NOTE 16 – INCOME TAXES:
The provision for income taxes for the years ended December 31, 2016, 2015 and 2014 consists of the following:
| December 31, | ||||||||||||
| 2016 | 2015 | 2014 | ||||||||||
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Current payable: |
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Federal |
$ | 8,414 | $ | 8,136 | $ | 5,747 | ||||||
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State |
1,989 | 800 | 159 | |||||||||
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| 10,403 | 8,936 | 5,906 | ||||||||||
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Deferred: |
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Federal |
(579 | ) | 358 | 1,608 | ||||||||
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State |
(115 | ) | 795 | 1,158 | ||||||||
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| (694 | ) | 1,153 | 2,766 | |||||||||
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Total income tax provision |
$ | 9,709 | $ | 10,089 | $ | 8,672 | ||||||
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The provision for income taxes results in effective tax rates which are different than the federal income tax statutory rate. The nature of the differences for the years ended December 31, 2016, 2015 and 2014 were as follows:
| 2016 | 2015 | 2014 | ||||||||||||||||||||||
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Expected federal income tax provision |
$ | 10,320 | 35.00 | % | $ | 10,094 | 35.00 | % | $ | 8,650 | 35.00 | % | ||||||||||||
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State income tax, net of federal income tax effect |
1,138 | 3.86 | % | 1,365 | 4.73 | % | 948 | 3.84 | % | |||||||||||||||
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Municipal securities tax benefit |
(1,429 | ) | -4.85 | % | (1,049 | ) | -3.64 | % | (747 | ) | -3.02 | % | ||||||||||||
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Equity-based compensation |
— | 0.00 | % | — | 0.00 | % | 5 | 0.02 | % | |||||||||||||||
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(Expense) benefit of purchased tax credits |
(1 | ) | 0.00 | % | 1 | 0.00 | % | 25 | 0.10 | % | ||||||||||||||
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Low-income housing tax credits |
(393 | ) | -1.33 | % | (234 | ) | -0.81 | % | (199 | ) | -0.81 | % | ||||||||||||
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Bank Owned Life Insurance |
(273 | ) | -0.93 | % | (230 | ) | -0.80 | % | (184 | ) | -0.74 | % | ||||||||||||
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Acquisition costs - Century Bank |
— | 0.00 | % | — | 0.00 | % | 150 | 0.61 | % | |||||||||||||||
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Acquisition costs - Capital Pacific Bank |
— | 0.00 | % | 155 | 0.54 | % | — | 0.00 | % | |||||||||||||||
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Acquisition costs - Foundation Bank |
484 | 1.64 | % | — | 0.00 | % | — | 0.00 | % | |||||||||||||||
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Deferred tax rate adjustments and other |
(137 | ) | -0.46 | % | (13 | ) | -0.05 | % | 24 | 0.10 | % | |||||||||||||
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Income tax provision |
$ | 9,709 | 32.93 | % | $ | 10,089 | 34.97 | % | $ | 8,672 | 35.10 | % | ||||||||||||
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The excess tax benefit associated with stock option plans reduced taxes payable by $43, $9, and $14, at December 31, 2016, 2015, and 2014, respectively. Such benefit is credited to common stock.
The components of deferred tax assets and liabilities for the periods ended December 31, 2016 and 2015 are as follows:
| December 31, | ||||||||
| 2016 | 2015 | |||||||
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Assets: |
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Allowance for loan losses |
$ | 12,890 | $ | 7,868 | ||||
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Basis adjustments on loans |
1,307 | 1,677 | ||||||
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Reserve for self-funded insurance |
139 | 104 | ||||||
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Nonqualified stock options |
489 | 816 | ||||||
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Accrued compensation |
1,592 | 1,617 | ||||||
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OTTI credit impairment |
105 | 94 | ||||||
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Nonaccrual loan interest |
53 | 193 | ||||||
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NOL carryforward |
3,893 | — | ||||||
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Net unrealized loss on securities |
1,516 | — | ||||||
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Other |
137 | 91 | ||||||
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Total deferred tax assets |
$ | 22,121 | $ | 12,460 | ||||
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Liabilities: |
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Federal Home Loan Bank stock dividends |
$ | 599 | $ | 589 | ||||
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Excess tax over book depreciation |
1,502 | 1,134 | ||||||
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Prepaid expenses |
583 | 466 | ||||||
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Acquisition adjustments relating to core deposit intangible, deferred loan origination costs, junior subordinated debenture and other |
4,877 | 1,512 | ||||||
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Loan origination fees |
1,514 | 1,346 | ||||||
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Net unrealized gains on swaps |
35 | 32 | ||||||
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Net unrealized gains on securities |
— | 1,694 | ||||||
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Other |
289 | 17 | ||||||
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Total deferred tax liabilities |
9,399 | 6,790 | ||||||
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Deferred income tax asset |
12,722 | 5,670 | ||||||
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Valuation allowance |
— | — | ||||||
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Net deferred tax asset |
$ | 12,722 | $ | 5,670 | ||||
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As a result of the Foundation Bancorp acquisition, the Company had a federal net operating loss carryforward of $10,943 and an AMT credit carryover of $40, at December 31, 2016. The amount of net operating loss carryforward that may be utilized annually is limited under Section 382 of the Internal Revenue Code of 1986 (Code) as a result of changes in control, with an annual limitation of $3,389. The federal net operating loss carryforward will begin to expire in 2030, however based on current income projections management anticipates the carryforwards to be utilized by 2020 and has therefore not established a valuation allowance. The AMT credits carryforward are available to reduce future federal regular income taxes, if any, over an indefinite period.