INCOME TAXES
On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was signed into law. The TCJA makes broad and complex changes to the U.S. tax code that affected the Company’s income tax rate in 2017, including requiring the revaluation of the Company’s deferred tax assets and liabilities as of December 31, 2017 as a result of the lower corporate tax rates to be realized beginning January 1, 2018. The TCJA reduces the U.S. federal corporate income tax rate from 35% to 21% and establishes new tax laws that will affect 2018.
ASC 740 requires a company to record the effects of a tax law change in the period of enactment, however, shortly after the enactment of the TCJA, the SEC staff issued SAB 118, which allows a company to record a provisional amount when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting for the change in the tax law. The measurement period ends when the company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. The Company is in the process of analyzing certain aspects of the TCJA, obtaining additional information, and refining its calculations, which could potentially affect the measurement of these balances.
The income tax expense included in the consolidated statements of income is displayed in the table below for the years ended December 31, 2017, 2016 and 2015 (dollars in thousands).
|
| | | | | | | | | | | | |
| | December 31, |
| | 2017 | | 2016 | | 2015 |
Current | | $ | 4,003 |
| | $ | 3,816 |
| | $ | 3,897 |
|
Deferred | | 245 |
| | (207 | ) | | (386 | ) |
Total income tax expense | | $ | 4,248 |
| | $ | 3,609 |
| | $ | 3,511 |
|
The Company’s current income tax expense includes a $0.3 million charge directly related to the revaluation of its deferred tax assets and liabilities as a result of the TCJA.
The provision for federal income taxes differs from that computed by applying the federal statutory rate of 35% in 2017, 2016 and 2015, as indicated in the following analysis for the years ended December 31, 2017, 2016 and 2015 (dollars in thousands).
|
| | | | | | | | | | | | |
| | December 31, |
| | 2017 | | 2016 | | 2015 |
Tax based on statutory rate | | $ | 4,258 |
| | $ | 3,921 |
| | $ | 3,704 |
|
Increase (decrease) resulting from: | | | | | | |
Effect of tax-exempt income | | (422 | ) | | (273 | ) | | (142 | ) |
Acquisition costs | | 174 |
| | — |
| | — |
|
Historical tax credits | | 10 |
| | 10 |
| | (62 | ) |
Effect of tax rate change | | 292 |
| | — |
| | — |
|
Other | | (64 | ) | | (49 | ) | | 11 |
|
Total income tax expense | | $ | 4,248 |
| | $ | 3,609 |
| | $ | 3,511 |
|
Effective rate | | 34.1 | % | | 31.4 | % | | 33.2 | % |
The Company records deferred income tax on the tax effect of changes in timing differences.
The net deferred tax asset was comprised of the following items as of the dates indicated (dollars in thousands).
|
| | | | | | | | | | | | |
| | December 31, |
| | 2017 | | 2016 | | 2015 |
Deferred tax liabilities: | | | | | | |
Depreciation | | $ | (1,652 | ) | | $ | (1,650 | ) | | $ | (1,402 | ) |
FHLB stock dividend | | (28 | ) | | (20 | ) | | (5 | ) |
Basis difference in acquired assets and liabilities | | (900 | ) | | (276 | ) | | (291 | ) |
Basis difference in MFS, LLC | | (20 | ) | | — |
| | — |
|
Gross deferred tax liability | | (2,600 | ) | | (1,946 | ) | | (1,698 | ) |
| | | | | | |
Deferred tax assets: | | | | | | |
Allowance for loan losses | | 1,549 |
| | 2,150 |
| | 1,588 |
|
Provision for other real estate losses | | 155 |
| | 266 |
| | 328 |
|
Unrealized loss on available for sale securities | | 418 |
| | 1,115 |
| | 357 |
|
Net operating loss carryforward | | 154 |
| | 299 |
| | 412 |
|
Deferred compensation | | 302 |
| | 25 |
| | 34 |
|
Basis difference in acquired assets and liabilities | | 839 |
| | 253 |
| | 265 |
|
Historical tax credit | | 144 |
| | 243 |
| | 247 |
|
Other | | 333 |
| | 463 |
| | 382 |
|
Gross deferred tax assets | | 3,894 |
| | 4,814 |
| | 3,613 |
|
Net deferred tax asset | | $ | 1,294 |
| | $ | 2,868 |
| | $ | 1,915 |
|
The Company acquired net operating loss (“NOL”) carryforwards through tax free acquisitions. As of December 31, 2017 and December 31, 2016, the Company’s NOL carryforwards were approximately $0.7 million and $0.9 million, respectively, and expire in 2033.
The Company files income tax returns under U.S. federal jurisdiction and the state of Louisiana, although the state of Louisiana does not assess an income tax on income resulting from banking operations. The Company is open to examination in the U.S. and the state of Louisiana for tax years ended December 31, 2014 through December 31, 2017.