NOTE 15 – INCOME TAXES
Income tax expense is listed in the following table.
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
6,474 |
|
|
$ |
2,863 |
|
|
$ |
1,157 |
|
|
State |
|
|
1,282 |
|
|
|
723 |
|
|
|
558 |
|
|
Total current income tax expense |
|
|
7,756 |
|
|
|
3,586 |
|
|
|
1,715 |
|
|
Deferred income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
2,550 |
|
|
|
865 |
|
|
|
2,263 |
|
|
State |
|
|
71 |
|
|
|
44 |
|
|
|
164 |
|
|
Total deferred income tax expense |
|
|
2,621 |
|
|
|
909 |
|
|
|
2,427 |
|
|
Total income tax expense |
|
$ |
10,377 |
|
|
$ |
4,495 |
|
|
$ |
4,142 |
|
A reconciliation of income tax expense at the U.S. federal statutory rate (35% in 2017, 2016 and 2015) to the Company’s actual income tax expense is shown below.
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Computed at the statutory rate |
|
$ |
10,862 |
|
|
$ |
4,854 |
|
|
$ |
5,055 |
|
|
Increase (decrease) resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local taxes, net of federal benefit |
|
|
717 |
|
|
|
449 |
|
|
|
457 |
|
|
Tax-exempt interest |
|
|
(1,177 |
) |
|
|
(576 |
) |
|
|
(370 |
) |
|
Non-taxable life insurance income |
|
|
(506 |
) |
|
|
(350 |
) |
|
|
(335 |
) |
|
Non-deductible expenses |
|
|
376 |
|
|
|
689 |
|
|
|
167 |
|
|
Share-based payments |
|
|
(335 |
) |
|
— |
|
|
— |
|
||
|
Federal tax credits |
|
|
(660 |
) |
|
|
(625 |
) |
|
|
(435 |
) |
|
Gain on acquisition |
|
— |
|
|
— |
|
|
|
(239 |
) |
||
|
Change in valuation allowance |
|
|
187 |
|
|
|
65 |
|
|
|
13 |
|
|
Effect of tax reform |
|
|
1,086 |
|
|
— |
|
|
— |
|
||
|
Other |
|
|
(173 |
) |
|
|
(11 |
) |
|
|
(171 |
) |
|
Income tax expense |
|
$ |
10,377 |
|
|
$ |
4,495 |
|
|
$ |
4,142 |
|
On December 22, 2017, Tax Reform was enacted which reduced the U.S. federal statutory income tax rate from 35% to 21% effective January 1, 2018. On the same date, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118, which specifies that reasonable estimates of the income tax effects of Tax Reform should be used to account for the effects of Tax Reform in the period of enactment as required by generally accepted accounting principals and also provided for a measurement period that should not extend beyond one year from Tax Reform’s enactment date. The Company has accounted for the effects of Tax Reform using reasonable estimates based on currently available information. This accounting may change due to changes in interpretations the Company has made and the issuance of new tax or accounting guidance. The direct impact to the 2017 financial statements was the re-measurement of the Company’s December 31, 2017, deferred tax assets and liabilities which are expected to reverse beginning in 2018. The re-measurement of the Company’s net deferred tax asset resulted in $1,086 additional income tax expense being recognized in 2017, including a $535 decrease in the net deferred tax assets related to unrealized or unamortized losses on securities. The impact of this re-measurement is included in the statutory rate reconciliation above.
With the exception of the revaluation adjustment required by Tax Reform, the deferred tax effects of unrealized or unamortized gains and losses on securities are recorded directly to stockholders’ equity as part of other comprehensive income. Effective January 1, 2017, the Company adopted the provisions of ASU 2016-09 on a prospective basis. In accordance with ASU 2016-09, $335 tax benefits, which were generated when the tax deduction for share-based payments exceeded book compensation costs, reduced income tax expense for the year ended December 31, 2017. Prior to the adoption of ASU 2016-09, excess tax benefits associated with share-based payments were recognized in paid-in-capital and totaled $13 and $224 in 2016 and 2015.
Components of deferred tax assets and liabilities are shown in the table below.
|
|
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
2,121 |
|
|
$ |
2,460 |
|
|
Net unrealized or unamortized losses on securities |
|
|
1,034 |
|
|
|
1,674 |
|
|
Tax credit carryforwards |
|
|
974 |
|
|
|
974 |
|
|
Accrued compensation |
|
|
1,208 |
|
|
|
1,450 |
|
|
Net operating loss carryforwards |
|
|
797 |
|
|
|
880 |
|
|
Other real estate owned |
|
|
588 |
|
|
|
1,764 |
|
|
Acquired loans fair market value adjustments |
|
|
4,532 |
|
|
|
4,279 |
|
|
Other |
|
|
404 |
|
|
|
616 |
|
|
Gross deferred tax assets |
|
|
11,658 |
|
|
|
14,097 |
|
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
|
Assumed debt fair market value adjustments |
|
$ |
1,607 |
|
|
|
2,608 |
|
|
Goodwill amortization |
|
|
1,267 |
|
|
|
1,685 |
|
|
Depreciation |
|
|
1,831 |
|
|
|
2,153 |
|
|
Federal Home Loan Bank stock dividends |
|
|
764 |
|
|
|
882 |
|
|
Core deposit intangibles |
|
|
2,301 |
|
|
|
1,715 |
|
|
Other |
|
|
360 |
|
|
|
360 |
|
|
Gross deferred tax liabilities |
|
|
8,130 |
|
|
|
9,403 |
|
|
State valuation allowance |
|
|
(571 |
) |
|
|
(382 |
) |
|
Net deferred tax asset |
|
$ |
2,957 |
|
|
$ |
4,312 |
|
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax basis and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. In 2017, the Company recognized deferred tax assets of $2,832 and deferred tax liabilities of $2,075 for temporary differences associated with the Eastman merger and deferred tax assets of $1,446 and deferred tax liabilities of $694 for temporary differences associated with the Cache merger. In 2016, the Company recognized deferred tax assets of $6,621 and deferred tax liabilities of $2,537 for temporary differences associated with the Community First merger. Federal net operating losses, acquired through previous acquisitions, totaled $880 at December 31, 2017 and will expire between 2030 and 2031. Acquired federal tax credits totaling $974 will expire between 2027 and 2034. The utilization of these net operating loss and tax credit carryforwards are not expected to be limited by internal revenue code sections 382 and 383.
The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of the states of Arkansas, Kansas, Missouri, Oklahoma and Iowa. Commercial banks are not allowed to file consolidated Kansas returns with non-bank consolidated group members. The Company has unused state operating loss carryforwards of approximately $15,160 that expire between 2018 and 2027 resulting from the separate Kansas returns of the Company and SA Holdings, Inc. These operating losses, as well as certain deferred tax assets, have a full valuation allowance recorded against them resulting in a zero carrying value. In connection with a 2015 acquisition, the Company acquired Kansas net operating losses useable against Kansas bank income. At December 31, 2017, the Kansas net operating loss carryforward useable against Kansas bank income totaled $3,622 with expiration dates between 2019 and 2022. The utilization of this acquired Kansas net operating loss carryforward is expected to be limited, and a valuation allowance has been recorded against the portion which is expected to expire unused. In establishing a valuation allowance management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The Company is no longer subject to examination by taxing authorities for years before 2013. At December 31, 2017, there were no examinations in any jurisdiction.