INCOME TAXES

12 Months Ended

Dec. 31, 2022

INCOME TAXES [Abstract]

INCOME TAXES

12. INCOME TAXES

The provision for income taxes consists of the following (in thousands):

	Year Ended December 31,
	2022			2021		2020
Currently payable	$	6,471		$	5,510	$	4,896
Deferred tax liability (asset)		(36	)		689		367
Provision for income taxes	$	6,435		$	6,199	$	5,263

The following temporary differences gave rise to the net deferred tax asset and liabilities at December 31, 2022 and 2021, respectively (in thousands):

	2022		2021
Deferred tax assets:
Allowance for loan losses	$	4,581	$	4,712
Deferred compensation		559		491
Merger & acquisition costs		1		1
Allowance for losses on available-for-sale securities		9		4
Pension and other retirement obligation		146		360
Interest on non-accrual loans		974		795
Incentive plan accruals		503		536
Other real estate owned		32		16
Unrealized losses on available-for-sale securities		9,972		-
Low income housing tax credits		138		137
NOL carry forward		1,134		1,226
Right of use asset		1,053		686
Accrued vacation		157		168
Other		164		159
Total	$	19,423	$	9,291

Deferred tax liabilities:
Premises and equipment	$	(492	)	$	(559	)
Investment securities accretion		(240	)		(90	)
Loan fees and costs		(685	)		(644	)
Goodwill and core deposit intangibles		(2,332	)		(2,309	)
Mortgage servicing rights		(205	)		(246	)
Unrealized gains on available-for-sale securities		-			(81	)
Unrealized gains on equity securities		(16	)		(61	)
Unrealized gains on interest rate swap		(1,443	)		(401	)
Right of use asset		(1,047	)		(685	)
Other		(77	)		(133	)
Total		(6,537	)		(5,209	)
Deferred tax (liability) asset, net	$	12,886		$	4,082

No valuation allowance was established at December 31, 2022 and 2021, due to the Company’s ability to carryback to taxes paid in previous years and certain tax strategies, coupled with the anticipated future taxable income as evidenced by the Company’s earnings potential.

The total provision for income taxes is different from that computed at the statutory rates due to the following items (dollars in thousands):

	Year Ended December 31,
	2022			2021			2020
Provision at statutory rates on pre-tax income	$	7,450		$	7,413		$	6,377
Effect of tax-exempt income		(835	)		(764	)		(936	)
Low income housing tax credits		(141	)		(141	)		(141	)
Bank owned life insurance		(179	)		(384	)		(146	)
Nondeductible interest		74			44			44
Nondeductible merger and acquisition expenses		61			-			32
Other items		5			31			33
Provision for income taxes	$	6,435		$	6,199		$	5,263
Statutory tax rates		21	%		21	%		21	%
Effective tax rates		18.1	%		17.6	%		17.3	%

The Company prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. With limited exception, the Company’s federal and state income tax returns for taxable years through 2018 have been closed for purposes of examination by the federal and state taxing authorities.

Investments in Qualified Affordable Housing Projects

As of December 31, 2022 and 2021, the Company was invested in seven and five partnerships, respectively, that provide affordable housing. The balance of the investments, which is included within other assets in the Consolidated Balance Sheet, was $1,304,000 and $288,000 as of December 31, 2022 and 2021, respectively. Investments purchased prior to January 1, 2015, are accounted for utilizing the effective yield method. During 2022, the Company entered into two additional partnerships that are expected to generate tax credits of $6,660,000 that will be utilized over the next thirteen years. During 2021, the Company entered into one additional partnership that is expected to generate tax credits of $2,951,000 that will be utilized over the next eleven years. Tax credits of $141,000 were recognized as a reduction of tax expense during 2022, 2021 and 2020. Included within other expenses on the Consolidated Statement of Income was $108,000 of amortization of the investments in qualified affordable housing projects for 2022, 2021 and 2020, respectively.