Note 11 – Income Taxes
Information as of December 31 and for the year follows:
| (Dollars in thousands) | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Provision for Income Taxes | ||||||||||||
| Current federal income tax expense | $ | 2,325 | $ | 2,244 | $ | 2,576 | ||||||
| Deferred federal income tax expense/(benefit) | 62 | (82 | ) | (631 | ) | |||||||
| Income tax expense | $ | 2,387 | $ | 2,162 | $ | 1,945 | ||||||
| Reconciliation of Income Tax Provision to Statutory Rate | ||||||||||||
| Income tax computed at statutory federal rate of 34% | $ | 2,909 | $ | 2,806 | $ | 2,614 | ||||||
| Tax exempt interest income | (486 | ) | (496 | ) | (488 | ) | ||||||
| Tax exempt earnings on bank-owned life insurance | (135 | ) | (121 | ) | (221 | ) | ||||||
| Deferred tax adjustment related to reduction in U.S. federal statutory income tax rate | 206 | — | — | |||||||||
| Other items | (107 | ) | (27 | ) | 40 | |||||||
| Income tax expense | $ | 2,387 | $ | 2,162 | $ | 1,945 | ||||||
| Effective income tax rate | 28 | % | 26 | % | 25 | % | ||||||
| (Dollars in thousands) | ||||||||
| Components of Deferred Tax Assets and Liabilities | 2017 | 2016 | ||||||
| Deferred tax assets: | ||||||||
| Allowance for loan losses | $ | 961 | $ | 1,454 | ||||
| Unrealized losses on securities available for sale | — | 361 | ||||||
| Deferred compensation | 125 | 232 | ||||||
| Stock compensation | 55 | 67 | ||||||
| Loan costs/fees deferred | 45 | 84 | ||||||
| Other | 123 | 272 | ||||||
| Total deferred tax assets | 1,309 | 2,470 | ||||||
| Deferred tax liabilities: | ||||||||
| Depreciation | 644 | 1,181 | ||||||
| Loan servicing rights | 191 | 238 | ||||||
| Unrealized gains on securities available for sale | 35 | — | ||||||
| Other | 106 | 243 | ||||||
| Total deferred tax liabilities | 976 | 1,662 | ||||||
| Net deferred tax asset | $ | 333 | $ | 808 | ||||
On December 22, 2017, H.R. 1, commonly known as the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. The Tax Act reduced the corporate income tax rate to 21% effective January 1, 2018 and changed certain other provisions. Accounting guidance required the Company to remeasure its deferred tax assets and liabilities as of the date of the Tax Act’s enactment using the new effective tax rate. The effect of the remeasurement is recognized in income tax expense in the year of enactment. The Company recorded $206,000 in additional income tax expense in 2017 as a result of the remeasurement of its net deferred tax asset.
Concurrent with the enactment of the Tax Act, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB 118”), which allows companies to recognize the cumulative impact of the income tax effects triggered by the enactment of the Tax Act over a period of up to twelve months in the reporting period in which the adjustment is identified. The Company will apply SAB 118 and will continue to refine the measurement of its net deferred tax asset balance during the preparation of its 2017 tax return as additional guidance and information becomes available.