Altabancorp - 10-K filing on 2017-03-10

Income Taxes

12 Months Ended

Dec. 31, 2016

Note 7 — Income Taxes

The components of the income tax expense (benefit) are as follows for the years ended December 31:

(in thousands)	2016			2015			2014
Current:
Federal	$	12,194		$	9,060		$	7,068
State		1,850			1,452			1,087
		14,044			10,512			8,155
Deferred:
Federal		(670	)		(217	)		78
State		(101	)		(33	)		13
Deferred		(771	)		(250	)		91
Income tax expense	$	13,273		$	10,262		$	8,246

The combined federal and state income tax expense differs from that computed at the federal statutory corporate tax rate as follows:

	2016			2015			2014
Federal statutory rate		35.0	%		35.0	%		35.0	%
State taxes, net of federal income tax benefit		3.1	%		3.1	%		3.1	%
Tax-exempt interest and income		(2.1	)%		(2.4	)%		(2.9	)%
Equity awards expense		(0.3	)%		-			-
Other, net		0.3	%		(1.4	)%		0.4	%
Effective tax rate		36.0	%		34.3	%		35.6	%

Note 7 — Income Taxes – Continued

The nature and components of the Company’s net deferred income tax assets are as follows as of December 31:

(in thousands)	2016		2015
Deferred income tax assets:
Allowance for loan losses	$	6,724	$	6,565
Deferred loan fees and costs		1,594		1,486
OREO reserve and other		-		256
Fair value adjustments on certificates of deposit		79		300
Deferred compensation		565		534
Unrealized loss on securities		626		203
State franchise taxes		630		500
Other		563		527
		10,781		10,371

Deferred income tax liabilities:
FHLB dividends		241		241
Mortgage servicing rights		328		375
Basis difference in premises, equipment and other assets		413		1,149
		982		1,765
Net deferred income tax assets	$	9,799	$	8,606

The Company believes, based on available information, that it is more likely than not that the net deferred income tax asset will be realized in the normal course of operations. The impact of a tax position is recognized in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. As of December 31, 2016, the Company had an uncertain tax position related to a rehabilitation credit. As of December 31, 2015, the Company did not have any significant uncertain tax positions. The Company includes any interest and penalties associated with unrecognized tax benefits within the provision for income taxes. As of December 31, 2016, there was a liability of $200,000 for unrecognized tax benefits, and as of December 31, 2015, there was no liability for unrecognized tax benefits. The Company hopes to resolve the rehabilitation credit issue in the next twelve months. Otherwise, the Company does not expect a material change to the total amount of unrecognized tax benefits in the next twelve months.

The Company elected to adopt the provisions of Accounting Standards Update 2016-09, Compensation—Stock Compensation (Topic 718) in 2016, which resulted in a $201,000 credit to current income tax expense related to tax- deductible stock compensation expense.

The Company files U.S. and state income tax returns in jurisdictions with various statutes of limitations. The 2013 through 2016 tax years remain subject to selection for examination as of December 31, 2016. None of the Company’s income tax returns are currently under audit. As of December 31, 2016 and 2015, the Company has no net operating loss or credit carry-forwards.