Income Taxes

12 Months Ended

Dec. 31, 2019

The following table presents the components of income tax expense:



(Dollars in thousands)
Years ended December 31,	2019			2018			2017
Current tax expense:
Federal		$17,298			$15,460			$23,827
State	3,254			2,863			2,201
Total current tax expense	20,552			18,323			26,028
Deferred tax (benefit) expense:
Federal	(1,294		)	63			5,717
State	(197		)	(126		)	(30		)
Total deferred (benefit) tax expense	(1,491		)	(63		)	5,687
Total income tax expense		$19,061			$18,260			$31,715

Total income tax expense varies from the amount determined by applying the Federal income tax rate to income before income taxes. The following table presents the reasons for the differences:



Years ended December 31,	2019					2018					2017
(Dollars in thousands)	Amount			Rate		Amount			Rate		Amount			Rate
Tax expense at Federal statutory rate		$18,518		21.0	%		$18,205		21.0	%		$27,174		35.0	%
(Decrease) increase in taxes resulting from:
Tax-exempt income, net	(814		)	(0.9	)	(809		)	(0.9	)	(1,313		)	(1.7	)
Dividends received deduction	(36		)	—		(45		)	(0.1	)	(55		)	(0.1	)
BOLI	(494		)	(0.6	)	(461		)	(0.5	)	(757		)	(0.9	)
Share-based compensation	(221		)	(0.3	)	(444		)	(0.5	)	(481		)	(0.6	)
Federal tax credits	(364		)	(0.4	)	(364		)	(0.4	)	(364		)	(0.5	)
Change in fair value of contingent consideration	—			—		(39		)	(0.1	)	(225		)	(0.3	)
State income tax expense, net of federal tax benefit	2,417			2.7		2,162			2.5		1,411			1.8
Adjustment to net deferred tax assets for enacted changes in federal tax law	—			—		—			—		6,170			7.9
Other	55			0.1		55			0.1		155			0.2
Total income tax expense		$19,061		21.6	%		$18,260		21.1	%		$31,715		40.8	%

The Tax Act was signed into law in 2017. The enactment of the Tax Act required companies to revalue deferred tax assets and liabilities in light of the new federal income tax rate. As a result, in 2017 the Corporation’s net deferred tax assets were written down by $6.2 million, with a corresponding increase to income tax expense. The majority of the provisions of the Tax Act became effective on January 1, 2018. The provisions that impacted the Corporation included the reduction

of the corporate income tax rate from 35% to 21%, changes to the deductibility of certain meals and entertainment expenses, and changes to the deductibility of executive compensation. The Tax Act also accelerated expensing of certain depreciable property for assets placed in service after September 27, 2017 and before January 1, 2023.

The following table presents the approximate tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities:



(Dollars in thousands)
December 31,	2019			2018
Deferred tax assets:
Allowance for loan losses		$6,348			$6,362
Operating lease liabilities	6,782			—
Defined benefit pension obligations	1,361			420
Deferred compensation	4,200			3,688
Deferred loan origination fees	1,505			1,410
Share-based compensation	1,358			1,124
Net unrealized losses on available for sale debt securities	—			5,149
Other	2,031			1,917
Deferred tax assets	23,585			20,070
Deferred tax liabilities:
Net unrealized gains on available for sale debt securities	(991		)	—
Amortization of intangibles	(1,696		)	(1,918		)
Operating lease right-of-use assets	(6,296		)	—
Deferred loan origination costs	(4,084		)	(3,897		)
Loan servicing rights	(829		)	(858		)
Other	(1,388		)	(1,120		)
Deferred tax liabilities	(15,284		)	(7,793		)
Net deferred tax asset		$8,301			$12,277

Effective January 1, 2019 the Corporation adopted ASC 842. As a result, the Corporation recognized a deferred tax asset related to operating lease liabilities and a corresponding deferred tax liability related to operating lease right-of-use assets. Prior to adoption, the tax effect of the temporary difference related to operating lease rent expense was presented net within other deferred tax assets.

The Corporation’s net deferred tax asset is included in other assets in the Consolidated Balance Sheets. Management has determined that a valuation allowance is not required for any of the deferred tax assets since it is more-likely-than-not that these assets will be realized primarily through future reversals of existing taxable temporary differences or by offsetting projected future taxable income.

The Corporation had no unrecognized tax benefits as of December 31, 2019 and 2018.

The Corporation files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. Generally, the Corporation is no longer subject to U.S. federal income and state tax examinations by tax authorities for years before 2016.