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Income Taxes | 12 Months Ended
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Dec. 31, 2020
Income Tax Disclosure [Abstract] |
Income Taxes |
(1 8) | Income Taxes
Significant components of the Corporation’s net deferred tax asset at December 31, 2020 and 2019 are shown below.
(Dollars in thousands) |  | 2020 |  |  | 2019 |
Deferred tax assets: |  |  |  |  |  |  |  |
Allowance for loan and lease losses |  | $ | 2,810 |  |  | $ | 1,998 |
Loan fees |  |  | 1,908 |  |  |  | 227 |
Deferred compensation |  |  | 722 |  |  |  | 581 |
Benefit plans |  |  | 68 |  |  |  | 127 |
Unrealized loss on securities |  |  | — |  |  |  | 34 |
Sale/leaseback adjustment |  |  | — |  |  |  | — |
Lease adjustments |  |  | 219 |  |  |  | 231 |
Business combination adjustments |  |  | 148 |  |  |  | 164 |
Acquired NOL, Section 1231, and charitable contribution carryforwards |  |  | 91 |  |  |  | 862 |
Acquired AMT carryforward |  |  | — |  |  |  | 860 |
Other |  |  | 101 |  |  |  | 114 |
|  |  | 6,067 |  |  |  | 5,198 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Depreciation |  |  | (394 | ) |  |  | (717 | )
Bond accretion |  |  | (30 | ) |  |  | (23 | )
Goodwill and intangibles |  |  | (359 | ) |  |  | (354 | )
Prepaid expenses |  |  | (474 | ) |  |  | (405 | )
Business combination adjustments |  |  | (641 | ) |  |  | (240 | )
Benefit plans |  |  | (549 | ) |  |  | (649 | )
Unrealized gain on securities |  |  | (1 | ) |  |  | — |
|  |  | (2,448 | ) |  |  | (2,388 | )
Deferred tax asset, net |  | $ | 3,619 |  |  | $ | 2,810 |
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, 2020, 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, 2020 and 2019, Mid Penn had net operating loss (“NOL”) carryforwards of $119,000 and $3,008,000 resulting from the 2018 acquisitions First Priority and Scottdale. The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, signed into law on March 27, 2020 to mitigate the economic effects of the COVID-19 pandemic, implemented a five-year carryback period for NOLs generated in tax years beginning in 2018, 2019, or 2020. As a result of this CARES Act provision, during the year ended December 31, 2020, Mid Penn filed the required federal tax returns to carryback NOLs to the 2017 tax year, comprised of (i) $1,238,000 of NOLs generated in 2018 and acquired from Scottdale, and (ii) $1,214,000 of NOLs generated in 2018 and acquired from First Priority. The carryback of these NOLs to the 2017 tax year when the tax rate was 34 percent (versus 21 percent in 2018) generated a federal tax benefit of $318,000 recorded in the provision for income taxes on the Consolidated Statements of Income for the year ended December 31, 2020. The remaining NOL balance of $119,000 at December 31, 2020 was generated in the 2012 tax year, was acquired from First Priority, and expires in 2032. 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, 2020, Mid Penn had no charitable contribution carryforwards, while at December 31, 2019, charitable contribution carryforwards totaled $785,000. During the year ended December 31, 2020, Mid Penn generated sufficient taxable income to utilize all charitable contribution carryforwards. 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 CARES Act also updated Alternative Minimum Tax (AMT) credit rules to permit AMT credit to be 100 percent refundable in the 2018 tax year. As a result, during the year ended December 31, 2020, Mid Penn filed the required federal tax returns to request a full refund of the AMT credits that had been acquired from First Priority and Scottdale. 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. The provision for income taxes consists of the following:
(Dollars in thousands) |  | 2020 |  |  | 2019 |  |  | 2018 |
Current tax provision |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 6,340 |  |  | $ | 2,875 |  |  | $ | 812 |
State |  |  | 157 |  |  |  | 185 |  |  |  | — |
Total current tax provision |  |  | 6,497 |  |  |  | 3,060 |  |  |  | 812 |
Deferred tax (benefit) expense |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (1,367 | ) |  |  | 665 |  |  | $ | 1,317 |
State |  |  | — |  |  |  | — |  |  |  | — |
Total deferred tax expense |  | $ | (1,367 | ) |  |  | 665 |  |  |  | 1,317 |
Total provision for income taxes |  | $ | 5,130 |  |  | $ | 3,725 |  |  | $ | 2,129 |
A reconciliation of the federal income tax provision at the statutory rate of 21% for 2020, 2019 and 2018 to Mid Penn's actual federal income tax provision at its effective rate is as follows:
(Dollars in thousands) |  | 2020 |  |  | 2019 |  |  | 2018 |
Provision at the expected statutory rate |  | $ | 6,581 |  |  | $ | 4,499 |  |  | $ | 2,672 |
Effect of tax-exempt income |  |  | (499 | ) |  |  | (683 | ) |  |  | (704 | )
Effect of investment in life insurance |  |  | (63 | ) |  |  | (66 | ) |  |  | (60 | )
State income taxes, net of federal tax benefit |  |  | 124 |  |  |  | 146 |  |  |  | — |
Nondeductible interest |  |  | 26 |  |  |  | 59 |  |  |  | 40 |
Low income housing partnership tax credits |  |  | (861 | ) |  |  | (83 | ) |  |  | (168 | )
Nondeductible merger and acquisition expense |  |  | — |  |  |  | — |  |  |  | 193 |
Rate change adjustment |  |  | — |  |  |  | — |  |  |  | — |
Other items |  |  | (178 | ) |  |  | (147 | ) |  |  | 156 |
Provision for income taxes |  | $ | 5,130 |  |  | $ | 3,725 |  |  | $ | 2,129 |
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, 2020, 2019, or 2018. There were no amounts accrued for interest and penalties at December 31, 2020 or 2019. Mid Penn and its subsidiaries are subject to U.S. federal income tax and income tax for the states of Pennsylvania, New Jersey, Delaware, and Maryland. With limited exceptions, Mid Penn is no longer subject to examination by taxing authorities for years before 2017.

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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://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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