INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
|
| | | | | | |
| 2017 | 2016 |
Previously securitized loans | $ | 441 |
| $ | 3,950 |
|
Allowance for loan losses | 4,385 |
| 7,303 |
|
Deferred compensation payable | 2,517 |
| 4,099 |
|
Underfunded pension liability | 1,527 |
| 2,739 |
|
Accrued expenses | 1,057 |
| 1,721 |
|
Impaired asset losses | 607 |
| 4,625 |
|
Unrealized securities losses | 166 |
| 1,338 |
|
Intangible assets | 438 |
| 1,312 |
|
Other | 3,136 |
| 4,716 |
|
Total Deferred Tax Assets | 14,274 |
| 31,803 |
|
Other | 2,361 |
| 3,760 |
|
Total Deferred Tax Liabilities | 2,361 |
| 3,760 |
|
Net Deferred Tax Assets | $ | 11,913 |
| $ | 28,043 |
|
No valuation allowance for deferred tax assets was recorded at December 31, 2017 and 2016 as the Company believes it is more likely than not that all of the deferred tax assets will be realized because they were supported by recoverable taxes paid in prior years.
On December 22, 2017, the President signed the Tax Cut and Jobs Act ("TCJA") into law. Among other things, the TCJA reduced the corporate income tax rate from 35% to 21%, effective January 1, 2018. As a result of this decrease in the corporate income tax, the Company reassessed its deferred tax assets and liabilities, which resulted in a charge to earnings of $7.1 million. This provisional amount is included in total deferred tax expense in the table below. Significant components of the provision for income taxes are as follows (in thousands):
|
| | | | | | | | | |
| 2017 | 2016 | 2015 |
Current: | | | |
Federal | $ | 20,090 |
| $ | 20,100 |
| $ | 20,830 |
|
State | 1,436 |
| 1,166 |
| 957 |
|
Total current tax expense | 21,526 |
| 21,266 |
| 21,787 |
|
| | | |
Total deferred tax expense | 14,909 |
| 3,817 |
| 6,627 |
|
Income tax expense | $ | 36,435 |
| $ | 25,083 |
| $ | 28,414 |
|
A reconciliation of the significant differences between the federal statutory income tax rate and the Company’s effective income tax rate is as follows (in thousands):
|
| | | | | | | | | |
| 2017 | 2016 | 2015 |
| | | |
Computed federal taxes at statutory rate | $ | 31,761 |
| $ | 27,025 |
| $ | 28,879 |
|
State income taxes, net of federal tax benefit | 1,321 |
| 888 |
| 887 |
|
Tax effects of: | | | |
Tax-exempt interest income | (1,098 | ) | (708 | ) | (498 | ) |
Bank-owned life insurance | (1,474 | ) | (1,164 | ) | (1,181 | ) |
Change in tax rate | 7,070 |
| — |
| — |
|
Other items, net | (1,145 | ) | (958 | ) | 327 |
|
Income tax expense | $ | 36,435 |
| $ | 25,083 |
| $ | 28,414 |
|
The entire amount of the Company’s unrecognized tax benefits, if recognized, would favorably affect the Company’s effective tax rate. The Company anticipates that it will release $0.5 million over the next 12 months. A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows (in thousands):
|
| | | | | | |
| 2017 | 2016 |
| | |
Beginning balance | $ | 1,847 |
| $ | 2,164 |
|
Additions for current year tax positions | 325 |
| 339 |
|
Additions for prior year tax positions | 226 |
| 196 |
|
Decreases related to lapse of applicable statute of limitation | (509 | ) | (852 | ) |
Ending balance | $ | 1,889 |
| $ | 1,847 |
|
Interest and penalties on income tax uncertainties are included in income tax expense. During 2017, 2016 and 2015, the provision related to interest and penalties was $0.1 million in each period. The balance of accrued interest and penalties at December 31, 2017 and 2016 was $0.3 million.
The Company is currently open to audit under the statute of limitations by the Internal Revenue Service and state taxing authorities for the years ended December 31, 2014 through 2016.