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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Significant components of the Corporation’s net deferred tax asset at December 31, 2023 and 2022 are shown below.
(In thousands)20232022
Deferred tax assets:
Allowance for loan losses$7,642 $3,981 
Loan fees1,053 898 
Deferred compensation1,476 1,115 
Benefit plans60 56 
Unrealized loss on securities4,992 5,137 
Lease adjustments74 193 
Business combination adjustments5,669 2,066 
Acquired NOL, Section 1231, and charitable contribution carryforwards3,832 686 
 Rabbi Trust593 985 
 Riverview AMT credits696 771 
 Equity Comp256 — 
 Riverview subordinated debt fair value adjustment327 353 
 Software renewal costs335 420 
 Unfunded and loan basis adjustments635 — 
 Investments in Flow-through entities391 — 
Other378 874 
28,409 17,535 
Deferred tax liabilities: 
Depreciation(1,397)(1,175)
Bond accretion(187)(97)
Goodwill and intangibles(1,017)(362)
Prepaid expenses(227)(797)
Business combination adjustments— (398)
Benefit plans(1,199)(1,049)
Interest Rate Swaps(236)— 
(4,263)(3,878)
Deferred tax asset, net$24,146 $13,657 
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, 2023, 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.
At December 31, 2023, Mid Penn had NOL carryforwards of $2.8 million resulting from the November 30, 2021 acquisition of Riverview. These NOLs were assumed by Riverview in a previous acquisition and were generated during the tax years ended December 31, 2013, 2014, and 2015 and begin to expire in 2032. The Coronavirus Aid, Relief, and Economic Security ("CARES") Act, signed into law on March 27, 2020 to mitigate the economic effects of COVID-19, 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, 2022, Mid Penn filed the required federal tax returns to carryback NOLs to the 2017 tax year, comprised of (i) $1.2 million of NOLs generated in 2018 and acquired from Scottdale, and (ii) $1.2 million 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% (versus 21% in 2018) generated a federal tax benefit of $318 thousand 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 thousand at December 31, 2021 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% of pre-NOL taxable income in a single tax year as set forth in the TCJA.
At December 31, 2023, Mid Penn had no charitable contribution carryforwards, while at December 31, 2022, Mid Penn had $43 thousand charitable contribution carryforwards which were acquired from Riverview. During the years ended December 31, 2023, 2022 and 2021, Mid Penn generated sufficient taxable income to utilize all charitable contribution carryforwards. 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% 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. During 2021, and as a result of the Riverview Acquisition, Mid Penn assumed $696 thousand of AMT credits to be used on future tax returns.
Acquired Section 1231 losses totaling $314 thousand were recorded as a result of filing the final First Priority return in 2019 and expired in 2022.
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, AMT carryforwards, and Section 1231 losses to offset taxable income related to the Riverview Acquisition is limited to $2.0 million per year and $1.9 million per year for the First Priority Acquisition. All contribution carryforwards related to the Scottdale Acquisition were utilized as of December 31, 2022.
The provision for income taxes consists of the following:
(In thousands)202320222021
Current tax provision
Federal$7,570 $10,212 $6,178 
State1,033 67 70 
Total current tax provision$8,603 $10,279 $6,248 
Deferred tax expense (benefit)
Federal$(525)$2,262 $484 
State(781)— — 
Total deferred tax expense (benefit)(1,306)2,262 484 
Total provision for income taxes$7,297 $12,541 $6,732 
A reconciliation of the federal income tax provision at the statutory rate of 21% for 2023, 2022 and 2021 to Mid Penn's actual federal income tax provision at its effective rate is as follows:
(In thousands)202320222021
Provision at the expected statutory rate$9,388 $14,143 $7,571 
Low income housing partnership tax credits(1,337)(929)(853)
Effect of tax-exempt income(641)(614)(477)
Effect of investment in life insurance(252)(203)(75)
Nondeductible merger and acquisition expense207 60 364 
State income taxes, net of federal tax benefit199 53 55 
Nondeductible interest108 20 14 
Other items(375)11 133 
Provision for income taxes$7,297 $12,541 $6,732 
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, 2023, 2022, or 2021. There were no amounts accrued for interest and penalties at December 31, 2023 or 2022.
Mid Penn and its subsidiaries are subject to U.S. federal income tax and income tax for the states of Pennsylvania, New Jersey, and Maryland. With limited exceptions, Mid Penn is no longer subject to examination by taxing authorities for years before 2017.