15. Income taxes:
The current and deferred amounts of the provision for income taxes expense (benefit) for each of the years ended December 31, 2017 and 2016 are summarized as follows:
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Year Ended December 31 |
2017 | 2016 | ||||||
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Current |
$ | $ | (172 | ) | ||||
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Deferred |
3,501 | 1,134 | ||||||
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| $ | 3,501 | $ | 962 | |||||
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The components of the net deferred tax asset at December 31, 2017 and 2016 are summarized as follows:
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December 31 |
2017 | 2016 | ||||||
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Deferred tax assets: |
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Allowance for loan losses |
$ | 991 | $ | 888 | ||||
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Deferred compensation |
949 | 744 | ||||||
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Purchase accounting adjustments |
1,863 | 68 | ||||||
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Alternate minimum tax credit carryforwards |
608 | 379 | ||||||
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Acquisition costs |
347 | 360 | ||||||
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Unfunded pension liability |
246 | 436 | ||||||
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Accrued expenses |
231 | 253 | ||||||
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Unrealized loss on investment securities available-for-sale |
238 | 854 | ||||||
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Low income housing credit carryforwards |
1,063 | 1,063 | ||||||
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Net operating loss carryforwards |
1,827 | 2,324 | ||||||
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Other |
161 | 300 | ||||||
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Total |
8,524 | 7,669 | ||||||
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Deferred tax liabilities: |
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Premises and equipment, net |
(575 | ) | (267 | ) | ||||
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Total |
(575 | ) | (267 | ) | ||||
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Net deferred tax asset |
$ | 7,949 | $ | 7,402 | ||||
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Management believes that future taxable income will be sufficient to utilize deferred tax assets. Core earnings of the Company will continue to support the recognition of the deferred tax asset based on future growth projections.
A reconciliation between the amount of the effective income tax expense and the income tax expense that would have been provided at the federal statutory rate of 34.0 percent for the years ended December 31, 2017 and 2016 is summarized as follows:
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Year Ended December 31 |
2017 | 2016 | ||||||
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Federal income tax at statutory rate |
$ | (479 | ) | $ | 1,370 | |||
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Tax exempt interest |
(282 | ) | (259 | ) | ||||
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Bank owned life insurance income |
(153 | ) | (117 | ) | ||||
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Low income housing credit |
(52 | ) | ||||||
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Tax Cuts and Jobs Act legislation |
3,888 | |||||||
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Disallowed merger related costs |
225 | |||||||
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Other, net |
302 | 20 | ||||||
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Total |
$ | 3,501 | $ | 962 | ||||
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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 changes 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 highest U.S. corporate tax rate from the current rate of 35% to 21%, effective January 1, 2018. As a result of the enacted law, the Company was required to revalue deferred tax assets and liabilities at the enacted rate. This revaluation resulted in an additional charge of $3,888 to income tax expense in continuing operations and a corresponding reduction in the net deferred tax assets. The other provisions of the Tax Cuts and Jobs Act did not have a material impact on the 2017 consolidated financial statements.
As stated above, as a result of the enactment of the Tax Cuts and Jobs Act on December 22, 2017, deferred tax assets and liabilities were remeasured based upon the newly enacted U.S. statutory federal income tax rate of 21%, which is the tax rate at which these assets and liabilities are expected to reverse in the future. Notwithstanding the foregoing, management is still analyzing certain aspects of the new law and refining their calculations, which could affect the measurement of these assets and liabilities or give rise to new deferred tax amounts.