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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The following table presents the composition of income tax expense (benefit) for the years ended December 31:
(dollars in thousands)202220212020
Federal
Current$35,514 $22,581 $4,256 
Deferred(2,801)2,273 (4,273)
Total Federal32,713 24,854 (17)
State
Current828 361 145 
Deferred(131)110 (129)
Total State697 471 16 
Total Federal and State$33,410 $25,325 $(1)
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before income taxes. We ordinarily generate an annual effective tax rate that is less than the statutory rate of 21 percent primarily due to benefits resulting from certain partnership investments, such as low income housing and historic rehabilitation projects, tax-exempt interest, excludable dividend income and tax-exempt income on BOLI. The state tax provision is due to taxable business activities conducted at our loan production office in New York.
The following table presents a reconciliation of the statutory tax rate to the effective tax rate for the years ended December 31:
202220212020
Statutory tax rate21.0 %21.0 %21.0 %
Tax-exempt interest(1.0)%(1.3)%(11.9)%
Low income housing tax credits(0.7)%(1.5)%(11.1)%
Bank owned life insurance(0.2)%(0.3)%(1.8)%
Other0.7 %0.8 %3.8 %
Effective Tax Rate19.8 %18.7 %— %
The following table presents significant components of our temporary differences as of the dates presented:
December 31,
(dollars in thousands)20222021
Deferred Tax Assets:
Allowance for loan losses$23,383 $22,083 
Net unrealized holding losses on securities available-for-sale21,843 — 
Lease liabilities10,767 10,876 
State net operating loss carryforwards5,924 5,565 
Net unrealized losses on interest rate swaps4,562 — 
Cumulative adjustment to funded status of pension4,029 3,922 
Low income housing partnerships3,098 3,270 
Other employee benefits3,070 3,433 
Other3,842 3,973 
Deferred Tax Assets80,518 53,122 
Less: Valuation allowance(5,924)(5,565)
Total Deferred Tax Assets74,594 47,557 
Deferred Tax Liabilities:
Right-of-use lease assets(9,385)(9,603)
Deferred loan income(6,113)(6,697)
Prepaid pension(4,084)(4,566)
Purchase accounting adjustments(1,853)(1,954)
Depreciation on premises and equipment(629)(1,107)
Net unrealized holding gains on securities available-for-sale— (2,004)
Other(922)(1,466)
Total Deferred Tax liabilities(22,986)(27,397)
Net Deferred Tax Asset$51,608 $20,160 
We establish a valuation allowance when it is more likely than not that we will not be able to realize the benefit of the deferred tax assets. Except for Pennsylvania net operating losses, or NOLs, we have determined that no valuation allowance is needed for deferred tax assets because it is more likely than not that these assets will be realized through future reversals of existing temporary differences and through future taxable income. The valuation allowance is reviewed quarterly and adjusted based on management’s assessments of realizable deferred tax assets. Gross deferred tax assets were reduced by a valuation allowance of $5.9 million in 2022 compared to $5.6 million in 2021 related to Pennsylvania income tax NOLs. The Pennsylvania NOL carryforwards total $59.3 million and will expire in the years 2022-2042.
Unrecognized Tax Benefits
The following table reconciles the change in Federal and State gross unrecognized tax benefits, or UTB, for the years ended December 31:
(dollars in thousands)202220212020
Balance at beginning of year$1,331 $1,277 $1,051 
Prior period tax positions— — (18)
Current period tax positions317 54 244 
Balance at End of Year$1,648 $1,331 $1,277 
Amount That Would Impact the Effective Tax Rate if Recognized$1,148 $1,069 $1,027 
We classify interest and penalties as an element of tax expense. We monitor changes in tax statutes and regulations to determine if significant changes will occur over the next 12 months. As of December 31, 2022, no significant changes to UTB are projected; however, tax audit examinations are possible. As of December 31, 2022, all income tax returns filed for the tax years 2019 - 2021 remain subject to examination by the Internal Revenue Service and the New York State Department of Taxation and Finance.