Annual report pursuant to Section 13 and 15(d)

Note 18 - Income Taxes

v3.8.0.1
Note 18 - Income Taxes
12 Months Ended
Dec. 31, 2017
Notes to Financial Statements  
Income Tax Disclosure [Text Block]
NOTE
18.
INCOME TAXES
 
The components of income tax expense are as follows:
 
    Year Ended December 31,
    2017   2016   2015
    (In Thousands)
Current tax expense:                        
Federal   $
27,952
    $
29,813
    $
28,517
 
State    
2,258
     
1,254
     
1,824
 
Total current tax expense    
30,210
     
31,067
     
30,341
 
Deferred tax expense (benefit):                        
Federal    
17,073
     
(662
)    
(3,277
)
State    
(3,025
)    
(1,066
)    
(1,599
)
Total deferred tax (benefit)    
14,048
     
(1,728
)    
(4,876
)
Total income tax expense   $
44,258
    $
29,339
    $
25,465
 
 
The Company’s total income tax expense differs from the amounts computed by applying the Federal income tax statutory rates to income before income taxes. A reconciliation of the differences is as follows:
 
    Year Ended December 31, 2017
    Amount   % of Pre-tax
Earnings
    (In Thousands)
Income tax at statutory federal rate   $
48,073
     
35.00
%
Effect on rate of:                
State income tax, net of federal tax effect    
43
     
0.03
%
Tax-exempt income, net of expenses    
(1,356
)    
(0.99
)%
Bank owned life insurance contracts    
(1,096
)    
(0.80
)%
Excess tax benefit from stock compensation    
(4,278
)    
(3.11
)%
Federal tax credits    
(234
)    
(0.17
)%
Enacted tax rate change    
3,108
     
2.26
%
Other    
(2
)    
-
%
Effective income tax and rate   $
44,258
     
32.22
%
 
 
   
Year Ended
December 31, 2016
    Amount   % of Pre-tax
Earnings
    (In Thousands)
Income tax at statutory federal rate   $
38,786
     
35.00
%
Effect on rate of:                
State income tax, net of federal tax effect    
254
     
0.23
%
Tax-exempt income, net of expenses    
(1,322
)    
(1.20
)%
Bank owned life insurance contracts    
(978
)    
(0.88
)%
Excess tax benefit from stock compensation    
(4,788
)    
(4.32
)%
Federal tax credits    
(2,652
)    
(2.40
)%
Other    
39
     
0.04
%
Effective income tax and rate   $
29,339
     
26.47
%
 
   
Year Ended
December 31, 2015
    Amount   % of Pre-tax
Earnings
    (In Thousands)
Income tax at statutory federal rate   $
31,152
     
35.00
%
Effect on rate of:                
State income tax, net of federal tax effect    
146
     
0.16
%
Tax-exempt income, net of expenses    
(1,308
)    
(1.47
)%
Bank owned life insurance contracts    
(917
)    
(1.03
)%
Incentive stock option expense    
3
     
-
%
Federal tax credits    
(3,600
)    
(4.04
)%
Other    
(11
)    
(0.01
)%
Effective income tax and rate   $
25,465
     
28.61
%
 
The components of net deferred tax asset are as follows:
 
    December 31,
    2017   2016
    (In Thousands)
Deferred tax assets:                
Allowance for loan losses   $
14,905
    $
19,699
 
Other real estate owned    
232
     
737
 
Nonqualified equity awards    
927
     
1,234
 
Nonaccrual interest    
178
     
501
 
State tax credits    
5,688
     
3,475
 
Investments    
1,296
     
2,173
 
Deferred loan fees    
866
     
707
 
Reserve for unfunded commitments    
125
     
190
 
Accrued bonus    
1,521
     
1,817
 
Differences in amounts reflected in financial statements and income tax basis of assets acquired and liabilities assumed in acquisition    
175
     
448
 
Acquired net operating losses    
-
     
27
 
Net unrealized loss on securities available for sale    
65
     
331
 
Other deferred tax assets    
431
     
122
 
Total deferred tax assets    
26,409
     
31,461
 
                 
Deferred tax liabilities:                
REIT dividend    
9,706
     
-
 
Depreciation    
3,240
     
3,606
 
Prepaid expenses    
164
     
198
 
Acquired intangible assets    
277
     
525
 
Total deferred tax liabilities    
13,387
     
4,329
 
Net deferred tax assets   $
13,022
    $
27,132
 
 
The Company believes its net deferred tax asset is recoverable as of
December 31, 2017
based on the expectation of future taxable income and other relevant considerations.
 
Pursuant to ASC
740
-
10
-
30
-
2
Income Taxes
, deferred tax assets and liabilities are measured using enacted tax rates applicable to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  On
December 22, 2017,
the President of the United States signed the “Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year
2018”
(referred to as the “Tax Cuts and Jobs Act” or the Act).  The Act provides for a reduction in the corporate tax rate from a maximum tax rate of
35%
to a flat tax rate of
21%
effective for tax years beginning after
December 31, 2017. 
As a result, the Company revalued its deferred tax assets and liabilities as of
December 31, 2017,
and recorded the effect of this change as a component of tax expense.  The tax expense recorded related to the change in the enacted federal tax rate as of
December 31, 2017
is
$3,108,000.
Notwithstanding the foregoing, management is still analyzing certain aspects of the new law and refining its calculations, which could affect the measurement of these assets and liabilities or give rise to new deferred tax amounts.
 
The Company and its subsidiaries file a consolidated U.S. Federal income tax return and various consolidated and separate company state income tax returns. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended
December 31, 2014
through
2017.
The Company is also currently open to audit by several state departments of revenue for the years ended
December 31, 2014
through
2017.
The audit periods differ depending on the date the Company began business activities in each state. Currently, there are
no
years for which the Company filed a federal or state income tax return that are under examination by the IRS or any state department of revenue.
 
Accrued interest and penalties on unrecognized income tax benefits totaled
$116,000
and
$94,000
as of
December 31, 2017
and
2016,
respectively. Unrecognized income tax benefits as of
December 31, 2017
and
December 31, 2016,
that, if recognized, would impact the effective income tax rate totaled
$1,779,000
and
$1,375,000
(net of the federal benefit on state income tax issues), respectively. The Company does
not
expect any of the uncertain tax positions to be settled or resolved during the next
twelve
months.
 
The following table presents a summary of the changes during
2017,
2016
and
2015
in the amount of unrecognized tax benefits that are included in the consolidated balance sheets.
 
    2017   2016   2015
    (In Thousands)
Balance, beginning of year   $
1,375
    $
1,173
    $
804
 
Increases related to prior year tax positions    
365
     
364
     
369
 
Decreases related to prior year tax positions    
-
     
-
     
-
 
Increases related to current year tax positions    
-
     
-
     
-
 
Settlements    
-
     
-
     
-
 
Enacted tax rate change    
315
     
-
     
-
 
Lapse of statute    
(276
)    
(162
)    
-
 
Balance, end of year   $
1,779
    $
1,375
    $
1,173