NOTE 13 – INCOME TAXES

On December 22, 2017, the Tax Cuts and Jobs Act ("Act") was enacted into law and, among other items, reduces the corporate income tax rate from 35% to 21%, effective January 1, 2018. The enactment of this law resulted in a lower federal income tax rate resulting in a reduction of the benefit provided by the Company's existing deferred tax assets.

In accordance with ASC Topic 740, "Income Taxes", the Company revalued its net deferred tax asset based on facts and circumstances available for the reporting period ending December 31, 2017 in which the Act was enacted and through the time the Company issues its financial statements for that reporting period. Preliminary assumptions were made for temporary timing differences, including but not limited to, book-to-tax depreciation on fixed assets. The company's revaluation of its net deferred tax asset and other relevant details remain subject to modifications as the company finalizes its federal and state income tax returns for the year ended December 31, 2017 and as information and analysis regarding the Act and other relevant factors emerge. The Company does not expect material variances from these estimates and expects that final valuation amounts will be determined upon the filing of the federal and state income tax returns, which is expected to occur in September 2018.

As a result of this revaluation, the Company recorded a non-cash, non-operating and non-recurring income tax provision of $4.1 million. Over the long-run, the reduction in corporate tax rates is expected to reduce income tax expense beginning January 1, 2018.

Income tax expense for the years ended December 31, 2017, 2016 and 2015 consisted of the following:

 

Income tax expense included an expense (benefit) of $11,000, $23,000 and $16,000 applicable to security transactions for 2017, 2016 and 2015. The differences between financial statement tax expense and amounts computed by applying the statutory federal income tax rate of 35% for 2017, 2016 and 2015 to income before income taxes were as follows:

 

The net deferred tax asset recorded in the consolidated balance sheets at December 31, 2017 and 2016 consisted of the following:

In addition to the net deferred tax assets included above, the deferred income tax asset/liability allocated to the unrealized net gain/(loss) on securities available for sale included in equity was ($226,000) and $386,000 for 2017 and 2016. The deferred income tax asset allocated to the pension plan and SERP included in equity was $625,000 million and $1.1 million for 2017 and 2016, respectively.

The Company evaluated its deferred tax asset at year end 2017 and has concluded that it is more likely than not that it will be realized. The Company expects to have taxable income in the future such that the deferred tax asset will be realized. Therefore, no valuation allowance is required.

Unrecognized Tax Benefits

The Company did not have any unrecognized tax benefits at December 31, 2017 or 2016. The Company does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months.

No interest or penalties were recorded in the income statement and no amount was accrued for interest and penalties for the period ending December 31, 2017, 2016 and 2015. Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is the Company's policy to record such accruals in its income taxes accounts.

The Company and its subsidiaries file a consolidated U.S. federal tax return and a combined unitary return in the States of Indiana and Michigan. These returns are subject to examinations by authorities for all years after 2013.