Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The current and deferred components of income tax expense (benefit) were as follows:

For the years ended December 31,	2021		2020		2019
Federal income tax
Current	$	6,058,000	$	4,923,000	$	3,978,000
Deferred	999,000		(262,000)		336,000
	7,057,000		4,661,000		4,314,000
State franchise tax	587,000		460,000		421,000
	$	7,644,000	$	5,121,000	$	4,735,000

The actual tax expense differs from the expected tax expense (computed by applying the applicable U.S. Federal corporate income tax rate to income before income taxes) as follows:

For the years ended December 31,	2021		2020		2019
Expected tax expense	$	9,222,000	$	6,773,000	$	6,355,000
Non-taxable income	(1,833,000)		(1,808,000)		(1,749,000)
State franchise tax, net of federal tax benefit	444,000		348,000		332,000
Equity compensation	(41,000)		(43,000)		(45,000)
Tax credits, net of amortization	(150,000)		(144,000)		(85,000)
Other	2,000		(5,000)		(73,000)
	$	7,644,000	$	5,121,000	$	4,735,000

Deferred tax assets and liabilities are classified in other assets and other liabilities in the consolidated balance sheets. No valuation allowance is deemed necessary for the deferred tax asset. Items that give rise to the deferred income tax assets and liabilities and the tax effect of each at December 31, 2021 and 2020 are as follows:

	2021		2020
Allowance for loan losses	$	3,259,000	$	3,413,000
OREO	—		9,000
Accrued pension and post-retirement	887,000		948,000
Unrealized loss on securities available for sale	457,000		—
Unrealized loss on derivative instruments	544,000		1,865,000
Unrealized loss on securities transferred from available for sale to held to maturity	23,000		35,000
Restricted stock grants	308,000		270,000
Core deposit intangible	29,000		24,000
Investment in flow through entities	79,000		82,000
Other assets	35,000		87,000
Total deferred tax asset	5,621,000		6,733,000
Net deferred loan costs	(2,055,000)		(1,894,000)
Depreciation	(2,334,000)		(2,013,000)
Unrealized gain on securities available for sale	—		(1,332,000)
Goodwill	(214,000)		(161,000)
Mortgage servicing rights	(561,000)		(411,000)
Unrealized gain on derivative instruments	(544,000)		(554,000)
Prepaid expense	(295,000)		(195,000)
Total deferred tax liability	(6,003,000)		(6,560,000)
Net deferred tax asset (liability)	$	(382,000)	$	173,000

At December 31, 2021 and 2020, the Company held investments in four limited partnerships with related low income housing tax credits. The tax credits from the investments are estimated at $354,000 and $351,000 for the years ended December 31, 2021 and 2020, respectively, and are recorded as a reduction of income tax expense. Amortization of the investment in the limited

partnership totaled $309,000 and $311,000 for the years ended December 31, 2021 and 2020, respectively, and is recognized as a component of income tax expense in the consolidated statements of income. The carrying value of these investments was $1,753,000 at December 31, 2021 and $1,734,000 at December 31, 2020, which is comprised of the Company's equity investment in the limited partnerships, and is recorded in other assets.

FASB ASC Topic 740, "Income Taxes," defines the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company's financial statements. Topic 740 prescribes a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those tax positions to be recognized in the financial statements. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service ("IRS") for the years ended December 31, 2018 through 2021.