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INCOME TAXES
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The Company files income tax returns in the U.S. federal jurisdiction, the Commonwealth of Pennsylvania and the State of Maryland. The Company is no longer subject to tax examination by tax authorities for years before 2021.
The following table summarizes income tax expense for the years ended December 31, 2024, 2023 and 2022:
202420232022
Current expense$6,623 $10,021 $5,170 
Deferred benefit(867)(651)(591)
Income tax expense$5,756 $9,370 $4,579 
Effective July 1, 2024, the Company changed its estimated state tax rate to reflect its assessment of the apportionment of income between states as a result of the Merger. Income tax expense for 2024 decreased by $287 thousand due to the application of the new rate to existing deferred tax balances.
The following table reconciles the Company's effective income tax rate to its statutory federal rate for the years ended December 31, 2024, 2023 and 2022:
202420232022
Statutory federal tax rate21.0 %21.0 %21.0 %
Increase (decrease) resulting from:
State taxes, net of federal benefit2.3 1.5 1.6 
Tax exempt interest income(4.6)(2.5)(4.1)
Income from life insurance(2.1)(0.8)(1.3)
Disallowed interest expense2.8 1.1 0.3 
Low-income housing credits and related expenses(0.2)(0.1)(0.2)
Merger-related expenses1.3 0.3 — 
Share-based compensation and related expenses(0.9)(0.1)(0.5)
Other1.1 0.4 0.4 
Effective income tax rate20.7 %20.8 %17.2 %
Net investment securities gains resulted in an income tax expense of $57 thousand for the year ended December 31, 2024 and an income tax benefit of $10 thousand and $34 thousand related to net losses on investment securities for the years ended December 31, 2023 and 2022, respectively.
The Company recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income taxes in the results of operations. There were no penalties or interest related to income taxes recorded in the consolidated statements of income for the years ended December 31, 2024, 2023 and 2022 and no amounts accrued for penalties at December 31, 2024 and 2023.
The following table summarizes the Company's deferred tax assets and liabilities at December 31, 2024 and 2023.
20242023
Deferred tax assets:
Allowance for credit losses$11,116 $6,445 
Deferred compensation1,849 491 
Retirement and salary continuation plans4,712 3,329 
Share-based compensation785 712 
Off-balance sheet reserves565 387 
Nonaccrual loan interest1,735 1,388 
Net deferred loan fees and costs— 342 
Net unrealized losses on AFS securities8,014 7,331 
Net unrealized losses on cash flow hedges— 54 
Purchase accounting adjustments24,318 745 
Bonus accrual3,201 845 
Right-of-use lease liabilities3,248 2,594 
Net operating loss carryforward1,534 1,770 
Other2,618 677 
Total deferred tax assets63,695 27,110 
Deferred tax liabilities:
Depreciation643 493 
Net deferred loan fees and costs946 — 
Net unrealized gains on cash flow hedges259 — 
Mortgage servicing rights845 834 
Purchase accounting adjustments13,879 479 
Right-of-use lease assets3,157 2,433 
Investment in partnerships1,232 468 
Other87 386 
Total deferred tax liabilities21,048 5,093 
Deferred tax asset, net$42,647 $22,017 
At December 31, 2024, the Company had acquired federal and state net operating loss carryforwards of $6.7 million each, subject to annual loss limitation limits per IRC Section 382, that expire beginning in 2033. A deferred tax asset is recognized for these carryforwards because the benefit is more likely than not to be realized.
FASB ASC 740, Income Taxes, (“ASC 740”) clarifies the accounting for income taxes by prescribing a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined in ASC 740 as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 was applied to all existing tax positions upon initial adoption. There was no liability for uncertain tax positions and no known unrecognized tax benefits at December 31, 2024 or 2023.