corporation’s forecasted future taxable income, existing taxable temporary differences along with tax planning strategies. Management believes deferred tax assets, net of the valuation allowance, are more-likely-than-not to be realized.

The Corporation had no unrecognized tax benefits as of December 31, 2023 and 2022. The Corporation files income tax returns in the U.S. federal jurisdiction and various state jurisdictions.  Generally, the Corporation is no longer subject to U.S. federal income and state tax examinations by tax authorities for years before 2020.