Federal and State Income Taxes
The Tax Cuts and Jobs Act (the "Act"), which was enacted on December 22, 2017, reduces the federal corporate tax rate from 35% to 21% for periods beginning January 1, 2018. Provisions of the Act are broad and complex. As result, we are still evaluating the impact that certain aspects of the Act will have on the Company's financial position and results of operations, including recognition and measurement of deferred tax assets and liabilities and the determination of effective current and deferred federal and state income tax rates. We have made reasonable estimates of the Act's impact on net deferred tax assets and recorded a provisional adjustment of $9.5 million, including $6.4 million of net deferred tax assets resulting from temporary differences recognized in Accumulated other comprehensive income on the Company's balance sheets. Additionally, we recognized a provisional adjustment of $2.2 million for deferred taxes resulting from executive compensation that may no longer be deductible.
We are not aware of any material areas where we were not able to determine provisional amounts. However, accounting for income tax effects of the Act is still in process and provisional adjustments recognized in 2017 may be adjusted as a result of our on-going evaluation, including subsequent guidance provided by federal and state taxing authorities and other information as it becomes available.
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. As a result of the Act, deferred tax balances at December 31, 2017 generally have been revalued from the previous combined federal and state statutory rate of 38.9% to 25.5%. Significant components of deferred tax assets and liabilities are as follows (in thousands):
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
Deferred tax assets: | | | |
Available for sale securities mark to market | $ | 12,083 |
| | $ | 5,779 |
|
Share-based compensation | 7,598 |
| | 9,360 |
|
Credit loss allowances | 58,666 |
| | 99,191 |
|
Valuation adjustments | 8,102 |
| | 12,222 |
|
Deferred compensation | 12,215 |
| | 30,262 |
|
Unearned fees | 9,265 |
| | 11,877 |
|
Other | 30,859 |
| | 42,541 |
|
Total deferred tax assets | 138,788 |
| | 211,232 |
|
| | | |
Deferred tax liabilities: | | | |
Depreciation | 15,817 |
| | 25,877 |
|
Mortgage servicing rights | 63,112 |
| | 92,748 |
|
Lease financing | 9,973 |
| | 17,923 |
|
Other | 34,880 |
| | 45,363 |
|
Total deferred tax liabilities | 123,782 |
| | 181,911 |
|
Net deferred tax assets | $ | 15,006 |
| | $ | 29,321 |
|
No valuation allowance was necessary on deferred tax assets as of December 31, 2017 and 2016.
The significant components of the provision for income taxes attributable to continuing operations for BOK Financial are shown below (in thousands):
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Current income tax expense: | | | | | |
Federal | $ | 141,607 |
| | $ | 107,379 |
| | $ | 117,566 |
|
State | 14,592 |
| | 11,028 |
| | 12,397 |
|
Total current income tax expense | 156,199 |
| | 118,407 |
| | 129,963 |
|
| | | | | |
Deferred income tax expense: | | | | | |
Federal | 25,525 |
| | (11,340 | ) | | 8,397 |
|
State | 869 |
| | (690 | ) | | 1,024 |
|
Total deferred income tax expense | 26,394 |
| | (12,030 | ) | | 9,421 |
|
Total income tax expense | $ | 182,593 |
| | $ | 106,377 |
| | $ | 139,384 |
|
The reconciliations of income attributable to continuing operations at the U.S. federal statutory tax rate to income tax expense are as follows (in thousands):
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Amount: | | | | | |
Federal statutory tax | $ | 181,397 |
| | $ | 118,530 |
| | $ | 151,075 |
|
Tax exempt revenue | (12,402 | ) | | (10,544 | ) | | (9,553 | ) |
Effect of state income taxes, net of federal benefit | 10,701 |
| | 6,478 |
| | 9,082 |
|
Utilization of tax credits: | | | | | |
Low-income housing tax credits, net of amortization | (5,356 | ) | | (4,171 | ) | | (3,874 | ) |
Other tax credits | (1,455 | ) | | (2,085 | ) | | (2,085 | ) |
Bank-owned life insurance | (3,121 | ) | | (2,911 | ) | | (3,264 | ) |
Share-based compensation | (2,817 | ) | | — |
| | — |
|
Revaluation of net deferred tax assets due to change in federal tax rates | 9,456 |
| | — |
| | — |
|
Write-off of deferred tax assets related to executive compensation | 2,216 |
| | — |
| | — |
|
Other, net | 3,974 |
| | 1,080 |
| | (1,997 | ) |
Total income tax expense | $ | 182,593 |
| | $ | 106,377 |
| | $ | 139,384 |
|
|
| | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Percent of pretax income: | | | | | |
Federal statutory tax | 35.0 | % | | 35.0 | % | | 35.0 | % |
Tax exempt revenue | (2.4 | ) | | (3.1 | ) | | (2.2 | ) |
Effect of state income taxes, net of federal benefit | 2.0 |
| | 1.9 |
| | 2.1 |
|
Utilization of tax credits: | | | | | |
Low-income housing tax credits, net of amortization | (1.0 | ) | | (1.2 | ) | | (0.9 | ) |
Other tax credits | (0.3 | ) | | (0.6 | ) | | (0.5 | ) |
Bank-owned life insurance | (0.6 | ) | | (0.9 | ) | | (0.7 | ) |
Share-based compensation | (0.5 | ) | | — |
| | — |
|
Revaluation of net deferred tax assets due to change in federal tax rates | 1.8 |
| | — |
| | — |
|
Write-off of deferred tax assets related to executive compensation | 0.4 |
| | — |
| | — |
|
Other, net | 0.8 |
| | 0.3 |
| | (0.5 | ) |
Total | 35.2 | % | | 31.4 | % | | 32.3 | % |
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Balance as of January 1 | $ | 15,841 |
| | $ | 13,232 |
| | $ | 13,374 |
|
Additions for tax for current year positions | 4,645 |
| | 5,640 |
| | 2,226 |
|
Settlements during the period | — |
| | — |
| | — |
|
Lapses of applicable statute of limitations | (2,376 | ) | | (3,031 | ) | | (2,368 | ) |
Balance as of December 31 | $ | 18,110 |
| | $ | 15,841 |
| | $ | 13,232 |
|
Of the above unrecognized tax benefits, $12.2 million, if recognized, would have affected the effective tax rate.
BOK Financial recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. The Company recognized $1.2 million for 2017, $1.0 million for 2016 and $1.0 million for 2015 in interest and penalties. The Company had approximately $4.0 million and $3.5 million accrued for the payment of interest and penalties at December 31, 2017 and 2016, respectively. Federal statutes remain open for federal tax returns filed in the previous three reporting periods. Various state income tax statutes remain open for the previous three to six reporting periods.