|
(17) |
Federal Income Taxes |
The following temporary differences gave rise to the net deferred tax asset at December 31, 2017 and 2016.
|
(Dollars in thousands) |
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses |
|
$ |
1,597 |
|
|
$ |
2,442 |
|
|
Loan fees |
|
|
105 |
|
|
|
82 |
|
|
Deferred compensation |
|
|
221 |
|
|
|
341 |
|
|
Benefit plans |
|
|
320 |
|
|
|
565 |
|
|
Unrealized loss on securities |
|
|
574 |
|
|
|
1,504 |
|
|
Nonaccrual interest |
|
|
— |
|
|
|
955 |
|
|
Business combination adjustments |
|
|
358 |
|
|
|
720 |
|
|
Sale/leaseback adjustment |
|
|
72 |
|
|
|
— |
|
|
Other |
|
|
108 |
|
|
|
177 |
|
|
|
|
|
3,355 |
|
|
|
6,786 |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
(619 |
) |
|
|
(1,175 |
) |
|
Bond accretion |
|
|
(9 |
) |
|
|
(117 |
) |
|
Goodwill and intangibles |
|
|
(329 |
) |
|
|
(500 |
) |
|
Prepaid expenses |
|
|
(333 |
) |
|
|
(312 |
) |
|
Business combination adjustments |
|
|
(176 |
) |
|
|
(367 |
) |
|
Other |
|
|
(1 |
) |
|
|
(29 |
) |
|
|
|
|
(1,467 |
) |
|
|
(2,500 |
) |
|
Deferred tax asset, net |
|
$ |
1,888 |
|
|
$ |
4,286 |
|
In assessing the realizability of federal or state deferred tax assets, management considers whether it is more likely than not some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and prudent, feasible and permissible as well as available tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that Mid Penn will realize the benefits of these deferred tax assets.
On December 22, 2017, the Tax Cuts and Jobs Act was signed into law reducing the federal tax rate to 21% beginning on January 1, 2018. The revaluation of net deferred tax assets as of December 22, 2017 resulted in $1,169,000 of additional tax expense on the date of enactment included in deferred expense in the tables below.
The provision for income taxes consists of the following:
|
(Dollars in thousands) |
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current expense |
|
$ |
2,672 |
|
|
$ |
2,613 |
|
|
$ |
647 |
|
|
Deferred expense (benefit) |
|
|
1,828 |
|
|
|
(336 |
) |
|
|
997 |
|
|
Total provision for income taxes |
|
$ |
4,500 |
|
|
$ |
2,277 |
|
|
$ |
1,644 |
|
A reconciliation of income tax at the statutory rate of 34% to Mid Penn's effective rate is as follows:
|
(Dollars in thousands) |
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Provision at the expected statutory rate |
|
$ |
3,940 |
|
|
$ |
3,428 |
|
|
$ |
2,779 |
|
|
Effect of tax-exempt income |
|
|
(668 |
) |
|
|
(1,089 |
) |
|
|
(1,105 |
) |
|
Effect of investment in life insurance |
|
|
(89 |
) |
|
|
(90 |
) |
|
|
(91 |
) |
|
Nondeductible interest |
|
|
30 |
|
|
|
41 |
|
|
|
37 |
|
|
Nondeductible merger and acquisition expense |
|
|
191 |
|
|
|
— |
|
|
|
34 |
|
|
Rate change adjustment |
|
|
1,169 |
|
|
|
— |
|
|
|
— |
|
|
Other items |
|
|
(73 |
) |
|
|
(13 |
) |
|
|
(10 |
) |
|
Provision for income taxes |
|
$ |
4,500 |
|
|
$ |
2,277 |
|
|
$ |
1,644 |
|
Mid Penn has no unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. Mid Penn does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months.
No amounts for interest and penalties were recorded in income tax expense in the consolidated statement of income for the years ended December 31, 2017, 2016, or 2015. There were no amounts accrued for interest and penalties at December 31, 2017 or 2016.
Mid Penn and its subsidiaries are subject to U.S. federal income tax and income tax for the state of Pennsylvania. With limited exceptions, Mid Penn is no longer subject to examination by taxing authorities for years before 2014.