Income Taxes
The components of income tax expense (benefit) are summarized as follows for the years ended December 31, 2017, 2016 and 2015:
|
| | | | | | | | | | | |
(In thousands) | 2017 | | 2016 | | 2015 |
Federal: | | | | | |
Current | $ | 2,791 |
| | $ | 3,360 |
| | $ | 3,199 |
|
Deferred | 496 |
| | 269 |
| | 8 |
|
Provisional remeasurement of deferred tax assets and liabilities | 1,712 |
| | — |
| | — |
|
| 4,999 |
| | 3,629 |
| | 3,207 |
|
State: | | | | | |
Current | 748 |
| | 909 |
| | 704 |
|
Deferred | 124 |
| | 85 |
| | 151 |
|
| 872 |
| | 994 |
| | 855 |
|
| $ | 5,871 |
| | $ | 4,623 |
| | $ | 4,062 |
|
A comparison of income tax expense at the Federal statutory rate in 2017, 2016 and 2015 to the Company’s provision for income taxes is as follows:
|
| | | | | | | | | | | |
(In thousands) | 2017 | | 2016 | | 2015 |
Federal income tax | $ | 4,352 |
| | $ | 4,729 |
| | $ | 4,327 |
|
Add (deduct) effect of: | | | |
| | |
|
State income taxes net of federal income tax effect | 575 |
| | 656 |
| | 564 |
|
Tax-exempt interest income | (728 | ) | | (706 | ) | | (724 | ) |
Bank-owned life insurance | (177 | ) | | (187 | ) | | (203 | ) |
Executive compensation | 139 |
| | — |
| | — |
|
Provisional remeasurement of federal deferred tax assets and liabilities | 1,712 |
| | — |
| | — |
|
Other items, net | (2 | ) | | 131 |
| | 98 |
|
Provision for income taxes | $ | 5,871 |
| | $ | 4,623 |
| | $ | 4,062 |
|
The tax effects of existing temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows at December 31, 2017, 2016 and 2015:
|
| | | | | | | |
(In thousands) | 2017 | | 2016 |
Deferred tax assets: | | | |
Allowance for loan losses | $ | 2,253 |
| | $ | 2,993 |
|
Unrealized loss on securities available for sale | 137 |
| | 130 |
|
Supplemental executive retirement plan liability | 1,213 |
| | 1,886 |
|
Other than temporary impairment loss | 119 |
| | 170 |
|
Depreciation | 622 |
| | 802 |
|
Non-accrual interest | 330 |
| | 313 |
|
Other | 147 |
| | 262 |
|
Total gross deferred tax assets | $ | 4,821 |
| | $ | 6,556 |
|
Deferred tax liabilities: | | | |
Deferred costs | 540 |
| | — |
|
Pension liability | 31 |
| | 44 |
|
Acquisition accounting adjustments | 44 |
| | 52 |
|
Total gross deferred tax liabilities | $ | 615 |
| | $ | 96 |
|
| | | |
Net deferred tax assets | $ | 4,206 |
| | $ | 6,460 |
|
Based upon the current facts, management has determined that it is more likely than not that there will be sufficient taxable income in future years to realize the deferred tax assets. However, there can be no assurances about the level of future earnings.
On December 22, 2017, the Tax Cuts and Jobs Act (the "Tax Act") was signed into law. ASC 740 (Income Taxes) requires the recognition of the effect of changes in tax laws or rates in the period in which the legislation is enacted. The changes in the deferred tax assets and liabilities remeasured at the new 21% federal tax rate are reflected in income tax expense for fiscal year 2017.
The Company performed a preliminary analysis and expensed an estimated $1.7 million impact of the lower corporate tax rates on the deferred tax assets and liabilities. This was a non-cash charge to income. The final impact may differ from this estimate due to, among other things, additional analysis, changes in interpretations and assumptions the Company made, additional regulatory guidance and actions the Company may take as a result of the Tax Act. Information that is needed to adjust provisional amounts would be the completion of all 2017 tax returns.