Entity information:

(16)Income Taxes

 

Allocation of federal and state income taxes between current and deferred provisions is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

    

2017

    

2016

    

2015

 

Current

 

 

 

 

 

 

 

 

 

 

Federal

 

$

6,219

 

$

7,487

 

$

10,176

 

State

 

 

1,447

 

 

1,810

 

 

1,833

 

 

 

 

7,666

 

 

9,297

 

 

12,009

 

Deferred

 

 

 

 

 

 

 

 

 

 

Federal

 

 

3,273

 

 

1,339

 

 

(2,147)

 

State

 

 

163

 

 

151

 

 

(76)

 

 

 

 

3,436

 

 

1,490

 

 

(2,223)

 

Total

 

$

11,102

 

$

10,787

 

$

9,786

 

 

The federal statutory corporate tax rate for the years ended December 31, 2017, 2016 and 2015 was 35%. A reconciliation of the tax provision based on the statutory corporate rate on pretax income and the provision for taxes as shown in the accompanying consolidated statements of income is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

    

2017

    

2016

    

2015

 

Income tax expense at statutory rate

 

$

9,123

 

$

9,497

 

$

8,587

 

Income tax effect of:

 

 

 

 

 

 

 

 

 

 

Other tax-exempt income

 

 

(317)

 

 

(338)

 

 

(359)

 

Share-based compensation

 

 
2

 

 

68

 

 

87

 

State income taxes, net of federal income tax benefits

 

 

1,104

 

 

1,057

 

 

1,104

 

Tax benefit from the exercise of stock options (1)

 

 

(1,046)

 

 

 —

 

 

 —

 

Write-down of deferred income taxes (2)

 

 

2,054

 

 

 —

 

 

 —

 

Other

 

 

182

 

 

503

 

 

367

 

Total income tax expense

 

$

11,102

 

$

10,787

 

$

9,786

 

Effective income tax rate

 

 

42.59

%  

 

39.75

%  

 

39.89

%

(1)

Starting in 2017 a new accounting standard requires that any excess tax benefits resulting from the exercise of stock options be recognized in income tax expense.  Prior to the adoption of the new standard, the excess tax benefits were recorded as additional paid-in-capital.

 

(2)

Income tax expense for 2017 included a $2.1 million write-down of deferred income tax assets that resulted when the federal corporate tax rate was lowered from 35% to 21% due to the Tax Cuts and Jobs Act.

 

The components of income taxes payable (receivable) are as follows:

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

(Dollars in thousands)

    

2017

    

2016

 

Current taxes payable (receivable):

 

 

 

 

 

 

 

Federal

 

$

(1,571)

 

$

(122)

 

State

 

 

1,483

 

 

1,616

 

 

 

$

(88)

 

$

1,494

 

Deferred taxes receivable:

 

 

 

 

 

 

 

Federal

 

$

(3,178)

 

$

(6,350)

 

State

 

 

(1,431)

 

 

(1,555)

 

 

 

$

(4,609)

 

$

(7,905)

 

 

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

(Dollars in thousands)

    

2017

    

2016

 

Deferred tax assets:

 

 

 

 

 

 

 

Premises and equipment

 

$

966

 

$

1,737

 

Hawaii franchise tax

 

 

440

 

 

560

 

Unfunded pension liability

 

 

1,229

 

 

1,550

 

Allowance for loan losses

 

 

678

 

 

969

 

Impaired asset write-down

 

 

724

 

 

1,020

 

Employee benefit plans

 

 

2,580

 

 

3,785

 

Equity incentive plan

 

 

420

 

 

1,330

 

Unrealized losses on securities available-for-sale

 

 

17

 

 

21

 

Deferred compensation

 

 

453

 

 

744

 

Other

 

 

137

 

 

215

 

 

 

 

7,644

 

 

11,931

 

Deferred tax liabilities:

 

 

 

 

 

 

 

Net deferred loan fees

 

 

2,676

 

 

3,566

 

FHLB stock dividends

 

 

126

 

 

196

 

Prepaid expense

 

 

163

 

 

143

 

Premiums on loans sold

 

 

70

 

 

121

 

 

 

 

3,035

 

 

4,026

 

Net deferred tax assets

 

$

4,609

 

$

7,905

 

 

Deferred tax assets and liabilities at December 31, 2017 and 2016 were calculated using federal corporate tax rates of 21% and 35%, respectively.  The corporate tax rate was lowered to 21% due to the Tax Cuts and Jobs Act of 2017.  The lower tax rate caused a $2.1 million increase in income tax expense and write down of deferred income tax assets. 

 

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced. There was no valuation allowance for deferred tax assets as of December 31, 2017 and 2016.