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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The composition of income tax expense for the years ended December 31, 2022, 2021, and 2020 was as follows:
(in thousands)202220212020
Current:
Federal$4,591 $5,351 $4,268 
State(134)630 — 
Total current4,457 5,981 4,268 
Deferred:
Federal(119)(284)(1,085)
State— — — 
Total deferred(119)(284)(1,085)
Total income tax expense$4,338 $5,697 $3,183 
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, 2022, 2021, and 2020 are as follows:
202220212020
(in thousands)Amount%Amount%Amount%
Income before provision for income tax expense$25,089 $28,214 $17,476 
Tax at statutory federal income tax rate$5,269 21.00 %$5,925 21.00 %$3,670 21.00 %
Tax-exempt income, net(821)(3.27)(733)(2.60)(487)(2.79)
State income tax, net of federal tax benefit(106)(0.42)498 1.76 — — 
Other, net(4)(0.02)7 0.03 — — 
Provision for income tax expense$4,338 17.29 %$5,697 20.19 %$3,183 18.21 %
Income taxes as a percentage of earnings before income taxes as reported in the consolidated financial statements were 17.3% for the year ended December 31, 2022 compared to 20.2% and 18.2% for the years ended December 31, 2021 and 2020, respectively. The effective tax rate for each of the years ended December 31, 2022, 2021, and 2020, 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 is a $0.1 million benefit and a $0.03 million benefit associated with a historic tax credit investment for the years ended December 31, 2022 and 2021, respectively. The investment is expected to generate a $0.3 million 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 components of deferred tax assets and deferred tax liabilities at December 31, 2022 and 2021 were as follows:
(in thousands)20222021
Deferred tax assets:
Allowance for loan losses$3,267 $2,961 
Securities9,714 — 
Pension— 262 
Other real estate owned559 611 
Deferred loan fees462 401 
Lease liability 322 386 
Intangible assets18 20 
Accrued / deferred compensation668 581 
Other420 392 
Total deferred tax assets$15,430 $5,614 
Deferred tax liabilities:
Premises and equipment$427 $428 
Mortgage servicing rights609 558 
Deferred loan costs422 327 
Pension378 — 
Right-of-use asset313 378 
Prepaid expenses456 409 
Securities— 117 
Other9 5 
Total deferred tax liabilities2,614 2,222 
Net deferred tax assets$12,816 $3,392 
The $9.7 million deferred tax asset associated with the unrealized losses on securities is mainly a result of changes in interest rates, and the unrealized losses are considered to be temporary because the fair value is expected to recover as the securities approach their respective maturity dates. The issuers of the securities are of high-credit quality and all principal amounts are expected to be paid when the securities mature. The Company does not intend to sell, and it is likely that the Company will not be required to sell, the securities prior to their anticipated recovery.
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, 2022. 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, 2022 and 2021, respectively, the Company did not have any uncertain tax provisions, and did not record any related tax liabilities.