Income Taxes

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

16. Income Taxes

The current and deferred components of income tax expense (benefit) for the years ended December 31, are as follows:

	2019			2018			2017
(dollars in thousands)
Current expense:
Federal	$	2,548		$	2,637		$	3,628
State		697			697			412
Total current expense		3,245			3,334			4,040
Deferred (benefit) expense:
Federal		(1,660	)		(1,238	)		6,496
State		(367	)		(528	)		422
Valuation allowance reversal		(108	)		—			—
Total deferred (benefit) expense		(2,135	)		(1,766	)		6,918
Provision for income taxes	$	1,110		$	1,568		$	10,958

Income tax accounts included in other assets at December 31, are as follows:

	2019		2018
(dollars in thousands)
Current receivable	$	3,446	$	13,194
Deferred income tax asset, net		24,566		20,321
Total	$	28,012	$	33,515

Differences between income tax expense (benefit) at the statutory federal income tax rate and total income tax expense are summarized as follows:

	2019			2018			2017
(dollars in thousands)
Federal income tax expense at statutory rates	$	8,570		$	7,934		$	11,308
State income tax, net of federal income tax benefit		261			134			550
Insurance income		(265	)		(176	)		(371	)
Effect of tax-exempt interest		(6,737	)		(6,510	)		(8,683	)
Net tax credit		(292	)		(349	)		(341	)
Valuation allowance reversal		(108	)		—			—
Sequestration (reversal) accrual		(438	)		438			—
Deferred tax remeasurement		—			—			8,448
Other		119			97			47
Total	$	1,110		$	1,568		$	10,958
Effective tax rate		2.72	%		4.15	%		32.95	%

The following table sets forth the Company’s gross deferred income tax assets and gross deferred income tax liabilities at December 31:

	2019			2018
(dollars in thousands)
Deferred income tax assets:
Allowance for loan losses	$	8,354		$	8,058
Deferred compensation		8,910			8,184
Pension and SERP liability		8,770			6,506
Operating lease liabilities		3,567			—
Unrealized losses on securities transferred to held-to-maturity		643			912
Depreciation		1,060			908
QZAB credit		812			—
Accrued bonus		708			717
Charitable contributions carryforward		276			389
Nonaccrual interest		115			109
Unrealized (gains) losses on securities available-for-sale		114			(2	)
Other		206			181
Gross deferred income tax asset		33,535			25,962
Valuation allowance		—			(108	)
Gross deferred income tax asset, net of valuation allowance		33,535			25,854
Deferred income tax liabilities:
Pension liability		(4,258	)		(4,436	)
Operating lease right-of-use assets		(3,520	)		—
Deferred origination costs		(516	)		(524	)
Prepaid expenses		(337	)		(228	)
Mortgage servicing rights		(338	)		(345	)
Gross deferred income tax liability		(8,969	)		(5,533	)
Deferred income tax asset net	$	24,566		$	20,321

Based on the Company’s historical and current pre-tax earnings, management believes it is more likely than not that the Company will realize the deferred income tax asset existing at December 31, 2019. During 2019, the valuation allowance on a charitable contribution carryforward was reversed. Management believes that existing net deductible temporary differences which give rise to the deferred tax asset will reverse during periods in which the Company generates net taxable income. In addition, gross deductible temporary differences are expected to reverse in periods during which offsetting gross taxable temporary differences are expected to reverse. Factors beyond management’s control, such as the general state of the economy and real estate values, can affect future levels of taxable income, and no assurance can be given that sufficient taxable income will be generated to fully absorb gross deductible temporary differences.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted. The majority of the provisions of the Tax Act took effect on January 1, 2018. The Tax Act lowers the Company’s federal tax rate from 34% to 21%. The Company remeasured its deferred taxes at 21% as of the enactment date and recorded additional tax expense of $8,448,000. Also, for tax years beginning after December 31, 2018, the corporate Alternative Minimum Tax (“AMT”) has been repealed. For 2017 through 2021, the AMT credit carryforward can offset regular tax liability and is refundable in an amount equal to 50% (100% for 2021) of the excess of the minimum tax credit for the tax year over the amount of the credit allowable for the year against regular tax liability. Accordingly, the full amount of the alternative minimum tax credit carryforward will be recovered in tax years beginning before 2022. The Tax Act also contains other provisions that may affect the Company currently or in future years. Among these are changes to the deductibility of meals and entertainment, the deductibility of executive compensation, the dividend received deduction and net operating loss carryforwards.

The Company is in an Alternative Minimum Tax (“AMT”) credit position. As the AMT has been repealed and the existing credit is refundable, the AMT credit, totaling $5,664,000, has been reclassified to currently receivable. Of this amount, the Company expects to recover $4,069,000 with the filing of its 2019 federal tax return. The Company and its subsidiaries file a consolidated federal tax return. The Company is subject to federal and state examinations for tax years after December 31, 2015.