INCOME TAXES

12 Months Ended

Dec. 31, 2022

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, 2022, 2021 and 2020:

(in thousands)	2022		2021		2020
Current:
Federal tax expense	$	10,444	$	7,796	$	7,165
State tax expense		1,551		1,106		1,280
Total current tax expense		11,995		8,902		8,445
Deferred tax (benefit) expense		(707)		427		(38)
Total income tax expense	$	11,288	$	9,329	$	8,407

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, 2022, 2021 and 2020:

	2022				2021				2020
(in thousands, except ratios)	Amount		Rate		Amount		Rate		Amount		Rate
Statutory tax rate	$	11,517	21.00	%	$	10,210	21.00	%	$	8,747	21.00	%
Increase (decrease) resulting from:
State taxes, net of federal benefit		1,477	2.69			1,280	2.63			1,120	2.69
Tax exempt interest		(1,003)	(1.83)			(1,240)	(2.55)			(1,301)	(3.12)
Federal tax credits		(241)	(0.44)			(582)	(1.20)			(330)	(0.79)
Officers' life insurance		(498)	(0.91)			(466)	(0.96)			(403)	(0.97)
Gain on disposal of low income housing tax credit investments		—	—			—	—			147	0.35
Stock-based compensation plans		(16)	(0.03)			(73)	(0.15)			52	0.12
Other		52	0.10			200	0.42			375	0.90
Effective tax rate	$	11,288	20.58	%	$	9,329	19.19	%	$	8,407	20.18	%

The net deferred tax asset was $24.4 million at December 31, 2022 and $5.5 million at December 31, 2021.

The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at December 31, 2022 and 2021 are summarized below:

	2022				2021
(in thousands)	Assets		Liabilities		Assets		Liabilities
Allowance for credit losses	$	5,964	$	—	$	5,214	$	—
Deferred compensation		3,812		—		3,965		—
Unrealized gain or loss on securities available for sale		16,586		—		—		1,055
Unrealized gain or loss on derivatives		539		—		201		—
Depreciation		—		1,723		—		2,033
Deferred loan origination fees, net		129		—		432		—
Non-accrual interest		600		—		593		—
Branch acquisition costs and goodwill		—		1,644		—		1,326
Core deposit intangible		—		806		—		929
Acquisition fair value adjustments		213		—		208		—
Prepaid expenses		—		271		—		205
Mortgage servicing rights		—		780		—		843
Equity compensation		736		—		668		—
Prepaid pension		—		616		—		739
Contract incentives		766		—		820		—
Right of use asset		—		1,863		—		2,129
Lease liability		1,961		—		2,213		—
Other		839		—		492		—
Total	$	32,145	$	7,703	$	14,806	$	9,259

We have 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, 2022 and 2021, we had no unrecorded tax benefits and do not expect our position to significantly change within the next 12 months.

We are subject to income tax in the U.S. federal jurisdiction and also in the states of Maine, New Hampshire and Massachusetts. We are no longer subject to examination by taxing authorities for years before 2019.