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Income Taxes | 12 Months Ended
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Dec. 31, 2019
Income Tax Disclosure [Abstract] |
Income Taxes |
(17) | Income Taxes
Significant components of the Corporation’s net deferred tax asset at December 31, 2019 and 2018 are shown below.
(Dollars in thousands) |  | 2019 |  |  | 2018 |
Deferred tax assets: |  |  |  |  |  |  |  |
Allowance for loan and lease losses |  | $ | 1,998 |  |  | $ | 1,763 |
Loan fees |  |  | 227 |  |  |  | 136 |
Deferred compensation |  |  | 581 |  |  |  | 508 |
Benefit plans |  |  | 127 |  |  |  | 134 |
Unrealized loss on securities |  |  | 34 |  |  |  | 862 |
Sale/leaseback adjustment |  |  | — |  |  |  | 66 |
Lease adjustments |  |  | 231 |  |  |  | — |
Business combination adjustments |  |  | 164 |  |  |  | 1,692 |
Acquired NOL, Section 1231, and charitable contribution carryforwards |  |  | 862 |  |  |  | 1,391 |
Acquired AMT carryforward |  |  | 860 |  |  |  | 1,433 |
Other |  |  | 114 |  |  |  | 128 |
|  |  | 5,198 |  |  |  | 8,113 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Depreciation |  |  | (717 | ) |  |  | (1,073 | )
Bond accretion |  |  | (23 | ) |  |  | (29 | )
Goodwill and intangibles |  |  | (354 | ) |  |  | (348 | )
Prepaid expenses |  |  | (405 | ) |  |  | (515 | )
Business combination adjustments |  |  | (240 | ) |  |  | (948 | )
Benefit plans |  |  | (649 | ) |  |  | (459 | )
Other |  |  | — |  |  |  | (45 | )
|  |  | (2,388 | ) |  |  | (3,417 | )
Deferred tax asset, net |  | $ | 2,810 |  |  | $ | 4,696 |
In assessing the Corporation’s ability to realize deferred federal 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. At December 31, 2019, 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 and has no valuation allowances recorded against any components of its deferred tax asset, including the carryforward balances related to net operating losses (NOL), Section 1231 losses, and charitable contribution carryforwards. The annual usage of acquired NOL, charitable contribution carryforwards, and Section 1231 losses is limited by IRS Section 382 regulations. These limitations are calculated separately for each acquisition as the federal long-term tax exempt rate at the date of acquisition multiplied by the valuation of the selling company as calculated in accordance with GAAP. As a result, the usage of acquired NOLs, charitable contribution carryforwards, and Section 1231 losses to offset taxable income related to the Scottdale acquisition is limited to $1,313,000 per year, and $1,854,000 per year for the First Priority acquisition. At December 31, 2019 and 2018, Mid Penn had NOL carryforwards of $3,008,000 and $5,465,000 resulting from the 2018 acquisitions First Priority and Scottdale that are available to offset future taxable income. The entire balance of the NOL acquired from Scottdale of $1,238,000 has been fully utilized as of December 31, 2019. Of the $3,008,000 balance at December 31, 2019, $447,000 was attributable to NOL carryforwards generated prior to December 31, 2017 and acquired from First Priority and are scheduled to expire in 2031 and 2032. The remaining $2,561,000 was attributable to NOL carryforwards generated after January 1, 2018 and acquired from First Priority. The NOL carryforwards generated after January 1, 2018 do not expire; however, Mid Penn is limited to a deduction of the lesser of the available NOL carryforward or 80 percent of pre-NOL taxable income in a single tax year as set forth in the Tax Cuts and Jobs Act. At December 31, 2019 and 2018, charitable contribution carryforwards totaled $785,000 and $1,157,000, respectively, and are scheduled to expire between 2020 and 2022. During 2019, $211,000 of charitable contribution carryforwards were written off, resulting in $44,000 of additional tax expense recorded upon the filing of the final 2018 tax return during the third quarter of 2019. Mid Penn expects to generate sufficient taxable income to utilize all charitable contribution carryforwards in the future. The Tax Cuts and Jobs Act (TCJA) enacted on December 22, 2017 repealed Corporate Alternative Minimum Tax (AMT). As a result, the AMT carryforward balances of $860,000 and $1,433,000 as of December 31, 2019 and 2018, respectively, will be systematically refunded with each return until fully refunded no later than the filing of the Corporation’s December 31, 2021 tax return. Acquired Section 1231 losses totaling $314,000 were recorded as a result of filing the final First Priority return in 2019 and expire in 2022. On December 22, 2017, the TCJA 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) |  | 2019 |  |  | 2018 |  |  | 2017 |
Current tax provision |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 2,875 |  |  | $ | 812 |  |  | $ | 2,672 |
State |  |  | 185 |  |  |  | — |  |  |  | — |
Total current tax provision |  |  | 3,060 |  |  |  | 812 |  |  |  | 2,672 |
Deferred tax expense |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 665 |  |  |  | 1,317 |  |  | $ | 1,828 |
State |  |  | — |  |  |  | — |  |  |  | — |
Total deferred tax expense |  | $ | 665 |  |  |  | 1,317 |  |  |  | 1,828 |
Total provision for income taxes |  | $ | 3,725 |  |  | $ | 2,129 |  |  | $ | 4,500 |
A reconciliation of federal income tax at the statutory rate of 21% for 2019 and 2018, and 34% for 2017 to Mid Penn's effective rate is as follows:
(Dollars in thousands) |  | 2019 |  |  | 2018 |  |  | 2017 |
Provision at the expected statutory rate |  | $ | 4,499 |  |  | $ | 2,672 |  |  | $ | 3,940 |
Effect of tax-exempt income |  |  | (683 | ) |  |  | (704 | ) |  |  | (668 | )
Effect of investment in life insurance |  |  | (66 | ) |  |  | (60 | ) |  |  | (89 | )
State income taxes, net of federal tax benefit |  |  | 146 |  |  |  | — |  |  |  | — |
Nondeductible interest |  |  | 59 |  |  |  | 40 |  |  |  | 30 |
Low income housing partnership tax credits |  |  | (83 | ) |  |  | (168 | ) |  |  | (46 | )
Nondeductible merger and acquisition expense |  |  | — |  |  |  | 193 |  |  |  | 191 |
Rate change adjustment |  |  | — |  |  |  | — |  |  |  | 1,169 |
Other items |  |  | (147 | ) |  |  | 156 |  |  |  | (27 | )
Provision for income taxes |  | $ | 3,725 |  |  | $ | 2,129 |  |  | $ | 4,500 |
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, 2019, 2018, or 2017. There were no amounts accrued for interest and penalties at December 31, 2019 or 2018. Mid Penn and its subsidiaries are subject to U.S. federal income tax and income tax for the state of Pennsylvania and New Jersey. With limited exceptions, Mid Penn is no longer subject to examination by taxing authorities for years before 2016.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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