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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Note 13 Income Taxes The components of income tax expense are as follows:
|  | For the Years Ended December 31,
(In thousands) |  |  | 2018 |  |  |  | 2017 |  |  |  | 2016 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 8,557 |  |  | $ | 4,250 |  |  | $ | 6,456 |
State |  |  | 1,043 |  |  |  | 1,638 |  |  |  | 941 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (3,404 | ) |  |  | 4,256 |  |  |  | 301 |
State |  |  | (117 | ) |  |  | (259 | ) |  |  | 18 |
Total income tax expense |  | $ | 6,079 |  |  | $ | 9,885 |  |  | $ | 7,716 |
A reconciliation of expected income tax expense, computed by applying the effective federal statutory rate of 21% for 2018 and 35% for each of 2017 and 2016 to income before income tax expense is as follows:
|  | For the Years Ended December 31,
(In thousands) |  |  | 2018 |  |  |  | 2017 |  |  |  | 2016 |
Expected income tax expense |  | $ | 7,633 |  |  | $ | 12,214 |  |  | $ | 11,223 |
(Reductions) increases resulting from: |  |  |  |  |  |  |  |  |  |  |  |
Tax-exempt income |  |  | (2,009 | ) |  |  | (3,868 | ) |  |  | (3,754 | )
State taxes, net of federal benefit |  |  | 732 |  |  |  | 896 |  |  |  | 623 |
Share-based compensation adjustment |  |  | (286 | ) |  |  | (376 | ) |  |  | — |
Adjustment of deferred tax asset or liability for TCJA |  |  | (74 | ) |  |  | 1,824 |  |  |  | — |
Other, net |  |  | 83 |  |  |  | (805 | ) |  |  | (376 | )
Total income tax expense |  | $ | 6,079 |  |  | $ | 9,885 |  |  | $ | 7,716 |
On December 22, 2017, the TCJA was enacted. Among other things, the new law (i) establishes a new, flat corporate federal statutory income tax rate of 21%; (ii) eliminates the corporate alternative minimum tax and allows the use of any such carryforwards to offset regular tax liability for any taxable year; (iii) limits the deduction for net interest expense incurred by U.S. corporations; (iv) allows businesses to immediately expense, for tax purposes, the cost of new investments in certain qualified depreciable assets; (v) eliminates or reduces certain deductions related to meals and entertainment expenses; (vi) modifies the limitation on excessive employee remuneration to eliminate the exception for performance-based compensation and clarifies the definition of a covered employee; and (vii) limits the deductibility of deposit insurance premiums. The TCJA also significantly changes U.S. tax law related to foreign operations, though, such changes do not currently impact the Company on a significant level. Also on December 22, 2017, the SEC issued SAB 118, which provides guidance on accounting for tax effects of the TCJA. SAB 118 provides a measurement period of up to one year from the enactment date to complete the accounting. Based on the information available and current interpretation of the rules at December 31, 2017, the Company made provisional estimates of the impact of the reduction in the corporate tax rate and remeasurement of certain deferred tax assets and liabilities based on the rate at which they were expected to reverse in the future totaling $1,824,000. The final analysis and measurement was completed during the fourth quarter of 2018 when the Company filed the 2017 U.S. federal income tax return and a reduction of tax expense in the amount of $74,000 was recorded. Income tax expense in 2018 totaled $6,079,000 compared to $9,885,000 and $7,716,000 in 2017 and 2016, respectively. When measured as a percent of pre-tax income, the Company’s effective tax rate was 17% in 2018, 28% in 2017, and 24% in 2016. The decrease in 2018 tax expense was primarily the result of two items:
● | the decrease in the federal income tax rate and
● | the one-time, non-cash charge of $1,824,000 that increased 2017 tax expense triggered by the passage of the TCJA on December 22, 2017.
