Income tax expense was as follows (in thousands):
|
|
|
2017 |
|
2016 |
|
2015 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
2,748 |
|
$ |
1,082 |
|
$ |
629 |
|
|
Adjustment for Tax Cuts and Jobs Act |
|
|
443 |
|
|
— |
|
|
— |
|
|
Deferred |
|
|
(28) |
|
|
(309) |
|
|
(99) |
|
|
|
|
$ |
3,163 |
|
$ |
773 |
|
$ |
530 |
|
Year-end deferred tax assets and liabilities were due to the following (in thousands). No valuation allowance for the realization of deferred tax assets is considered necessary.
|
|
|
2017 |
|
2016 |
|
||
|
|
|
|
|
|
|
|
|
|
Deferred tax assets |
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
1,637 |
|
$ |
2,589 |
|
|
Other real estate owned |
|
|
106 |
|
|
237 |
|
|
Nonaccrual loan interest |
|
|
36 |
|
|
54 |
|
|
Accrued expenses |
|
|
134 |
|
|
212 |
|
|
Acquisition market value adjustments |
|
|
230 |
|
|
571 |
|
|
AMT tax credit |
|
|
— |
|
|
92 |
|
|
Capital loss carryforward |
|
|
73 |
|
|
— |
|
|
Unrealized loss on securities |
|
|
265 |
|
|
492 |
|
|
Low income housing investments |
|
|
124 |
|
|
150 |
|
|
Unearned income |
|
|
190 |
|
|
362 |
|
|
Other |
|
|
69 |
|
|
88 |
|
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
Bank premises and equipment |
|
|
(640) |
|
|
(1,041) |
|
|
FHLB stock |
|
|
(808) |
|
|
(1,308) |
|
|
Prepaid expenses |
|
|
(168) |
|
|
(260) |
|
|
Mortgage servicing rights |
|
|
(309) |
|
|
(434) |
|
|
Core deposit intangibles |
|
|
(78) |
|
|
(180) |
|
|
Acquisition loan loss recapture |
|
|
(53) |
|
|
(236) |
|
|
Other |
|
|
(92) |
|
|
(194) |
|
|
Net deferred tax asset (liability) |
|
$ |
716 |
|
$ |
1,194 |
|
Effective tax rates differ from federal statutory rates applied to financial statement income due to the following:
|
|
|
2017 |
|
2016 |
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
U. S. federal income tax rate |
|
34.0 |
% |
34.0 |
% |
34.0 |
% |
|
Changes from the statutory rate |
|
|
|
|
|
|
|
|
Tax-exempt interest income |
|
(9.0) |
|
(14.1) |
|
(16.3) |
|
|
Historic and low income tax credits |
|
(4.0) |
|
(9.4) |
|
(8.2) |
|
|
Insurance captive |
|
(1.9) |
|
(3.3) |
|
(3.7) |
|
|
Non-deductible interest expense related to carrying tax-exempt investments |
|
0.3 |
|
0.4 |
|
0.4 |
|
|
Non-deductible merger expenses |
|
— |
|
— |
|
0.9 |
|
|
2017 Tax Cuts and Jobs Act |
|
3.1 |
|
— |
|
— |
|
|
Other |
|
0.3 |
|
0.7 |
|
0.1 |
|
|
|
|
22.8 |
% |
8.3 |
% |
7.2 |
% |
On December 22, 2017, the ‘Tax Cuts and Jobs Act’ was enacted into legislation. Under ASC 740, the effects of changes in tax rates and laws are recognized in the period in which the new legislation is enacted. Accordingly, the Company has recorded an estimated $443 thousand for the revaluation of the Company’s deferred tax assets to estimate the revaluation of deferred tax assets due to the lowering of the federal corporate tax rate to 21%,
At December 31, 2017, the Company early adopted ASU 2018-02 and reclassified out of retained earnings and into accumulated other comprehensive income $164 thousand of tax expense that was recorded to income tax expense at December 31, 2017 due to re-measuring to 21% deferred taxes on available for sale securities
Federal income tax laws provided the First Federal Savings Bank, acquired by the Company in 2003, with additional bad debt deductions through 1987, totaling $1.3 million. Accounting standards do not require a deferred tax liability to be recorded on this amount, which otherwise would total a $272 thousand liability at December 31, 2017. The Company’s acquisition of First Federal Savings Bank did not require the recapture of the bad debt reserve.
However, if Kentucky Bank was liquidated or otherwise ceased to be a bank, or if tax laws were to change, the $272 thousand would be recorded as expense.
Unrecognized Tax Benefits
The Company does not have any beginning and ending unrecognized tax benefits. The Company does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months.
There were no interest and penalties recorded in the income statement or accrued for the years ended December 31, 2017 and 2016.
The Company and its subsidiaries file a consolidated U.S. Corporation income tax return and a corporate income tax return in the state of Kentucky. The Company is no longer subject to examination by taxing authorities for years before 2014.