INCOME TAXES

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

INCOME TAXES

14. INCOME TAXES

The net deferred tax asset at December 31, 2022 and 2021 represents the following temporary difference components:

	December 31,		December 31,
(In Thousands)	2022		2021
Deferred tax assets:
Unrealized holding losses on securities	$	13,391	$	0
Allowance for loan losses		3,648		2,935
Purchase accounting adjustments on loans		938		1,621
Deferred compensation		1,149		965
Operating leases liability		907		821
Deferred loan origination fees		779		333
Net operating loss carryforward		659		778
Accrued incentive compensation		354		529
Other deferred tax assets		1,115		1,433
Total deferred tax assets		22,940		9,415
Deferred tax liabilities:
Unrealized holding gains on securities		0		1,278
Defined benefit plans - ASC 835		129		57
Bank premises and equipment		298		460
Core deposit intangibles		633		725
Right-of-use assets from operating leases		907		821
Other deferred tax liabilities		89		187
Total deferred tax liabilities		2,056		3,528
Deferred tax asset, net	$	20,884	$	5,887

The provision for income taxes includes the following:

(In Thousands)	2022		2021		2020
Currently payable	$	5,998	$	8,386	$	4,230
Tax expense resulting from allocations of certain tax benefits to equity or as a reduction in other assets		134		128		121
Deferred		(400)		(1,381)		(361)
Total provision	$	5,732	$	7,133	$	3,990

A reconciliation of income tax at the statutory rate to the Corporation’s effective rate is as follows:

	2022			2021			2020
(Dollars In Thousands)	Amount		%	Amount		%	Amount		%
Expected provision	$	6,794	21.0	$	7,914	21.0	$	4,875	21.0
Tax-exempt interest income		(1,029)	(3.2)		(921)	(2.4)		(808)	(3.5)
Increase in cash surrender value and other income from life insurance, net		(103)	(0.3)		(118)	(0.3)		(170)	(0.7)
ESOP dividends		(130)	(0.4)		(120)	(0.3)		(110)	(0.5)
State income tax, net of Federal benefit		296	0.9		375	1.0		172	0.7
Other, net		(96)	(0.3)		3	0.0		31	0.1
Effective income tax provision	$	5,732	17.7	$	7,133	18.9	$	3,990	17.2

In connection with the 2020 Covenant merger, the Corporation received a net operating loss (“NOL”) available to be carried forward against future federal taxable income of $4.6 million. Availability of the NOL does not expire; however, the amount that may be offset against taxable income is limited to approximately $563,000 per year and further limited annually to no more than 80% of taxable income without regard to the NOL. At December 31, 2022, the unused amount of the NOL is $3.1 million.

The Corporation has no unrecognized tax benefits, nor pending examination issues related to tax positions taken in preparation of its income tax returns. With limited exceptions, the Corporation is no longer subject to examination by the Internal Revenue Service for years prior to 2019.