INCOME TAXES

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

INCOME TAXES

10. INCOME TAXES

The income tax expense included in the consolidated financial statements for the years ended December 31 is allocated as follows:

(In thousands)	2017		2016		2015
Federal:
Current expense/(benefit)	$	1,559	$	13,207	$	13,035
Deferred expense/(benefit)		13,922		486		(3,210	)
State:
Current expense/(benefit)		2,133		2,105		3,176
Deferred expense/(benefit)		196		466		(833	)
Total income tax expense	$	17,810	$	16,264	$	12,168

Total income tax expense differed from the amounts computed by applying the U.S. Federal income tax rate of 35 percent to income before taxes as a result of the following:

(In thousands)	2017			2016			2015
Computed “expected” tax expense	$	19,008		$	14,959		$	11,249
(Decrease)/increase in taxes resulting from:
Tax-exempt income		(584	)		(496	)		(316	)
State income taxes		1,514			1,671			1,523
Bank owned life insurance income		(475	)		(492	)		(454	)
Life insurance expense		479			297			175
Interest disallowance		124			95			40
Meals and entertainment expense		76			77			69
Stock-based compensation		(982	)		15			86
Rate adjustment		—			—			(70	)
Tax reform impact		(1,648	)		—			—
Other		298			138			(134	)
Total income tax expense	$	17,810		$	16,264		$	12,168

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31 are as follows:

(In thousands)	2017		2016
Deferred tax assets:
Allowance for loan losses	$	9,972	$	12,969
Lease adjustment		49		89
Post-retirement benefits		297		443
Prepaid alternative minimum assessment		—		283
Contribution limitation		—		235
Organization costs		14		22
Cash flow hedge		—		304
Unrealized loss on securities available for sale		714		668
Stock option expense		118		387
Nonaccrual interest		31		25
Accrued compensation		900		1,993
Capital leases		774		1,075
Total gross deferred tax assets	$	12,869	$	18,493
Deferred tax liabilities:
Depreciation	$	10,091	$	800
Cash flow hedge		392		—
Deferred loan origination costs and fees		1,072		1,535
Deferred income		729		790
Investment securities, principally due to the accretion of bond discount		13		4
Other		20		44
Total gross deferred tax liabilities		12,317		3,173
Net deferred tax asset	$	552	$	15,320

Based upon taxes paid and projected future taxable income, Management believes that it is more likely than not that the gross deferred tax assets will be realized.

At December 31, 2017 and 2016, the Company had no unrecognized tax benefits. The Company does not expect the amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months.

On December 22, 2017, the Tax Cuts and Jobs Act (H.R. 1) (the “Act”) was signed into law.  The Act contains several changes in existing tax law impacting businesses, including a reduction in the Federal corporate income tax rate from 35 percent to 21 percent, effective January 1, 2018. The Company determined a reduction in the value of its net deferred tax liability of approximately $1.6 million, which was a result of a reduction in the Federal corporate tax rate that is expected to apply to the reversal of the Company’s temporary differences. The Company recorded the reduction in the deferred tax liability as an income tax benefit in the Company’s statement of income for the fourth quarter ended December 31, 2017. The tax benefit was net of tax expense of $215 thousand related to the other comprehensive income revaluation adjustment.

The Company is subject to U.S. Federal income tax as well as income tax of various state jurisdictions. The Company is no longer subject to federal examination for tax years prior to 2014. The tax years of 2014, 2015 and 2016 remains open to federal examination. The Company is no longer subject to state and local examinations by tax authorities for tax years prior to 2013. The tax years of 2013, 2014, 2015 and 2016 remain open for state examination.