The provision for income taxes consisted of the following:
| | | December 31, | |
| | | 2017 | | | 2016 | | | 2015 | |
Current: | | (in thousands) | |
Federal | | $ | 3,722 | | | $ | 3,000 | | | $ | 1,569 | |
State | | | 1,298 | | | | 1,022 | | | | 590 | |
| | | | 5,020 | | | | 4,022 | | | | 2,159 | |
Deferred: | | | | | | | | | | | | |
Federal | | | 701 | | | | (338 | ) | | | 4 | |
State | | | (173 | ) | | | (71 | ) | | | (25 | ) |
| | | | 528 | | | | (409 | ) | | | (21 | ) |
Total provision for income taxes | | $ | 5,548 | | | $ | 3,613 | | | $ | 2,138 | |
The reconciliation between the statutory income tax rate and the Company’s effective tax rate follows:
| | | December 31, | |
| | | 2017 | | | 2016 | | | 2015 | |
| | | | | | | | | | | | | |
Federal income tax at statutory rate | | | 34.0 | % | | | 34.0 | % | | | 34.0 | % |
State franchise tax, net of federal benefit | | | 7.2 | % | | | 7.2 | % | | | 7.2 | % |
Other | | | (0.4 | )% | | | (0.3 | )% | | | 1.5 | % |
Tax law change | | | 12.2 | % | | | 0.0 | % | | | 0.0 | % |
Total provision for income taxes | | | 53.0 | % | | | 40.9 | % | | | 42.7 | % |
The cumulative tax effects of the primary temporary differences are as shown in the following table:
| | | December 31, | |
| | | 2017 | | | 2016 | |
Deferred Tax Assets: | | (in thousands) | |
Allowance for loan losses | | $ | 2,514 | | | $ | 3,006 | |
Unrealized loss on AFS securities | | | — | | | | 20 | |
Other | | | 1,562 | | | | 1,734 | |
Total gross deferred tax assets | | | 4,076 | | | | 4,760 | |
Deferred tax asset valuation allowance | | | — | | | | — | |
Total deferred tax assets | | | 4,076 | | | | 4,760 | |
Deferred Tax Liabilities: | | | | | | | | |
Deferred state taxes | | | (233 | ) | | | (319 | ) |
Depreciation | | | (142 | ) | | | (197 | ) |
Unrealized gain on AFS securities | | | (11 | ) | | | — | |
Other | | | (521 | ) | | | (511 | ) |
Total deferred tax liabilities | | | (907 | ) | | | (1,027 | ) |
Net deferred tax asset | | $ | 3,169 | | | $ | 3,733 | |
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts and their respective tax basis including operating losses and tax credit carryforwards. Net deferred tax assets of $3.2 million at December 31, 2017 are reported in the consolidated balance sheet as a component of total assets.
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act tax reform legislation. This legislation makes significant change in U.S. tax law including a reduction in the corporate tax rates, changes to net operating loss carryforwards and carrybacks, and a repeal of the corporate alternative minimum tax. The legislation reduced the U.S. corporate tax rate from the current rate of 34% to 21%. As a result of the enacted law, the Company was required to revalue deferred tax assets and liabilities at the 21%. The revaluation resulted in a cost of $1.3 million income tax expense and a corresponding reduction in the net deferred tax asset. The other provisions of the Tax Cuts and Job Act did not have a material impact on the fiscal 2017 consolidated financial statements.
Accounting standards Codification Topic 740, Income Taxes, requires that companies assess whether a valuation allowance should be established against their deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. A valuation allowance is established for deferred tax assets if, based on weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets may not be realized. Management evaluates the Company’s deferred tax assets for recoverability using a consistent approach which considers the relative impact of negative and positive evidence, including the Company’s historical profitability and projections of future taxable income. The Company is required to establish a valuation allowance for deferred tax assets and record a charge to income if management determines, based on available evidence at the time the determination is made, that it is more likely than not that some portion or all of the deferred tax assets may not be realized.
There was no valuation allowance on deferred tax assets at December 31, 2017 or December 31, 2016.
The Company is subject to the provisions of ASC 740, Income Taxes (ASC 740). ASC 740 prescribes a more likely than not threshold for the financial statement recognition of uncertain tax positions. ASC 740 clarifies the accounting for income taxes by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. On a quarterly basis, the Company undergoes a process to evaluate whether income tax accruals are in accordance with ASC 740 guidance on uncertain tax positions. There were no uncertain tax positions at December 31, 2017.
The Company is subject to income taxation in the United States and certain state jurisdictions. The Company’s federal and state income tax returns are filed on a consolidated basis. The Company is generally open to examination by tax authorities for the years 2011 and later. Although the Company is unable to determine the outcome under examination, it has evaluated whether there are any uncertain tax positions in accordance with ASC 740-10 and concluded that there are no significant uncertain tax positions requiring recognition in the financial statements.