The Company’s effective tax rate for 2018 was 17% and the Company’s 2017 effective tax rate was 25% excluding the onetime TCJA charge. The Company’s effective tax rate has traditionally been lower than the statutory rate because of investments and loans that are tax exempt. The tax effects of temporary differences which give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
|  | December 31,
(In thousands) |  |  | 2018 |  |  |  | 2017 |
Deferred tax assets: |  |  |  |  |  |  |  |
Allowance for loan losses |  | $ | 2,376 |  |  | $ | 2,413 |
ASC 715 pension funding liability |  |  | 6,000 |  |  |  | 6,080 |
Net operating loss carryforward (1) |  |  | 50 |  |  |  | 76 |
Supplemental executive retirement plan accrual |  |  | 1,968 |  |  |  | 1,833 |
Stock compensation |  |  | 1,673 |  |  |  | 1,307 |
Other |  |  | — |  |  |  | 118 |
Total deferred tax assets |  | $ | 12,067 |  |  | $ | 11,827 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Premises and equipment |  |  | (1,937 | ) |  |  | (2,248 | )
Pension |  |  | (409 | ) |  |  | (1,379 | )
Intangible assets |  |  | (1,212 | ) |  |  | (1,091 | )
Unrealized gain on investment in securities available-for-sale |  |  | (156 | ) |  |  | (1,938 | )
Deferred income |  |  | — |  |  |  | (2,121 | )
Other |  |  | (80 | ) |  |  | — |
Total deferred tax liabilities |  | $ | (3,794 | ) |  | $ | (8,777 | )
Net deferred tax assets |  | $ | 8,273 |  |  | $ | 3,050 |
(1) | As of December 31, 2018, the Company had approximately $238,000 of net operating loss carry forwards as a result of the acquisition of Franklin Bancorp. The utilization of the net operating loss carry forward is subject to Section 382 of the Internal Revenue Code and limits the Company’s use to approximately $122,000 per year during the carry forward period, which expires in 2020.
A valuation allowance would be provided on deferred tax assets when it is more likely than not that some portion of the assets will not be realized. The Company has not established a valuation allowance at December 31, 2018 or 2017, due to management’s belief that all criteria for recognition have been met, including the expectation of projected future taxable income sufficient to support the realization of deferred tax assets. The reconciliation of the beginning unrecognized tax benefits balance to the ending balance is presented in the following table:
(In thousands) |  | 2018 |  |  | 2017 |  |  | 2016 |
Balance at January 1 |  | $ | 1,632 |  |  | $ | 1,623 |  |  | $ | 1,194 |
Changes in unrecognized tax benefits as a result of tax positions taken during a prior year |  |  | (135 | ) |  |  | (15 | ) |  |  | 407 |
Changes in unrecognized tax benefits as a result of tax position taken during the current year |  |  | 192 |  |  |  | 263 |  |  |  | 311 |
Decreases in unrecognized tax benefits relating to settlements with taxing authorities |  |  | — |  |  |  | — |  |  |  | — |
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations |  |  | (286 | ) |  |  | (239 | ) |  |  | (289 | )
Balance at December 31 |  | $ | 1,403 |  |  | $ | 1,632 |  |  | $ | 1,623 |
At December 31, 2018, 2017 and 2016, the balance of the Company’s unrecognized tax benefits which would, if recognized, affect the Company’s effective tax rate was $1,272,000, $1,464,000 and $1,225,000, respectively. These amounts are net of the offsetting benefits from other taxing jurisdictions. As of December 31, 2018, 2017 and 2016, the Company had $136,000, $139,000 and $108,000, respectively, in accrued interest related to unrecognized tax benefits. During 2018, the Company recorded a net decrease in accrued interest of $3,000 and in 2017 a net increase of $31,000. The Company recognizes income tax related interest and penalties in income tax expense. The Company believes it is reasonably possible that the total amount of tax benefits will decrease by approximately $316,000 over the next 12 months. The reduction primarily relates to the anticipated lapse in the statute of limitations. The unrecognized tax benefits relate primarily to apportionment of taxable income among various state tax jurisdictions. The Company is subject to income tax in the U.S. federal jurisdiction, numerous state jurisdictions, and a foreign jurisdiction. The Company’s federal income tax returns for tax years 2015 through 2017 remain subject to examination by the Internal Revenue Service. In addition, the Company is subject to state tax examinations for the tax years 2014 through 2017 and currently is not under examination in any tax jurisdictions.

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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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