Income Taxes
Income tax expense for the years ended December 31, 2017, 2016 and 2015 was as follows:
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2017 | | 2016 | | 2015 |
Current income tax expense | $ | 28,121 |
| | $ | 28,440 |
| | $ | 22,946 |
|
Deferred income tax expense (benefit) | 11,526 |
| | (1,849 | ) | | (3,935 | ) |
Deferred income tax expense related to remeasurement of deferred taxes | 5,528 |
| | — |
| | — |
|
Income tax expense, as reported | $ | 45,175 |
| | $ | 26,591 |
| | $ | 19,011 |
|
A reconciliation between reported income tax expense and the amounts computed by applying the U.S. federal statutory income tax rate of 35% to income before income taxes for the years ended December 31, 2017, 2016 and 2015 is presented below:
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2017 | | 2016 | | 2015 |
Income tax expense computed at the statutory rate | $ | 42,590 |
| | $ | 28,046 |
| | $ | 20,229 |
|
Tax-exempt interest income from municipal securities | (1,357 | ) | | (619 | ) | | (624 | ) |
Tax-exempt loan income | (435 | ) | | (436 | ) | | (398 | ) |
Bank owned life insurance income | (962 | ) | | (472 | ) | | (377 | ) |
Non-deductible acquisition expenses | 491 |
| | — |
| | 108 |
|
State taxes, net of federal benefit | 241 |
| | — |
| | — |
|
Net tax benefit from stock based compensation | (1,323 | ) | | — |
| | — |
|
Deferred tax adjustment related to reduction in U.S. Federal statutory income tax rate | 5,528 |
| | — |
| | — |
|
Other | 402 |
| | 72 |
| | 73 |
|
| $ | 45,175 |
| | $ | 26,591 |
| | $ | 19,011 |
|
The Tax Cuts and Jobs Act, which was enacted on December 22, 2017, made significant changes to the U.S. tax law, including the reduction of the corporate income tax rate from 35% to 21%. As a result of enactment, we remeasured our deferred tax assets and liabilities based upon the newly enacted U.S. statutory federal income tax rate of 21%, which is the tax rate at which these assets and liabilities are expected to reverse in the future and, as noted above, recognized a tax expense related to the remeasurement of $5,528.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740, Income Taxes.
The Company has completed its accounting under ASC 740 for all material deferred tax assets and liabilities. Provisional amounts have been recorded for certain immaterial items, such as Schedules K-1 from partnership investments and state apportionment. Material adjustments to provisional amounts are not anticipated during the SAB 118 measurement period.
Components of deferred tax assets and liabilities are presented in the table below. As a result of the Tax Cuts and Jobs Act, deferred taxes as of December 31, 2017 are based on the newly enacted U.S. statutory federal income tax rate of 21%. Deferred taxes of December 31, 2016 are based on the previously enacted U.S. statutory federal income tax rate of 35%.
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
Deferred tax assets: | | | |
Allowance for loan losses | $ | 8,365 |
| | $ | 11,057 |
|
NOL and tax credit carryforwards from acquisitions | 6,791 |
| | 383 |
|
Net unrealized loss on available for sale securities | 349 |
| | 912 |
|
Acquired loan fair market value adjustments | 5,214 |
| | 2,740 |
|
Restricted stock | 791 |
| | 1,363 |
|
Reserve for bonuses | 479 |
| | 1,946 |
|
Deferred loan fees | 545 |
| | 741 |
|
Securities | 265 |
| | — |
|
Start up costs | 281 |
| | 249 |
|
Other real estate owned | 402 |
| | 18 |
|
Unearned bankcard income | 244 |
| | 495 |
|
Deferred compensation | 492 |
| | — |
|
Noncompete agreements | 526 |
| | — |
|
Nonaccrual loans | 414 |
| | 70 |
|
Other | 310 |
| | 248 |
|
| 25,468 |
| | 20,222 |
|
Deferred tax liabilities: | | | |
Premises and equipment | (5,128 | ) | | (5,107 | ) |
Core deposit intangibles | (9,181 | ) | | (4,953 | ) |
Acquired junior subordinated debentures fair value adjustment | (818 | ) | | — |
|
Securities | — |
| | (218 | ) |
FHLB stock | (204 | ) | | (157 | ) |
Acquired tax accounting method changes | — |
| | (156 | ) |
Prepaids | (153 | ) | | — |
|
Acquired tax goodwill | (111 | ) | | — |
|
Other | (110 | ) | | — |
|
| (15,705 | ) | | (10,591 | ) |
Net deferred tax asset | $ | 9,763 |
| | $ | 9,631 |
|
At December 31, 2017, the Company had federal net operating loss carryforwards of approximately $26,795 which expire in various years from 2022 to 2032, federal tax credit carryovers of approximately $132 which will never expire and state net operating loss carryforwards of approximately $28,203 which expire in various years from 2028 to 2036. Deferred tax assets are recognized for net operating losses because the benefit is more likely than not to be realized. No valuation allowance for deferred tax assets was recorded at December 31, 2017 or 2016 as management believes it is more likely than not that all of the deferred tax assets will be realized.
The Company does not have any material uncertain tax positions and does not have any interest and penalties recorded in the income statement for the years ended December 31, 2017, 2016 and 2015. The Company files a consolidated income tax return in the US federal tax jurisdiction. The Company is no longer subject to examination by the US federal tax jurisdiction for years prior to 2014.