Entity information:
1
4
.
INCOME TAXES
 
The
net deferred tax asset at
December 31, 2017
and
2016
represents the following temporary difference components:
 
   
December 31,
    
December 31,
  
(In Thousands)
  
2017
    
2016
  
Deferred tax assets:
                
Unrealized holding losses on securities:
                
Included in accumulated other comprehensive
loss
   $
843
     $
512
  
Included in retained earnings
    
(337
 )    
0
  
Allowance for loan losses
    
1,894
      
2,998
  
Other deferred tax assets
    
1,726
      
2,658
  
Total deferred tax assets
    
4,126
      
6,168
  
                 
Deferred tax liabilities:
                
Defined benefit plans - ASC 835:
                
Included in accumulated other comprehensive
loss
    
31
      
27
  
Included in retained earnings
    
(12
 )    
0
  
Bank premises and equipment
    
751
      
913
  
Core deposit intangibles
    
3
      
6
  
Other deferred tax liabilities
    
64
      
105
  
Total deferred tax liabilities
    
837
      
1,051
  
Deferred tax asset, net
   $
3,289
     $
5,117
  
 
The provision for income taxes inclu
des the following:
 
(In thousands)
  
2017
    
2016
    
2015
  
Currently payable
   $
4,938
     $
5,328
     $
5,097
  
Tax expense resulting from allocations of certain tax benefits to equity or as a reduction in other assets
    
63
      
175
      
161
  
Deferred
    
2,155
      
(156
 )    
79
  
Total provision
   $
7,156
     $
5,347
     $
5,337
  
 
A reconciliation of income tax at the statutory rate to the Corporation
’s effective rate is as follows (amounts in thousands):
 
(Amounts in thousands)
  
2017
    
 
 
 
  
2016
    
 
 
 
  
2015
    
 
 
 
   
Amount
   
%
    
Amount
   
%
    
Amount
   
%
  
Expected provision
   $
7,207
      
35.00
     $
7,388
      
35.00
     $
7,633
      
35.00
  
Tax-exempt interest income
    
(1,817
 )    
(8.82
 )    
(1,801
 )    
(8.53
 )    
(1,914
 )    
(8.78
 )
Nondeductible interest expense
    
42
      
0.20
      
40
      
0.19
      
51
      
0.23
  
Dividends received deduction
    
(7
 )    
(0.03
 )    
(22
 )    
(0.10
 )    
(75
 )    
(0.34
 )
Increase in cash surrender value of life insurance
    
(133
 )    
(0.65
 )    
(134
 )    
(0.63
 )    
(135
 )    
(0.62
 )
Employee stock option compensation
    
8
      
0.04
      
0
      
0.00
      
0
      
0.00
  
ESOP Dividends
    
(154
 )    
(0.75
 )    
0
      
0.00
      
0
      
0.00
  
Tax benefit from limited partnership investment
    
(73
 )    
(0.35
 )    
(76
 )    
(0.36
 )    
(80
 )    
(0.37
 )
Effect of tax rate change
    
2,159
      
10.49
      
0
      
0.00
      
0
      
0.00
  
Other, net
    
(76
 )    
(0.37
 )    
(48
 )    
(0.23
 )    
(143
 )    
(0.66
 )
Effective income tax provision
   $
7,156
      
34.75
     $
5,347
      
25.33
     $
5,337
      
24.47
  
 
In
2017,
the Corporation recognized a reduction in the carrying value of the net deferred tax asset of
$2,159,000
as a result of the
December 2017
enactment of a reduction in the federal corporate income tax rate to
21%
effective
January 1, 2018,
from the
35%
marginal tax rate in effect throughout
2017,
2016
and
2015.
Included in the total related provision was
$325,000
associated with items included in Accumulated Other Comprehensive Loss in the consolidated balance sheets. Management believes the Corporation’s accounting for the effects of the reduction in the federal corporate income tax rate is materially complete at December
31,
2017.
 
The Corporation has investments in
three
limited partnerships that
manage affordable housing projects that have qualified for the federal low-income housing tax credit. The Corporation’s expected return from these investments is based on the receipt of tax credits and tax benefits from deductions of operating losses. The Corporation uses the effective yield method to account for these investments, with the benefits recognized as a reduction of the provision for income taxes. For
two
of the
three
limited partnership investments, the tax credits have been received in full in prior years, and the Corporation has fully realized the benefits of the credits and amortized its initial investments in the partnerships. The most recent affordable housing project was completed in
2013,
and the Corporation received tax credits in
2013
through
2017
and expects to continue to receive tax credits annually through
2022.
The carrying amount of the Corporation’s investment is
$608,000
at
December 31, 2017
and
$713,000
at
December 31, 2016 (
included in Other Assets in the consolidated balance sheets). For
2017,
the estimated amount of tax credits and other tax benefits to be received is
$157,000
and the amount recognized as a reduction of the provision for income taxes is
$73,000.
In
2016,
the Corporation received tax credits and other tax benefits totaling
$158,000,
and recognized a reduction of the provision for income tax of
$76,000.
In
2015,
the Corporation received tax credits and other tax benefits totaling
$160,000,
and recognized a reduction of the provision for income tax of
$80,000.
 
The Corporation has
no
unrecognized tax benefits, nor pending examination issues related to tax positions taken in preparation of its income tax returns
. With limited exceptions, the Corporation is
no
longer subject to examination by the Internal Revenue Service for years prior to
2014.