Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

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INCOME TAXES
12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
INCOME TAXES

Note 11

INCOME TAXES

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

(Dollars in Thousands) 2019 2018 2017
Current:
Federal $ 8,481 $ (1,617) $ 5,792
State 247 201 140
8,728 (1,416) 5,932
Deferred:
Federal (680) 3,620 1,232
State 1,913 1,285 974
Expense Due to Enactment of Federal Tax Reform - - 4,066
Change in Valuation Allowance (8) (68) (1)
1,225 4,837 6,271
Total:
Federal 7,801 2,003 7,024
State 2,160 1,486 1,114
Expense Due to Enactment of Federal Tax Reform - - 4,066
Change in Valuation Allowance (8) (68) (1)
Total $ 9,953 $ 3,421 $ 12,203

On December 22, 2017, H.R.1, commonly known as the Tax Cuts and Jobs Act 2017 (the “Act”), was signed into law. Among other things, the 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 2017 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 Act. SAB 118 provides a measurement period that should not extend beyond one year from the Act enactment date for companies to complete the accounting under ASC 740, Income Taxes. The Company’s 2017 financial results reflected the income tax effects of the Act for which the accounting under ASC Topic 740 was complete and provisional amounts for those specific income tax effects of the Act for which the accounting under ASC Topic 740 was 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. No adjustments to the provisional amounts were recorded during the one year measurement period ended December 22, 2018.

Income taxes provided were different than the tax expense computed by applying the statutory federal income tax rate of 21% in 2019 and 2018 and 35% in 2017 to pre-tax income as a result of the following:

(Dollars in Thousands) 2019 2018 2017
Tax Expense at Federal Statutory Rate $ 8,560 $ 6,225 $ 8,074
Increases (Decreases) Resulting From:
Tax-Exempt Interest Income (425) (494) (805)
2017 Provision to Return - Impact of Federal Tax Reform - (3,590) -
State Taxes, Net of Federal Benefit 1,342 1,174 724
Other 294 348 439
Change in Valuation Allowance (8) (68) (1)
Tax-Exempt Cash Surrender Value Life Insurance Benefit (175) (174) (294)
Expense Due to Reduction of Florida Corporate Income Tax Rate 365 - -
Expense Due to Enactment of Federal Tax Reform - - 4,066
Actual Tax Expense $ 9,953 $ 3,421 $ 12,203

In connection with filing its 2017 income tax returns, the Company recorded a permanent net income tax benefit of $3.6 million. This benefit was a result of deductions claimed on the Company's 2017 income tax returns, partially offset by repricing of its current and deferred income tax position associated with the Tax Cuts and Jobs Act of 2017.

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, 2019 and 2018 are as follows:

(Dollars in Thousands) 2019 2018
Deferred Tax Assets Attributable to:
Allowance for Loan Losses $ 3,525 $ 3,602
Accrued Pension/SERP 9,863 9,102
State Net Operating Loss and Tax Credit Carry-Forwards 2,834 4,532
Other Real Estate Owned 957 1,270
Accrued SERP Liability 2,094 1,869
Lease Liability 637 -
Other 2,485 3,101
Total Deferred Tax Assets $ 22,395 $ 23,476
Deferred Tax Liabilities Attributable to:
Depreciation on Premises and Equipment $ 3,870 $ 3,970
Deferred Loan Fees and Costs 2,445 2,356
Intangible Assets 3,290 3,232
Accrued Pension Liability 4,585 5,001
Right of Use Asset 441 -
Investments 469 469
Other 284 4
Total Deferred Tax Liabilities 15,384 15,032
Valuation Allowance 1,680 1,688
Net Deferred Tax Asset $ 5,331 $ 6,756

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 and certain state tax credit carry-forwards expected to expire prior to utilization, will be realized. Accordingly, a valuation allowance of $1.7 million is recorded at December 31, 2019. At December 31, 2019, the Company had state loss and tax credit carry-forwards of approximately $2.8 million, which expire at various dates from 2020 through 2039.

The Company had no unrecognized tax benefits at December 31, 2019, December 31, 2018, and December 31, 2017.

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 consolidated statements of income for the years ended December 31, 2019, 2018, and 2017. There were no amounts accrued in the consolidated statements of financial condition for penalties and interest as of December 31, 2019 and 2018.

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 2016.