Income Taxes

12 Months Ended

Dec. 31, 2023

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)	2023		2022		2021
Federal
Current	$	33,070	$	35,514	$	22,581
Deferred	459		(2,801)		2,273
Total Federal	33,529		32,713		24,854
State
Current	352		828		361
Deferred	142		(131)		110
Total State	494		697		471
Total Federal and State	$	34,023	$	33,410	$	25,325

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 following table presents a reconciliation of the statutory tax rate to the effective tax rate for the years ended December 31:

	2023		2022		2021
Statutory tax rate	21.0	%	21.0	%	21.0	%
Tax-exempt interest	(0.8)	%	(1.0)	%	(1.3)	%
Low income housing tax credits	(1.5)	%	(0.7)	%	(1.5)	%
Bank owned life insurance	(0.2)	%	(0.2)	%	(0.3)	%
Other	0.5	%	0.7	%	0.8	%
Effective Tax Rate	19.0	%	19.8	%	18.7	%

The following table presents significant components of our temporary differences as of the dates presented:

	December 31,
(dollars in thousands)	2023		2022
Deferred Tax Assets:
Allowance for loan losses and other reserves	$	24,465	$	23,421
Net unrealized holding losses on securities available-for-sale	17,452		21,843
Lease liabilities	10,572		10,767
State net operating loss carryforwards	3,464		5,924
Net unrealized losses on interest rate swaps	3,137		4,562
Cumulative adjustment to funded status of pension	3,987		4,029
Low income housing partnerships and other investments	174		2,692
Other employee benefits	3,740		4,181
Capital loss carryforward	2,092		2
Other	1,202		549
Deferred Tax Assets	70,285		77,970
Less: Valuation allowance	(3,464)		(5,924)
Total Deferred Tax Assets	66,821		72,046
Deferred Tax Liabilities:
Right-of-use lease assets	(9,127)		(9,385)
Deferred loan income, net	(4,633)		(4,533)
Prepaid pension	(3,360)		(3,706)
Purchase accounting adjustments	(1,823)		(1,945)
Depreciation on premises and equipment	(1,182)		(629)
Other	(1,428)		(240)
Total Deferred Tax liabilities	(21,553)		(20,438)
Net Deferred Tax Asset	$	45,268	$	51,608

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 $3.5 million in 2023 compared to $5.9 million in 2022 related to Pennsylvania income tax NOLs. The Pennsylvania NOL carryforwards total $69.4 million and will expire in the years 2024-2043.

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)	2023		2022		2021
Balance at beginning of year	$	1,648	$	1,331	$	1,277
Prior period tax positions	(434)		—		—
Current period tax positions	726		317		54
Balance at End of Year	$	1,940	$	1,648	$	1,331
Amount That Would Affect the Effective Tax Rate if Recognized	$	1,551	$	1,148	$	1,069

As of December 31, 2023, we had $1.9 million of unrecognized gross tax benefits. Gross tax benefits do not reflect the federal tax effect associated with state income tax amounts. The total amount of the net unrecognized tax benefits at December 31, 2023 that would have affected the effective tax rate, if recognized, was $1.6 million.

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, 2023, no significant changes to UTB are projected; however, tax audit examinations are possible. As of December 31, 2023, all income tax returns filed for the tax years 2020 - 2022 remain subject to examination by the respective taxing authorities.