Annual report pursuant to Section 13 and 15(d)


12 Months Ended
Dec. 31, 2017
Income Tax Disclosure [Abstract]  

Note 10


The provision for income taxes reflected in the statements of comprehensive income is comprised of the following components:

(Dollars in Thousands) 2017 2016 2015
Federal $ 5,792 $ 2,295 $ 497
State 140 115 115
5,932 2,410 612
Federal 1,232 2,742 3,258
State 974 712 475
Expense Due to Enactment of Federal Tax Reform 4,066 - -
Change in Valuation Allowance (1) 3 114
6,271 3,457 3,847
Federal 7,024 5,037 3,755
State 1,114 827 590
Expense Due to Enactment of Federal Tax Reform 4,066 - -
Change in Valuation Allowance (1) 3 114
Total $ 12,203 $ 5,867 $ 4,459

On December 22, 2017, H.R.1, commonly known as the Tax Cuts and Jobs Act (the “Tax Act”), was signed into law. Among other things, the Tax Act reduced our corporate federal tax rate from 35% to 21% effective January 1, 2018. As a result, we were required to re-measure, through income tax expense, our deferred tax assets and liabilities using the enacted rate at which we expect them to be recovered or settled.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740, Income Taxes.  The Company’s financial results reflect the income tax effects of the Act for which the accounting under ASC Topic 740 is complete and provisional amounts for those specific income tax effects of the 2017 Tax Act for which the accounting under ASC Topic 740 is incomplete but a reasonable estimate could be determined. The Company recorded a provisional amount of $4.1 million tax expense for the impact of the re-measurement of its deferred tax inventory. The Company is still analyzing certain aspects of the Tax Act and refining its calculations, therefore these estimates may change as additional information becomes available.

Income taxes provided were different than the tax expense computed by applying the statutory federal income tax rate of 35% to pre-tax income as a result of the following:

(Dollars in Thousands) 2017 2016 2015
Tax Expense at Federal Statutory Rate $ 8,074 $ 6,165 $ 4,751
Increases (Decreases) Resulting From:
Tax-Exempt Interest Income (805) (662) (395)
State Taxes, Net of Federal Benefit 724 538 390
Other 439 121 562
Change in Valuation Allowance (1) 3 114
Tax-Exempt Cash Surrender Value Life Insurance Benefit (294) (298) (303)
Excess Death Benefit Payment - - (660)
Expense Due to Enactment of Federal Tax Reform 4,066 - -
Actual Tax Expense $ 12,203 $ 5,867 $ 4,459

Deferred income tax liabilities and assets result from differences between assets and liabilities measured for financial reporting purposes and for income tax return purposes.  These assets and liabilities are measured using the enacted tax rates and laws that are currently in effect.  The net deferred tax asset and the temporary differences comprising that balance at December 31, 2017 and 2016 are as follows:

(Dollars in Thousands) 2017 2016
Deferred Tax Assets Attributable to:
Allowance for Loan Losses $ 3,373 $ 5,182
Accrued Pension/SERP 10,289 16,107
State Net Operating Loss and Tax Credit Carry-Forwards 5,074 4,804
Other Real Estate Owned 1,520 3,550
Federal Net Operating Loss and Tax Credit Carry-Forwards 50 401
Accrued SERP Liability 1,398 1,824
Other 1,787 2,414
Total Deferred Tax Assets $ 23,491 $ 34,282
Deferred Tax Liabilities Attributable to:
Depreciation on Premises and Equipment $ 3,272 $ 5,480
Deferred Loan Fees and Costs 2,266 3,342
Intangible Assets 3,035 4,319
Investments 469 714
Other 5 10
Total Deferred Tax Liabilities 9,047 13,865
Valuation Allowance 1,755 1,445
Net Deferred Tax Asset $ 12,689 $ 18,972

In the opinion of management, it is more likely than not that all of the deferred tax assets, with the exception of certain state net operating loss carry-forwards, certain state tax credit carry-forwards, and certain capital loss carry-forwards expected to expire prior to utilization, will be realized. Accordingly, a valuation allowance of $1.8 million is recorded at December 31, 2017. At December 31, 2017, the Company had state loss and tax credit carry-forwards of approximately $5.1 million, which expire at various dates from 2018 through 2036, and federal capital loss carry-forwards of approximately $0.1 million which expire at various dates from 2019 through 2020.

The Company had no unrecognized tax benefits at December 31, 2017, December 31, 2016, and December 31, 2015.

It is the Company’s policy to recognize interest and penalties accrued relative to unrecognized tax benefits in their respective federal or state income taxes accounts. There were no penalties and interest related to income taxes recorded in the income statement for the years ended December 31, 2017, 2016 and 2015. There were no amounts accrued in the balance sheet for penalties and interest at December 31, 2017 and 2016.

The Company and its subsidiaries file a consolidated U.S. federal income tax return, as well as file various returns in states where its banking offices are located.  The Company is no longer subject to U.S. federal or state tax examinations for years before 2014.