Entity information:
13.
INCOME TAXES
The provisions (benefits) for income taxes are summarized as follows at
December 31 (
in thousands):
 
 
   
201
7
    
2016
    
2015
  
                         
Income tax provision (benefit):
                        
Current:
                        
Federal
   $
6,319
     $
403
     $
252
  
State
    
675
      
237
      
136
  
Total current
    
6,994
      
640
      
388
  
                         
Deferred:
                        
Federal
    
4,906
      
6,064
      
3,551
  
State
    
1,095
      
1,052
      
820
  
Valuation allowance
    
--
      
(897
 )    
(120
 )
Total deferred
    
6,001
      
6,219
      
4,251
  
                         
Total
   $
12,995
     $
6,859
     $
4,639
  
 
The reasons for the differences between the statutory federal income tax rates and the effective tax rates are summarized as follows at
December 31 (
dollars in thousands):
 
   
201
7
    
201
6
    
201
5
  
                                                 
Taxes at statutory federal income tax rate
   $
12,007
      
35.0
 %   $
8,504
      
35.0
 %   $
5,324
      
35.0
 %
Increase (decrease) resulting from:
                                                
Graduated tax rates
    
--
      
--
      
(243
 )    
(1.0
 )    
(94
 )    
(0.6
 )
State income tax
—net of federal benefits
    
1,142
      
3.3
      
865
      
3.6
      
484
      
3.2
  
Valuation allowance
—net
    
--
      
--
      
(897
 )    
(3.7
 )    
--
      
--
  
Earnings on life insurance policies
    
(994
 )    
(2.9
 )    
(549
 )    
(2.3
 )    
(515
 )    
(3.4
 )
Nontaxable investments
    
(1,260
 )    
(3.7
 )    
(677
 )    
(2.8
 )    
(619
 )    
(4.1
 )
Change in deferred tax asset related to tax reform
    
2,355
      
6.9
      
--
      
--
      
--
      
--
  
Other
—net
    
(255
 )    
(0.7
 )    
(144
 )    
(0.6
 )    
59
      
0.4
  
                                                 
Total
   $
12,995
      
37.9
 %   $
6,859
      
28.2
 %   $
4,639
      
30.5
 %
 
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
As per ASC
740
-
10
-
30
-
2
the remaining deferred tax assets and liabilities have been adjusted for the effect of the change in tax rates in the Tax Cuts and Jobs Act (the “Act”) signed into law by President Trump on
December 22, 2017.
The Act reduces the corporate tax rate to
21
percent, effective
January 1, 2018.
The charge to deferred income tax provision due to the reduction of the net deferred tax assets as a result of the change in tax rates for the year ended
December 31, 2017
amounted to
$2.4
million.
 
At
December 31, 2017
and
2016,
current income taxes payable of
$2.5
million and
$11,000,
respectively, was included in other liabilities in the consolidated statements of financial condition.
 
The Company
’s net deferred tax asset account was comprised of the following at
December 31 (
in thousands):
 
   
201
7
    
201
6
  
                 
Deferred tax assets:
                
Allowance for loan and lease losses
   $
4,964
     $
8,278
  
Discount on purchased loans
    
839
      
2,044
  
Real estate owned
    
165
      
263
  
Section 382 net operating loss carryforward
    
1,135
      
1,976
  
Net operating loss carryforward
    
--
      
1,346
  
Nonaccrual loan interest
    
969
      
1,471
  
Unrealized loss on securities available for sale
    
--
      
891
  
Other
    
1,245
      
1,923
  
                 
Total deferred tax assets
    
9,317
      
18,192
  
                 
Deferred tax liabilities:
                
Office properties
    
(2,046
 )    
(2,964
 )
Core deposit intangible
    
(1,382
 )    
(2,293
 )
Unrealized gain on securities available for sale
    
(77
 )    
--
  
Prepaid expenses and other
    
(1,201
 )    
(1,316
 )
                 
Total deferred tax liabilities
    
(4,706
 )    
(6,573
 )
                 
Net deferred tax asset
   $
4,611
     $
11,619
  
 
A financial institution
may,
for federal income tax purposes, carryback net operating losses
(“NOL”) to the preceding
two
taxable years and forward to the succeeding
20
taxable years. At
December 31, 2017,
the Company had a
$5.4
million NOL for federal income tax purposes that will be carried forward, comprised of Internal Revenue Code (“IRC” or the “Code”) Section
382
NOL carryforwards that have an annual limit of
$405,000
that can be utilized to offset taxable income. The Company does
not
have any remaining non-Section
382
federal NOL carryforwards. At
December 31, 2017,
the Company does
not
have any remaining unused NOL for Arkansas state income tax purposes.
 
Specifically exempted from deferred tax recognition requirements are bad debt reserves for tax purposes of U.S. savings and loans in the institution
’s base year, as defined under Code Section
593
(g)(
2
)(A)(ii). Base year reserves totaled approximately
$4.2
million. Consequently, a deferred tax liability of approximately
$1.1
million and
$1.6
million related to such reserves was
not
provided for in the consolidated statements of financial condition at
December 31, 2017
and
December 31, 2016,
respectively. Payment of dividends to stockholders out of retained earnings deemed to have been made out of earnings previously set aside as bad debt reserves
may
create taxable income to the Bank.
No
provision has been made for income tax on such a distribution as the Bank does
not
anticipate making such distributions.
 
Prior to the quarter ended
June 30, 2016,
the Company had certain deferred tax assets related to net unrealized built-in losses (“NUBILs”) established under Code Section
382
on
May 3, 2011,
the date of the Company
’s ownership change related to the initial investment by Bear State Financial Holdings, LLC (“BSF Holdings”).
If these losses had been realized before
May 3, 2016 (
five
years after the ownership change date), then they would
not
be allowed to be taken as a deduction and would have been permanently lost. If these losses were to be realized after
May 3, 2016,
then the future deduction for the losses is
no
longer limited. As a result of passing the
five
year anniversary date of the ownership change, during the
second
quarter of
2016
the Bank reversed the valuation allowance of
$0.9
million for the remaining NUBILs.
 
The Company recognizes interest
and penalties related to income tax matters as additional income taxes in the consolidated statements of income. The Company had
$66,000
of interest or penalties related to income tax matters during the year ended
December 31, 2017
and
none
in the years ended
December 31, 2016
or
2015.
The Company files consolidated income tax returns in the U.S. federal jurisdiction and the states of Arkansas and Missouri while the Bank files in the state of Oklahoma. The Company is subject to U.S. federal and state income tax examinations by tax authorities for tax years ended
December 31, 2014
and forward.