Income Taxes
As a result of the enactment of the Tax Act on December 22, 2017, which reduced the Federal corporate income tax rate from 34% to 21% beginning in 2018, the Company revalued its net deferred tax asset at December 31, 2017 to reflect the lower corporate income tax rate that would be in effect in future years. As such, the Company reduced its net deferred tax asset by $1.78 million, which was recorded as a non-cash charge to income tax expense in the fourth quarter of 2017.
The components of income tax expense for the years ended December 31, 2017, 2016 and 2015 are as follows:
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| (In Thousands) |
Current | $ | 4,957 |
| | $ | 4,791 |
| | $ | 4,069 |
|
Deferred | 1,061 |
| | (463 | ) | | (484 | ) |
| | | | | |
Income tax expense | $ | 6,018 |
| | $ | 4,328 |
| | $ | 3,585 |
|
A reconciliation of the statutory Federal income tax at a rate of 34% to the income tax expense included in the statements of operations is as follows for the years ended December 31, 2017, 2016 and 2015:
|
| | | | | | | | | | | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| Amount | | % | | Amount | | % | | Amount | | % |
| (Dollars In Thousands) |
Federal income tax expense at statutory rate | $ | 4,257 |
| | 34.0 | % | | $ | 4,406 |
| | 34.0 | % | | $ | 3,376 |
| | 34.0 | % |
Increases (decreases) resulting from: |
|
| |
|
| | |
| | |
| | |
| | |
|
Tax exempt interest | (358 | ) | | (2.9 | ) | | (334 | ) | | (2.6 | ) | | (239 | ) | | (2.4 | ) |
Bank owned life insurance income | (185 | ) | | (1.5 | ) | | (455 | ) | | (3.5 | ) | | (151 | ) | | (1.5 | ) |
State income taxes, net of federal income tax benefit | 734 |
| | 5.9 |
| | 712 |
| | 5.5 |
| | 557 |
| | 5.6 |
|
Reduction in Federal tax rate | 1,778 |
| | 14.3 |
| | — |
| | — |
| | — |
| | — |
|
Other, net | (208 | ) | | (1.7 | ) | | (1 | ) | | — |
| | 42 |
| | 0.4 |
|
| | | | | | | | | | | |
Income tax expense | $ | 6,018 |
| | 48.1 | % | | $ | 4,328 |
| | 33.4 | % | | $ | 3,585 |
| | 36.1 | % |
The components of the net deferred tax asset, included in other assets on the Consolidated Balance Sheets, as of December 31, 2017 and 2016, were as follows:
|
| | | | | | | |
| 2017 | | 2016 |
| (In Thousands) |
Deferred tax assets: | | | |
Allowance for loan losses | $ | 3,012 |
| | $ | 3,841 |
|
Depreciation and amortization | 415 |
| | 507 |
|
Deferred compensation | 1,063 |
| | 1,291 |
|
OREO write-downs | — |
| | 33 |
|
Unrealized loss on securities available for sale | 194 |
| | 250 |
|
Other | 35 |
| | 31 |
|
| | | |
Total deferred tax assets | 4,719 |
| | 5,953 |
|
Deferred tax liabilities: | | | |
Purchase accounting adjustments | — |
| | — |
|
Other | (366 | ) | | (483 | ) |
| | | |
Total deferred tax liabilities | (366 | ) | | (483 | ) |
| | | |
Net Deferred Tax Asset | $ | 4,353 |
| | $ | 5,470 |
|
Based upon taxes paid and projected future taxable income, Management believes that it is more likely than not that the gross deferred tax asset will be realized.
During 2017, the Company realized $192,000 of tax windfalls due to the adoption of ASU 2016-09. The windfalls were recorded as a reduction to our income tax expense.
The Company is subject to U.S. Federal income tax as well as income tax in various state jurisdictions. The Company is no longer subject to Federal examination for years prior to 2014 and state examination for tax years prior to 2013.