Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

(19.) INCOME TAXES

The income tax expense for the years ended December 31 consisted of the following (in thousands):

	2022			2021		2020
Current tax expense:
Federal	$	15,371		$	11,453	$	10,041
State		3,408			2,854		1,873
Total current tax expense		18,779			14,307		11,914
Deferred tax (benefit) expense:
Federal		(3,250	)		4,384		(3,306	)
State		(1,132	)		834		(1,217	)
Total deferred tax (benefit) expense		(4,382	)		5,218		(4,523	)
Total income tax expense	$	14,397		$	19,525	$	7,391

Income tax expense differed from the statutory federal income tax rate for the years ended December 31 as follows:

	2022			2021			2020
Statutory federal tax rate		21.0	%		21.0	%		21.0	%
Increase (decrease) resulting from:
Tax exempt interest income		(0.9	)		(0.7	)		(2.0	)
Tax credits and adjustments		(2.6	)		(2.6	)		(3.4	)
Non-taxable earnings on company owned life insurance		-			(0.6	)		(0.9	)
State taxes, net of federal tax benefit		2.5			3.0			1.1
Nondeductible expenses		0.2			-			0.1
Other, net		0.1			-			0.3
Effective tax rate		20.3	%		20.1	%		16.2	%

1

Total income tax expense (benefit) was as follows for the years ended December 31 (in thousands):

	2022			2021			2020
Income tax expense	$	14,397		$	19,525		$	7,391
Shareholder’s equity		(42,812	)		(5,282	)		5,732

The Company recognizes deferred income taxes for the estimated future tax effects of differences between the tax and financial statement bases of assets and liabilities considering enacted tax laws. These differences result in deferred tax assets and liabilities, which are included in other assets in the Company’s consolidated statements of financial condition. The Company also assesses the likelihood that deferred tax assets will be realizable based on, among other considerations, future taxable income and establishes, if necessary, a valuation allowance for those deferred tax assets determined to not likely be realizable. A deferred tax asset valuation allowance is recognized if, based on the weight of available evidence (both positive and negative), it is more likely than not that some portion or all of the deferred tax assets will not be realized. The future realization of deferred tax benefits depends upon the existence of sufficient taxable income within the carry-back and carry-forward periods. Management’s judgment is required in determining the appropriate recognition of deferred tax assets and liabilities, including projections of future taxable income.

In 2022 and 2021, the Company recognized the impact of its investments in limited partnerships that generated qualifying tax credits resulting in a $2.6 million reduction in income tax expense in each year, and an $815 thousand and $431 thousand net loss recorded in noninterest income, respectively. See Note 1 for the Company’s accounting policy for income taxes and these tax credit investments.

(19.) INCOME TAXES (Continued)

The Company’s net deferred tax asset is included in other assets in the consolidated statements of financial condition. The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are as follows at December 31 (in thousands):

	2022		2021
Deferred tax assets:
Allowance for credit losses	$	12,695	$	10,627
Leases – right of use obligations		8,505		5,993
Deferred compensation		1,615		1,365
Investment in limited partnerships		1,381		-
SERP agreements		179		262
Share-based compensation		975		759
Tax attribute carryforward benefits		-		446
Net unrealized loss on securities available for sale		44,312		1,712
Accrued pension costs		229		-
Other		1,206		579
Gross deferred tax assets		71,097		21,743
Deferred tax liabilities:
Leases – right of use assets		7,964		5,533
Investments in limited partnerships		-		126
Prepaid expenses		637		662
Prepaid pension costs		-		1,677
Intangible assets		2,580		2,418
Depreciation and amortization		4,080		3,471
Net unrealized gain on securities available for sale		-		-
Loan servicing assets		377		389
Deferred loan origination costs		401		830
Other		1,631		403
Gross deferred tax liabilities		17,670		15,509
Net deferred tax asset	$	53,427	$	6,234

Based upon the Company’s historical and projected future levels of pre-tax and taxable income, the scheduled reversals of taxable temporary differences to offset future deductible amounts, and prudent and feasible tax planning strategies, management believes it is more likely than not that the deferred tax assets will be realized. Therefore, no valuation allowance has been recorded as of December 31, 2022 and 2021.

The Company and its subsidiaries are primarily subject to federal and New York income taxes. The federal income tax years currently open for audit are 2019 through 2022. The New York income tax years currently open for audit are 2020 through 2022.

At December 31, 2022, the Company had no federal or New York net operating loss, capital loss or tax credit carryforwards. The Company had a capital loss carryforward totaling $1.7 million that was generated in the 2020 tax year and a portion of the capital loss was carried back to prior years and the remainder, utilized in 2021.

The Company’s unrecognized tax benefits and changes in unrecognized tax benefits were not significant as of or for the years ended December 31, 2022, 2021 and 2020. There were no material interest or penalties recorded in the income statement in income tax expense for the years ended December 31, 2022, 2021 and 2020. As of December 31, 2022 and 2021, there were no amounts accrued for interest or penalties related to uncertain tax positions.