Income Taxes

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The following table presents the components of income tax expense (benefit):

(Dollars in thousands)
Years ended December 31,	2024	2023	2022
Current Tax Expense:
Federal	$5,166	$10,494	$16,127
State	812	1,501	2,202
Total current tax expense	5,978	11,995	18,329
Deferred Tax (Benefit) Expense:
Federal	(14,618)	412	1,012
State	(2,119)	(4,102)	148
Total deferred tax (benefit) expense (1)	(16,737)	(3,690)	1,160
Total income tax (benefit) expense	($10,759)	$8,305	$19,489

(1)    The deferred income tax benefit recognized in 2024 was largely associated with loans that were reclassified to held for sale and written down to fair value in December 2024.

Total income tax expense varies from the amount determined by applying the Federal income tax rate to income before income taxes.  The following table presents the reasons for the differences:

Years ended December 31,	2024			2023			2022
(Dollars in thousands)	Amount	Rate		Amount	Rate		Amount	Rate
Tax (benefit) expense at Federal statutory rate	($8,152)	21.0	%	$11,861	21.0	%	$19,146	21.0	%
(Decrease) increase in taxes resulting from:
State income tax (benefit) expense, net of federal tax benefit	(1,460)	3.8		1,107	2.0		1,856	2.1
BOLI	(639)	1.6		(732)	(1.3)		(544)	(0.6)
Tax-exempt income, net	(460)	1.2		(543)	(1.0)		(721)	(0.8)
Investments in low-income housing tax credits and other benefits, net	(420)	1.1		(357)	(0.6)		(261)	(0.3)
Share-based compensation	151	(0.4)		29	0.1		(68)	(0.1)
Revaluation of net deferred tax assets for changes in state tax rates	323	(0.8)		(4,093)	(7.2)		—	—
State valuation allowance adjustment, net	1,628	(4.2)		2,153	3.8		—	—
State net operating loss carryforward, net of federal tax	(1,528)	3.9		(1,312)	(2.3)		—	—
Other	(202)	0.5		192	0.2		81	0.1
Total income tax (benefit) expense	($10,759)	27.7	%	$8,305	14.7	%	$19,489	21.4	%

On October 6, 2023 the Commonwealth of Massachusetts enacted into law a tax bill, which made changes to how corporations calculate their Massachusetts taxable income. The law enacted a single sales factor apportionment formula and prescribed a method for sourcing of income from investment and trading activities, effective on January 1, 2025. Upon the enactment in 2023, the Corporation was required to revalue its deferred tax assets and liabilities reflecting the updated apportionment formula and income sourcing method.

The following table presents the approximate tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities:

(Dollars in thousands)
December 31,	2024	2023
Deferred Tax Assets:
Net unrealized losses on available for sale debt securities	$33,646	$38,823
Loss on portfolio loans reclassified to held for sale	15,093	—
Allowance for credit losses on loans	10,595	10,470
Operating lease liabilities	7,469	8,167
Deferred compensation liabilities	5,439	5,258
State net operating loss carryforwards	2,840	1,312
Cash flow hedges	2,595	5,250
Deferred loan origination fees	1,857	2,356
Share-based compensation	1,779	1,806
Capital loss carryforward	1,550	—
Defined benefit pension obligations	1,246	1,425
Nonaccrual interest	606	511
Other	1,462	1,583
Deferred tax assets	86,177	76,961
Less: valuation allowance	(3,780)	(2,153)
Deferred tax assets, net of valuation allowance	82,397	74,808
Deferred Tax Liabilities:
Operating lease ROU assets	(6,803)	(7,488)
Deferred loan origination costs	(6,784)	(7,365)
Depreciation of premises and equipment	(1,956)	(1,897)
Loan servicing rights	(1,936)	(2,171)
Amortization of intangibles	(729)	(946)
Deferred compensation assets	(577)	(467)
Contract cost incentives	(529)	(440)
Other	(61)	(226)
Deferred tax liabilities	(19,375)	(21,000)
Net deferred tax asset	$63,022	$53,808

The Corporation’s net deferred tax asset is included in other assets in the Consolidated Balance Sheets. Net deferred tax assets increased by $9.2 million during 2024 and included establishment of a deferred tax asset associated with loans that were reclassified to held for sale and written down to fair value in December 2024. This deferred tax asset was realized in January 2025 when the loan sale was completed. See Note 10 for additional disclosure on loans reclassified to held for sale.

Deferred tax assets are to be reduced by a valuation allowance if, based on the weight of available evidence, it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets are realized primarily through future reversals of existing taxable temporary differences or by offsetting projected future taxable income.

The valuation allowance amounted to $3.8 million and $2.2 million, respectively, at December 31, 2024 and 2023 and reflected management’s estimate regarding the realizability of a portion of the Corporation’s state deferred tax assets, largely associated with state net operating loss carryforwards. These operating loss carryforwards have various expirations beginning in 2042, the majority of which are subject to annual usage limitations. Management’s assessment considered the Corporation’s forecasted future taxable income, existing taxable temporary differences along with tax planning strategies. Management believes deferred tax assets, net of the valuation allowance, are more-likely-than-not to be realized.

The Corporation had no unrecognized tax benefits as of December 31, 2024 and 2023. The Corporation files income tax returns in the U.S. federal jurisdiction and various state jurisdictions.  Generally, the Corporation is no longer subject to U.S. federal income and state tax examinations by tax authorities for years before 2021.