Entity information:

Note 22 – Income Taxes

The components of consolidated income tax expense are as follows:

 

     2017      2016      2015  
            (in thousands)         

Current tax expense

         

Federal

    $ 17,835      $ 17,401      $ 21,076  

State

      6,650        7,121        7,139  
  

 

 

     

 

 

     

 

 

  
   $ 24,485        24,522        28,215  
  

 

 

     

 

 

     

 

 

  

Deferred tax expense

         

Federal

      11,418        2,735        408  

State

      1,055        455        273  
  

 

 

     

 

 

     

 

 

  
     12,473        3,190        681  
  

 

 

     

 

 

     

 

 

  

Total tax expense

    $ 36,958      $ 27,712      $ 28,896  
  

 

 

     

 

 

     

 

 

  

A deferred tax asset or liability is recognized for the tax consequences of temporary differences in the recognition of revenue and expense for financial and tax reporting purposes. The net change during the year in the deferred tax asset or liability results in a deferred tax expense or benefit.

On December 22, 2017, President Donald Trump signed into law “H.R.1”, commonly known as the “Tax Cuts and Jobs Act”, which among other items reduces the Federal corporate tax rate from 35% to 21%. The Company’s deferred tax expense as of December 31, 2017 includes $7,416,000 from the re-measurement of deferred taxes and $226,000 from an acceleration of amortization expense on the low income housing tax credit investments.

Taxes recorded directly to shareholders’ equity are not included in the preceding table. These taxes relating to changes in unfunded status of the supplemental retirement plans amounting to $400,000 in 2017, $429,000 in 2016, and $904,000 in 2015, taxes (benefits) related to unrealized gains and losses on available-for-sale investment securities amounting to $2,722,000 in 2017, $(4,631,000) in 2016, and $(797,000) in 2015, taxes (benefits) related to equity compensation of $0 in 2017, $(170,000) in 2016, and $(28,000) in 2015, were recorded directly to shareholders’ equity.

The Company recognized, as components of tax expense, tax credits and other tax benefits, and amortization expense relating to our investments in Qualified Affordable Housing Projects as followers for the periods indicated:

                      
Year ended December 31,    2017      2016      2015  
            (in thousands)         

Tax credits and other tax benefits – decrease in tax expense

    $ (1,753 )     $ (954 )     $ (354 ) 

Amortization – increase in tax expense

    $ 1,611      $ 757      $ 277  

The carrying value of Low Income Housing Tax Credit Funds was $16,854,000 and $18,465,000 as of December 31, 2017 and 2016, respectively. As of December 31, 2017, the Company has committed to make additional capital contributions to the Low Income Housing Tax Credit Funds in the amount of $8,554,000, and these contributions are expected to be made over the next several years.

The provisions for income taxes applicable to income before taxes for the years ended December 31, 2017, 2016 and 2015 differ from amounts computed by applying the statutory Federal income tax rates to income before taxes. The effective tax rate and the statutory federal income tax rate are reconciled as follows:

 

     Years Ended December 31,  
     2017     2016     2015  

Federal statutory income tax rate

      35.0 %      35.0 %      35.0 % 

State income taxes, net of federal tax benefit

      6.9       6.8       6.6  

Tax Cuts and Jobs Act impact on deferred re-measurement

      9.6       —         —    

Tax-exempt interest on municipal obligations

      (1.9 )      (1.8 )      (0.7 ) 

Tax-exempt life insurance related income

      (1.3 )      (1.3 )      (1.3 ) 

Equity compensation

      (1.2 )      —         —    

Low income housing tax credit benefits

      (2.3 )      (1.3 )      (0.4 ) 

Low income housing tax credit amortization

      2.1       0.8       —    

Non-deductible joint beneficiary agreement expense

      0.1       0.1       0.1  

Non-deductible merger expense

      0.2       —         —    

Other

      0.5       (0.1 )      0.4  
  

 

 

    

 

 

    

 

 

  

Effective Tax Rate

      47.7 %      38.2 %      39.7 % 
  

 

 

    

 

 

    

