|
12. |
INCOME TAXES |
Earnings in 2017 were impacted by the Tax Cuts and Jobs Act of 2017. The change in tax law required a one-time non-cash write-down of our net deferred tax assets of $3.9 million as these deferred tax assets were required to be re-measured using the new lower tax rate in 2017. Effective in 2018, the change in tax law will reduce the Company’s statutory federal tax rate from 35% to 21%.
The components of income tax expense were as follows:
|
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
|
|
(dollars in thousands) |
|
|||||||||
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
8,446 |
|
|
$ |
7,551 |
|
|
$ |
6,855 |
|
|
State |
|
|
2,225 |
|
|
|
1,833 |
|
|
|
1,458 |
|
|
Total current expense |
|
|
10,671 |
|
|
|
9,384 |
|
|
|
8,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
2,948 |
|
|
|
(645 |
) |
|
|
(594 |
) |
|
State |
|
|
(261 |
) |
|
|
(183 |
) |
|
|
(168 |
) |
|
Total deferred |
|
|
2,687 |
|
|
|
(828 |
) |
|
|
(762 |
) |
|
Total income tax expense |
|
$ |
13,358 |
|
|
$ |
8,556 |
|
|
$ |
7,551 |
|
The following is a reconciliation of the total income tax provision, calculated at statutory federal income tax rates, to the income tax provision in the consolidated statements of income:
|
|
|
For the Year Ended December 31, |
|
|||||||||||||||||||||
|
|
|
2017 |
|
|
Rate |
|
|
2016 |
|
|
Rate |
|
|
2015 |
|
|
Rate |
|
||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||
|
Provision at statutory rates |
|
$ |
9,861 |
|
|
|
35.00 |
% |
|
$ |
8,908 |
|
|
|
35.00 |
% |
|
$ |
8,136 |
|
|
|
35.00 |
% |
|
Increase/(decrease) resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State tax, net of federal tax benefit |
|
|
1,277 |
|
|
|
4.53 |
|
|
|
1,073 |
|
|
|
4.22 |
|
|
|
839 |
|
|
|
3.61 |
|
|
Tax-exempt income |
|
|
(1,079 |
) |
|
|
(3.83 |
) |
|
|
(1,099 |
) |
|
|
(4.32 |
) |
|
|
(1,041 |
) |
|
|
(4.48 |
) |
|
ESOP dividends |
|
|
(216 |
) |
|
|
(0.77 |
) |
|
|
(214 |
) |
|
|
(0.84 |
) |
|
|
(207 |
) |
|
|
(0.89 |
) |
|
Bank owned life insurance |
|
|
(205 |
) |
|
|
(0.73 |
) |
|
|
(214 |
) |
|
|
(0.84 |
) |
|
|
(233 |
) |
|
|
(1.00 |
) |
|
Benefit from stock compensation |
|
|
(190 |
) |
|
|
(0.67 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Impact of Tax Cuts and Jobs Act |
|
|
3,870 |
|
|
|
13.74 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Other |
|
|
40 |
|
|
|
0.15 |
|
|
|
102 |
|
|
|
0.40 |
|
|
|
57 |
|
|
|
0.25 |
|
|
Total income tax expense |
|
$ |
13,358 |
|
|
|
47.42 |
% |
|
$ |
8,556 |
|
|
|
33.62 |
% |
|
$ |
7,551 |
|
|
|
32.49 |
% |
The Company’s 2017 and 2016 net deferred tax assets were measured using 21% and 35%, respectively, and consisted of the following components:
|
|
|
December 31, 2017 |
|
|
December 31, 2016 |
|
||
|
|
|
(dollars in thousands) |
|
|||||
|
Gross deferred tax assets |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
4,306 |
|
|
$ |
6,234 |
|
|
Accrued retirement benefits |
|
|
2,430 |
|
|
|
5,595 |
|
|
Unrealized losses on AFS securities |
|
|
905 |
|
|
|
1,496 |
|
|
Incentive compensation |
|
|
1,082 |
|
|
|
1,413 |
|
|
Equity based compensation |
|
|
351 |
|
|
|
333 |
|
|
Rent |
|
|
266 |
|
|
|
299 |
|
|
ESOP dividends |
|
|
174 |
|
|
|
249 |
|
|
Other |
|
|
164 |
|
|
|
295 |
|
|
Total gross deferred tax assets |
|
|
9,678 |
|
|
|
15,914 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities |
|
|
|
|
|
|
|
|
|
Deferred loan origination costs |
|
|
(401 |
) |
|
|
(625 |
) |
|
Depreciation of premises and equipment |
|
|
(667 |
) |
|
|
(1,100 |
) |
|
Mortgage servicing rights |
|
|
(223 |
) |
|
|
(332 |
) |
|
Goodwill |
|
|
(114 |
) |
|
|
(164 |
) |
|
Total gross deferred tax liabilities |
|
|
(1,405 |
) |
|
|
(2,221 |
) |
|
Net deferred tax asset |
|
$ |
8,273 |
|
|
$ |
13,693 |
|
It is management’s belief, that it is more likely than not, that the reversal of deferred tax liabilities and results of future operations will generate sufficient taxable income to realize the deferred tax assets. Therefore, no valuation allowance was required at either December 31, 2017 or 2016 for the deferred tax assets. It should be noted, however, that factors beyond management’s control, such as the general state of the economy and real estate values, can affect future levels of taxable income and that no assurance can be given that sufficient taxable income will be generated in future periods to fully absorb deductible temporary differences.
At December 31, 2017 and 2016, the Company had no unrecognized tax benefits or any uncertain tax positions. The Company does not expect the total amount of unrecognized tax benefits to significantly increase in the next 12 months.
The Company’s federal income tax returns are open and subject to examination from the 2014 tax return year and forward. The Company’s state income tax returns are open from the 2014 and later tax return years based on individual state statute of limitations.
On January 1, 2017, we adopted Accounting Standards Update No. 2016-09 - “Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). ASU 2016-09 requires that excess tax benefits or tax deficiencies be recognized as income tax benefit or expense in earnings in the period that they occur. During the year ended December 31, 2017, the Company recognized a tax benefit of $221,000.