INCOME TAXES

12 Months Ended

Dec. 31, 2021

INCOME TAXES

INCOME TAXES

NOTE 9.           INCOME TAXES

The following table summarizes the current and deferred components of income tax expense (benefit) for each of the years ended December 31, 2021, 2020 and 2019:

(in thousands)	2021		2020		2019
Current:
Federal tax expense	$	7,796	$	7,165	$	2,639
State tax expense		1,106		1,280		550
Total current tax expense		8,902		8,445		3,189
Deferred tax expense		427		(38)		1,020
Total income tax expense	$	9,329	$	8,407	$	4,209

The following table reconciles the expected federal income tax expense (computed by applying the federal statutory tax rate of 21%) to recorded income tax expense for the years ended December 31, 2021, 2020 and 2019:

	2021				2020				2019
(in thousands, except ratios)	Amount		Rate		Amount		Rate		Amount		Rate
Statutory tax rate	$	10,210	21.00	%	$	8,747	21.00	%	$	5,633	21.00	%
Increase (decrease) resulting from:
State taxes, net of federal benefit		1,280	2.63			1,120	2.69			547	2.04
Tax exempt interest		(1,240)	(2.55)			(1,301)	(3.12)			(1,375)	(5.13)
Federal tax credits		(582)	(1.20)			(330)	(0.79)			(282)	(1.05)
Officers' life insurance		(466)	(0.96)			(403)	(0.97)			(431)	(1.61)
Gain of disposal of low income housing tax credit investments		—	—			147	0.35			—	—
Stock-based compensation plans		(73)	(0.15)			52	0.12			(20)	(0.07)
Other		200	0.42			375	0.90			137	0.51
Effective tax rate	$	9,329	19.19	%	$	8,407	20.18	%	$	4,209	15.69	%

The net deferred tax asset was $5.5 million at December 31, 2021 and $3.0 million at December 31, 2020.

The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at December 31, 2021 and 2020 are summarized below:

	2021				2020
(in thousands)	Assets		Liabilities		Assets		Liabilities
Allowance for credit losses	$	5,214	$	—	$	4,464	$	—
Deferred compensation		3,965		—		4,129		—
Unrealized gain or loss on securities available for sale		—		1,055		—		3,046
Unrealized gain or loss on derivatives(1)		201		—		567		—
Depreciation		—		2,033		—		2,261
Deferred loan origination fees, net(2)		432		—		451		—
Non-accrual interest		593		—		492		—
Branch acquisition costs and goodwill		—		1,326		—		1,034
Core deposit intangible		—		929		—		1,078
Acquisition fair value adjustments(2)		208		—		192		—
Prepaid expenses		—		205		—		301
Mortgage servicing rights		—		843		—		784
Equity compensation		668		—		432		—
Prepaid pension		—		739		—		377
Contract incentives		820		—		1,017		—
Right of use asset		—		2,129		—		2,419
Lease liability		2,213		—		2,487		—
Other		492		—		116		—
Total	$	14,806	$	9,259	$	14,347	$	11,300

(1) Prior period has been revised, see Note 1 – Summary of Significant Accounting Policies – Revision of Previously Issued Financial Statements.

(2) With the adoption of CECL, premiums and discounts on acquired loans are presented along with deferred loan origination fees, net.

The Company has determined that a valuation allowance is not required for its net deferred tax asset since it is more likely than not that this asset is realizable principally through future taxable income and future reversal of existing temporary differences.

GAAP requires the measurement of unrecorded tax benefits related to uncertain tax positions. An unrecorded tax benefit is the difference between the tax benefit of a position taken, or expected to be taken, on a tax return and the benefit recorded for accounting purposes. At December 31, 2021 and 2020, the Company had no unrecorded tax benefits and does not expect its position to significantly change within the next twelve months.

The Company is subject to income tax in the U.S. federal jurisdiction and also in the states of Maine, New Hampshire and Massachusetts. The Company is no longer subject to examination by taxing authorities for years before 2018.