Note 18 - Income Taxes
 12 Months Ended
Dec. 31, 2016
Notes to Financial Statements  
Income Tax Disclosure [Text Block]
Note
18
– Income Taxes
 
A.
Components of Net Deferred Tax Asset:
 
 
 
December 31,
 
(dollars in thousands)
 
2016
 
 
2015
 
Deferred tax assets:
                
Loan and lease loss reserve
  $
6,492
     $
5,872
  
Other reserves
   
3,611
      
5,509
  
Net operating loss carry-forward
   
471
      
927
  
Alternative minimum tax credits
   
567
      
567
  
Unrealized depreciation of available for sale securities
   
663
      
—
  
Defined benefit plans
   
2,068
      
1,851
  
Total deferred tax asset
   
13,872
      
14,726
  
Deferred tax liabilities:
                
Other reserves
   
52
      
461
  
Originated MSRs
   
1,969
      
1,800
  
Amortizing fair value adjustments
    
1,336
      
911
  
Unrealized appreciation of available for sale securities
   
—
      
417
  
Total deferred tax liability
   
3,357
      
3,589
  
Total net deferred tax asset
  $
10,515
     $
11,137
  
 
 
Not included in the table above is a
$157
thousand deferred tax asset for state taxes related to net operating losses of our leasing subsidiary as of
December
31,
2016,
for which we have recorded a
100%
valuation allowance. These state net operating losses will expire between
2023
and
2035.
As a result of the CBH Merger, deferred tax assets were increased by
$7.2
million related to purchase accounting adjustments and net deferred tax assets carried over from CBH.
 
 
B. The provision
(benefit)
for income taxes consists of the following:
 
(dollars in thousands)
 
2016
 
 
2015
 
 
2014
 
Current
   $
16,492
     $
12,006
     $
12,655
  
Deferred
    
1,676
      
(2,834
)
    
2,350
  
Total
  $
18,168
     $
9,172
     $
15,005
  
 
 
C. Applicable income taxes differed from the amount derived by applying the statutory federal tax rate to income as follows:
 
(dollars in thousands)
 
2016
 
 
Tax
Rate
 
 
2015
 
 
Tax
Rate
 
 
2014
 
 
Tax
Rate
 
Computed tax expense at statutory federal rate
  $
18,972
      
35.0
%
   $
9,074
      
35.0
%
   $
14,997
      
35.0
%
Tax-exempt income
   
(758
)
    
(1.4
)
    
(622
)
    
(2.4
)
    
(401
)
    
(0.9
)
State tax (net of federal tax benefit)
    
425
      
0.8
      
299
      
1.2
      
215
      
0.5
  
Non-deductible merger expense
    
—
      
—
      
105
      
0.4
      
105
      
0.2
  
Excess tax benefit – stock based compensation
    
(565
)
    
(1.0
)
    
—
      
—
      
—
      
—
  
Other, net
   
94
      
0.1
      
316
      
1.2
      
89
      
0.2
  
Total income tax expense
  $
18,168
      
33.5
%
   $
9,172
      
35.4
%
   $
15,005
      
35.0
%
 
D. Other Income Tax Information
 
In accordance with the provisions of ASC
740,
“Accounting for Uncertainty in Income Taxes”, the Corporation recognizes the financial statement benefit of a tax position only after determining that the Corporation would more likely than not sustain the position following an examination. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than
50
 percent likelihood of being realized upon settlement with the relevant tax authority. The Corporation applied these criteria to tax positions for which the statute of limitations remained open.
 
There were
no
reserves for uncertain tax positions recorded during the
twelve
months ended
December
31,
2016,
2015
or
2014.
 
The Corporation is subject to income taxes in the U.S. federal jurisdiction, and in multiple state jurisdictions. The Corporation is no longer subject to U.S. federal income tax examination by tax authorities for the years before
2013.
 
The Corporation’s policy is to record interest and penalties on uncertain tax positions as income tax expense.
No
interest or penalties were accrued in
2016.
 
As of
December
31,
2016,
the Corporation has net operating loss carry-forwards for federal income tax purposes of
$1.3
million, related to the FKF merger, which are available to offset future federal taxable income through
2030.
In addition, the Corporation has alternative minimum tax credits of
$567
thousand, which are available to reduce future federal regular income taxes over an indefinite period. The Corporation has determined that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax asset related to these amounts.
 
As a result of the
July
1,
2010
merger with FKF, the Corporation succeeded to certain tax bad debt reserves that existed at FKF as of
June
30,
2010.
As of
December
31,
2016,
the Corporation had unrecognized deferred income taxes of
$2.5
million with respect to these reserves. These reserves could be recognized as taxable income and create a current and/or deferred tax liability at the income tax rates then in effect if
one
of the following conditions occurs:
(1)
the Bank’s retained earnings represented by this reserve are used for distributions, in liquidation, or for any other purpose other than to absorb losses from bad debts;
(2)
the Bank fails to qualify as a bank, as provided by the Internal Revenue Code; or
(3)
there is a change in federal tax law.