 

 

  

 

The temporary differences, tax effected, which give rise to the Company’s net deferred tax asset recorded in other assets are as follows as of December 31 for the years indicated:

 

     2017      2016  
     (in thousands)  

Deferred tax assets:

      

Allowance for losses and reserve for unfunded commitments

    $ 9,900      $ 14,809  

Deferred compensation

      1,953        2,743  

Accrued pension liability

      6,835        9,220  

Accrued bonus

      171        1,727  

Other accrued expenses

      522        781  

Unfunded status of the supplemental retirement plans

      1,582        1,982  

State taxes

      1,397        2,257  

Share based compensation

      1,322        2,063  

Nonaccrual interest

      282        408  

OREO write downs

      59        132  

Indemnification asset

      —          313  

Acquisition cost basis

      2,187        3,996  

Unrealized loss on securities

      1,008        3,730  

Tax credits

      581        491  

Net operating loss carryforwards

      1,801        3,354  

Other

      508        981  
  

 

 

     

 

 

  

Total deferred tax assets

      30,108        48,987  
  

 

 

     

 

 

  

Deferred tax liabilities:

      

Securities income

      (958 )       (1,362 ) 

Depreciation

      (1,987 )       (3,032 ) 

Merger related fixed asset valuations

      (30 )       (54 ) 

Securities accretion

      (315 )       (478 ) 

Mortgage servicing rights valuation

      (1,943 )       (2,710 ) 

Core deposit intangible

      (916 )       (1,813 ) 

Junior subordinated debt

      (1,783 )       (2,616 ) 

Prepaid expenses and other

      (479 )       (723 ) 
  

 

 

     

 

 

  

Total deferred tax liability

      (8,411 )       (12,788 ) 
  

 

 

     

 

 

  

Net deferred tax asset

    $ 21,697      $ 36,199  
  

 

 

     

 

 

  

As part of the merger with North Valley Bancorp in 2014, TriCo acquired federal and state net operating loss carryforwards, capital loss carryforwards, and tax credit carryforwards. These tax attribute carryforwards will be subject to provisions of the tax law that limit the use of such losses and credits generated by a company prior to the date certain ownership changes occur. The amount of the Company’s net operating loss carryforwards that would be subject to these limitations as of December 31, 2017 were $21.4 million for California. The amount of the Company’s tax credits that would be subject to these limitations as of December 31, 2017 are $69,000 and $648,000 for federal and California, respectively. Due to the limitation, a significant portion of the state tax credits will expire regardless of whether the Company generates future taxable income. As such, the Company has recorded the future benefit of these tax credits on the books at the value which is more likely than not to be realized. These tax loss and tax credit carryforwards expire at various dates beginning in 2018.

The Company believes that a valuation allowance is not needed to reduce the deferred tax assets as it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets, including the tax attribute carryforwards acquired as part of the North Valley Bancorp merger.

As part of the North Valley Bancorp merger, TriCo inherited an unrecognized tax benefit for tax positions claimed on prior year tax returns filed by North Valley Bancorp. The Company had an unrecognized tax benefit of $60,000 as of December 31, 2017, the recognition of which would reduce the Company’s tax expense by $34,000. Management does not expect the unrecognized tax benefit will materially change in the next 12 months. A summary of changes in the Company’s unrecognized tax benefit (including interest and penalties) in 2017 is as follows:

 

(in thousands)

    UTB      Interest/Penalties      Total  

As of December 31, 2016

    $ 114      $ 7      $ 121  

Lapse of the applicable statute of limitations

      (54 )       (5 )       (59 ) 
  

 

 

     

 

 

     

 

 

  

As of December 31, 2017

    $ 60      $ 2      $ 62  
  

 

 

     

 

 

     

 

 

  

During the years ended December 31, 2017 and December 31, 2016 the Company recognized no interest and penalties related to taxes. The Company files income tax returns in the U.S. federal jurisdiction, and California. With few exceptions, the Company is no longer subject to U.S. federal and state/local income tax examinations by tax authorities for years before 2014 and 2013, respectively.