Income Taxes
The components of the Provision for income taxes for the years ended December 31, were as follows:
|
| | | | | | | | | |
| 2017 | 2016 | 2015 |
| (Dollars in thousands) |
Current tax provision | $ | 2,610 |
| $ | 2,032 |
| $ | 2,322 |
|
Deferred tax provision | 993 |
| 566 |
| 341 |
|
| $ | 3,603 |
| $ | 2,598 |
| $ | 2,663 |
|
As a result of the Tax Cuts and Jobs Act signed into law on December 22, 2017, the federal tax rate decreased from 34% to 21% effective January 1, 2018. The deferred tax provision and Provision for income taxes shown above were impacted by a one-time charge of $447 thousand for the revaluation of the Company's deferred tax assets to reflect the 21% tax rate for future periods.
The total Provision for income taxes differs from the amounts computed at the statutory federal income tax rate of 34% primarily due to the following for the years ended December 31:
|
| | | | | | | | | |
| 2017 | 2016 | 2015 |
| (Dollars in thousands) |
Computed “expected” tax expense | $ | 3,884 |
| $ | 3,585 |
| $ | 3,419 |
|
Tax exempt interest | (642 | ) | (596 | ) | (613 | ) |
Increase in cash surrender value of COLI | (83 | ) | (115 | ) | (96 | ) |
Tax credits | (694 | ) | (896 | ) | (564 | ) |
Equity in losses of limited partnerships | 627 |
| 565 |
| 484 |
|
Adjustment for effect of enacted tax law changes | 447 |
| — |
| — |
|
Other | 64 |
| 55 |
| 33 |
|
| $ | 3,603 |
| $ | 2,598 |
| $ | 2,663 |
|
Listed below are the significant components of the net deferred tax asset at December 31:
|
| | | | | | |
| 2017 | 2016 |
| (Dollars in thousands) |
Components of the deferred tax asset | | |
Bad debts | $ | 1,171 |
| $ | 1,813 |
|
Deferred compensation | 227 |
| 334 |
|
Net pension liability | 339 |
| 316 |
|
Core deposit intangible | 81 |
| 110 |
|
Limited partnership investments | 23 |
| — |
|
Unrealized loss on investment securities available-for-sale | 80 |
| 342 |
|
Other | 90 |
| 146 |
|
Total deferred tax asset | 2,011 |
| 3,061 |
|
| | |
Components of the deferred tax liability | | |
Depreciation | (493 | ) | (893 | ) |
Mortgage servicing rights | (364 | ) | (563 | ) |
Limited partnership investments | — |
| (17 | ) |
Goodwill | (211 | ) | (286 | ) |
Prepaid expenses | (130 | ) | — |
|
Total deferred tax liability | (1,198 | ) | (1,759 | ) |
Net deferred tax asset | $ | 813 |
| $ | 1,302 |
|
Deferred tax assets are recognized subject to management's judgment that it is more likely than not that the deferred tax asset will be realized. Based on the temporary taxable items, historical taxable income and estimates of future taxable income, the Company believes that it is more likely than not that the deferred tax assets at December 31, 2017 will be realized and therefore no valuation allowance is warranted.
Net deferred income tax assets are included in Other assets in the consolidated balance sheets at December 31, 2017 and 2016.
Based on management's evaluation, management has concluded that there were no significant uncertain tax positions requiring recognition in the Company's financial statements at December 31, 2017 and 2016. Although the Company is not currently the subject of a tax examination by the IRS, the Company's tax years ended December 31, 2014 through 2016 are open to examination by the IRS under the applicable statute of limitations. The 2017 tax return has not yet been filed.
The Company may from time to time be assessed interest and/or penalties by federal or state tax jurisdictions, although any such assessments historically have been minimal and immaterial to the Company's financial results. In the event that the Company receives an assessment for interest and/or penalties, it will be classified in the financial statements as Other expenses.