Entity information:
Note
1
5
. Income Taxes
 
The Tax Reform Act was enacted on
December 22, 2017.
Among other things, the new law establishes a new, flat corporate federal statutory income tax rate of
21%;
eliminates the corporate alternative minimum tax and allows the use of any such carryforwards to offset regular tax liability for any taxable year; limits the deduction for net interest expense incurred by U.S. corporations; allows businesses to immediately expense the cost of new investments in certain qualified depreciable assets for tax purposes; eliminates or reduces certain deductions related to meals and entertainment expenses; modifies the limitation on excessive employee remuneration to eliminate the exception for performance-based compensation and clarifies the definition of a covered employee; and limits the deductibility of deposit insurance premiums. The Tax Reform Act also significantly changes U.S. tax law related to foreign operations, however, such changes do
not
currently impact
the Company. As a result of the Tax Reform Act, the Company recognized tax expense totaling
$6.55
million related to the revaluation of its deferred tax balances, which includes provisional estimates primarily related to certain purchase accounting, indemnification asset, intangible, and depreciation items. The Company is still analyzing certain aspects of the Tax Reform Act and refining calculations, which could potentially affect the measurement of these balances. The Company expects its analysis to be completed upon the filing of its tax returns for the year ended
December 31, 2017.
 
Income tax expense is comprised of current and deferred, federal and state income taxes on the Company
’s pre-tax earnings. The following table presents the components of the income tax provision for the periods indicated:
 
   
Year Ended December 31,
  
(Amounts in thousands)
  
2017
    
2016
    
2015
  
Current tax expense (benefit):
                        
Federal
   $
14,509
     $
13,634
     $
(254
 )
State
    
926
      
675
      
581
  
Total current tax expense
    
15,435
      
14,309
      
327
  
                         
Deferred tax expense (benefit):
                        
Federal
    
5,205
      
(1,480
 )    
10,034
  
State
    
(12
 )    
(10
 )    
1,020
  
Total deferred tax expense (benefit)
    
5,193
      
(1,490
 )    
11,054
  
Total income tax expense
   $
20,628
     $
12,819
     $
11,381
  
 
The Company
’s effective tax rate, income tax as a percent of pre-tax income,
may
vary significantly from the statutory rate due to permanent differences and available tax credits. Permanent differences are income and expense items excluded by law in the calculation of taxable income. The Company’s most significant permanent differences generally include interest income on municipal securities and increases in the cash surrender value of life insurance policies. The following table reconciles the Company’s income tax expense to the amount computed by applying the federal statutory tax rate to pre-tax income for the periods indicated:
 
   
Year Ended December 31,
 
   
2017
    
2016
    
2015
  
   
Amount
    
Percent
    
Amount
    
Percent
    
Amount
    
Percent
  
(Amounts in thousands)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Federal income tax at the statutory rate
   $
14,739
      
35.00
 %   $
13,281
      
35.00
 %   $
12,572
      
35.00
 %
State income tax, net of federal benefit
    
692
      
1.64
 %    
598
      
1.58
 %    
639
      
1.78
 %
     
15,431
      
36.64
 %    
13,879
      
36.58
 %    
13,211
      
36.78
 %
Increase (decrease) resulting from:
                                                
Tax-exempt interest income
    
(1,228
 )    
-2.92
 %    
(1,336
 )    
-3.52
 %    
(1,463
 )    
-4.07
 %
Nondeductible goodwill
    
-
      
0.00
 %    
340
      
0.89
 %    
-
      
-
  
Bank owned life insurance
    
(478
 )    
-1.13
 %    
(335
 )    
-0.88
 %    
(690
 )    
-1.92
 %
Deferred tax revaluation
    
6,552
      
15.56
 %    
-
      
0.00
 %    
-
      
0.00
 %
Other items, net
    
351
      
0.83
 %    
271
      
0.71
 %    
323
      
0.89
 %
Income tax at
the effective tax rate
   $
20,628
      
48.98
 %   $
12,819
      
33.78
 %   $
11,381
      
31.68
 %
 
 
Deferred taxes derived from continuing operations reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for tax purposes. The following table presents the significant components of the net deferred tax asset as of the dates indicated
:
 
   
December 31,
 
(Amounts in thousands)
  
2017
    
2016
  
Deferred tax assets
                
Allowance for loan losses
   $
4,511
     $
6,644
  
Unrealized losses on available-for-sale securities
    
-
      
326
  
Unrealized asset losses
    
722
      
913
  
Purchase accounting
    
3,418
      
5,384
  
FDIC assisted transactions
    
4,131
      
6,540
  
Intangible assets
    
2,616
      
4,062
  
Deferred compensation assets
    
3,617
      
4,669
  
Deferred loan fees
    
1,221
      
1,979
  
Other
    
450
      
825
  
Total deferred tax assets
    
20,686
      
31,342
  
                 
Deferred tax liabilities
                
FDIC indemnification asset
    
8,525
      
11,927
  
Fixed assets
    
1,282
      
2,042
  
Unrealized gains on available-for-sale securities
    
259
      
-
  
Odd days interest deferral
    
233
      
1,283
  
Other
    
819
      
347
  
Total deferred tax liabilities
    
11,118
      
15,599
  
Net deferred tax asset
   $
9,568
     $
15,743
  
 
T
he Company had
no
unrecognized tax benefits or accrued interest or penalties as of
December 31, 2017
or
2016.
The Company had
no
deferred tax valuation allowance recorded as of
December 31, 2017
or
2016,
as management believes it is more likely than
not
that all of the deferred tax assets will be realized against deferred tax liabilities and projected future taxable income. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service and various state tax departments for the years ended
December 31, 2014
through
2016.