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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The composition of income tax expense for the years ended December 31, 2021, 2020, and 2019 was as follows:
(in thousands)202120202019
Current:
Federal$5,351 $4,268 $3,830 
State630 — — 
Total current5,981 4,268 3,830 
Deferred:
Federal(284)(1,085)(7)
State— — — 
Total deferred(284)(1,085)(7)
Total income tax expense$5,697 $3,183 $3,823 
Applicable income tax expense for financial reporting purposes differs from the amount computed by applying the statutory federal income tax rate for the reasons noted in the table for the years ended December 31, 2021, 2020, and 2019 are as follows:
202120202019
(in thousands)Amount%Amount%Amount%
Income before provision for income tax expense$28,214 $17,476 $19,937 
Tax at statutory federal income tax rate$5,925 21.00 %$3,670 21.00 %$4,187 21.00 %
Tax-exempt income, net(733)(2.60)(487)(2.79)(408)(2.04)
State income tax, net of federal tax benefit498 1.76 — — — — 
Other, net7 0.03 — — 44 0.22 
Provision for income tax expense$5,697 20.19 %$3,183 18.21 %$3,823 19.18 %
Income taxes as a percentage of earnings before income taxes as reported in the consolidated financial statements were 20.2% for the year ended December 31, 2021 compared to 18.2% and 19.2% for the years ended December 31, 2020 and 2019, respectively.
The increase in the effective tax rate for the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily attributable to an increase in earnings and an increase in state taxes attributed to elevated earnings. The decrease in the effective tax rate for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily attributable to tax-free revenues having a greater impact on pre-tax income due to the reduced level of earnings in 2020. The effective tax rate for each of years ended December 31, 2021, 2020, and 2019, respectively, is lower than the U.S. federal statutory rate of 21% primarily due to tax-free revenues.
Also included in the effective tax rate for the year ended December 31, 2021 is a $25,000 benefit associated with a historic tax credit investment. The investment is expected to generate a $321,000 tax benefit over the life of the project and is being recognized under the deferral method of accounting. During 2021, the Company recognized a $4.0 million current tax benefit associated with the historic tax credits, partially offset by a $3.7 million current tax expense associated with the write-off of the investment. The Company recorded deferred income in the amount of $289,000, a $7,000 deferred tax liability, and a $25,000 net tax benefit within the income tax expense.
The components of deferred tax assets and deferred tax liabilities at December 31, 2021 and 2020 were as follows:
(in thousands)20212020
Deferred tax assets:
Allowance for loan losses$2,961 $2,927 
Pension262 1,233 
Other real estate owned611 550 
Deferred loan fees401 563 
Lease liability 386 449 
Intangible assets20 22 
Accrued / deferred compensation581 530 
Other392 368 
Total deferred tax assets$5,614 $6,642 
Deferred tax liabilities:
Premises and equipment$428 $553 
Mortgage servicing rights558 514 
Deferred loan costs327 288 
Right-of-use asset378 443 
Prepaid expenses409 359 
Securities117 900 
Other5 8 
Total deferred tax liabilities2,222 3,065 
Net deferred tax assets$3,392 $3,577 
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the appropriate character during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning initiatives in making this assessment. In management's opinion, the Company will more likely than not realize the benefits of its deferred tax assets and, therefore, has not established a valuation allowance against its deferred tax assets as of December 31, 2021. Management arrived at this conclusion based upon the level of historical taxable income and projections for future taxable income of the appropriate character over the periods in which the deferred tax assets are deductible.
The Company follows ASC Topic 740, Income Taxes, which addresses the accounting for uncertain tax positions. For each of the years ended December 31, 2021 and 2020, respectively, the Company did not have any uncertain tax provisions, and did not record any related tax liabilities.