Income Taxes

12 Months Ended

Dec. 31, 2019

The Tax Cuts and Jobs Act was enacted on December 22, 2017. Among other things, the new law (i) establishes a new, flat corporate federal statutory income tax rate of 21%, (ii) eliminates the corporate alternative minimum tax and allows the use of any such carryforwards to offset regular tax liability for any taxable year, (iii) limits the deduction for net interest expense incurred by U.S. corporations, (iv) allows businesses to immediately expense, for tax purposes, the cost of new investments in certain qualified depreciable assets, (v) eliminates or reduces certain deductions related to meals and entertainment expenses, (vi) modifies the limitation on excessive employee remuneration to eliminate the exception for performance-based compensation and clarifies the definition of a covered employee and (vii) limits the deductibility of deposit insurance premiums. The Tax Cuts and Jobs Act also significantly changes U.S. tax law related to foreign operations, however, such changes do not currently impact the Corporation.

The following is a summary of income tax expense for the years ended December 31, 2019, 2018, and 2017:



	2019			2018			2017
Current – federal	$	8,265		$	7,520		$	8,978
Current – state	499			66			29
Deferred – federal	(204		)	(1,076		)	376
Deferred tax adjustment related to reduction in U.S. federal statutory income tax rate	0			0			3,009
Income tax expense	$	8,560		$	6,510		$	12,392

The reconciliation of income tax attributable to pre-tax income at the federal statutory tax rates to income tax expense is as follows:



	2019			%		2018			%		2017			%
Tax at statutory rate	$	10,214		21.0		$	8,448		21.0		$	12,688		35.0
Tax exempt income, net	(1,382		)	(2.8	)	(1,403		)	(3.5	)	(1,899		)	(5.2	)
Deferred tax adjustment related to reduction in U.S. federal statutory income tax rate	0			0.0		0			0.0		3,009			8.3
Bank owned life insurance	(276		)	(0.6	)	(296		)	(0.7	)	(581		)	(1.6	)
Other	4			0.0		(239		)	(0.6	)	(825		)	(2.3	)
Income tax expense	$	8,560		17.6		$	6,510		16.2		$	12,392		34.2

Income tax expense for the year ended December 31, 2017 was impacted by the adjustment of our deferred tax assets and liabilities related to the reduction in the U.S. federal statutory income tax rate to 21% under the Tax Cuts and Jobs Act of 2017, which was enacted on December 22, 2017. Accordingly, the Corporation recognized additional tax expense totaling $3,009 in 2017, as detailed in the table above.

The following table sets forth deferred taxes as of December 31, 2019 and 2018 based on the enacted U.S. statutory federal income tax rate of 21%.



	2019		2018
Deferred tax assets:
Allowance for loan losses	$	4,014	$	3,088
Fair value adjustments – business combination	854		966
Deferred compensation	2,405		2,056
Post-retirement benefits	754		836
Unrealized loss on interest rate swap	102		42
Nonaccrual loan interest	557		589
Accrued expenses	1,210		1,254
Deferred fees and costs	472		588
Unrealized loss on securities available for sale	0		940
Operating lease liability	4,216		0
Other	381		366
	14,965		10,725
Deferred tax liabilities:
Unrealized gain on securities available for sale	1,913		0
Premises and equipment	2,089		1,459
Unrealized gain on trading securities	340		63
Intangibles – section 197	2,305		2,414
Mortgage servicing rights	330		314
Operating lease asset	4,136		0
Other	259		178
	11,372		4,428
Net deferred tax asset	$	3,593	$	6,297

At December 31, 2019 and 2018, the Corporation had no unrecognized tax benefits. The Corporation does not expect the total amount of unrecognized tax benefits to significantly increase in the next twelve months.

The Corporation recognizes interest and/or penalties related to income tax matters as part of income tax expense. At December 31, 2019 and 2018, there were no amounts accrued for interest and/or penalties and no amounts recorded as expense for the years ending December 31, 2019, 2018, and 2017.

The Corporation and its subsidiaries are subject to U.S. federal income tax, as well as various filing various state returns. The Corporation is no longer subject to examination by the taxing authorities for years prior to 2015. Tax years 2016 through 2019 are open to examination.