Note 18 – Income Tax


	December 31			December 31			December 31
	2017			2016			2015
Income tax expense
Currently payable
Federal	$	12,079		$	7,467		$	5,511
Deferred
Federal		331			1,334			1,721
Revaluation of deferred tax assets		2,426			—			—

Total income tax expense	$	14,836		$	8,801		$	7,232

Reconciliation of federal statutory to actual tax expense
Federal statutory income tax at 35%	$	16,783		$	11,450		$	9,724
Tax exempt interest		(2,699	)		(1,882	)		(1,708	)
Tax exempt income		(638	)		(575	)		(488	)
Stock compensation		(546	)		—			—
Revaluation of deferred tax assets		2,426			—			—
Other tax exempt income		(456	)		(608	)		(199	)
Nondeductible and other		(34	)		416			(97	)

Actual tax expense	$	14,836		$	8,801		$	7,232


	December 31			December 31
	2017			2016
Assets
Allowance for loan losses	$	3,396		$	5,581
Net operating loss (from acquisitions)		1,658			2,368
Director and employee benefits		2,276			3,124
Unrealized loss on AFS securities and fair value hedge		1,147			937
Accrued Pension		852			1,323
Fair value adjustment on acquistions		1,087			2,340
Other		1,083			1,593

Total assets		11,499			17,266

Liabilities
Depreciation		(1,680	)		(1,916	)
State tax		(210	)		(341	)
Federal Home Loan Bank stock dividends		(339	)		(474	)
Difference in basis of intangible assets		(2,831	)		(4,654	)
Other		(125	)		(431	)

Total liabilities		(5,185	)		(7,816	)
Valuation allowance		(1,613	)		(2,018	)

Net deferred tax asset	$	4,701		$	7,432

The Tax Cuts and Jobs Act (the “Act”) was enacted in December 2017. The Act reduces the U.S. federal corporate tax rate from 35 percent to 21 percent. As of December 31, 2017, we have substantially completed our accounting for the tax effects of enactment of the Act; however, in certain cases, we have made a reasonable estimate of the effects on our existing deferred tax balances. We do not believe the actual results will vary materially from those estimates. The effect of the Tax Cuts and Jobs Act listed above reflects the revaluation of our net deferred tax asset based on a U.S. federal tax rate of 21 percent.

As of December 31, 2017, the Company had approximately $25.2 million of state tax loss carryforward available to offset future franchise taxable income. Also, at December 31, 2017, the Company had approximately $74,000 of Federal loss carryforward available to offset future federal income tax. The state loss carryforward begins to expire in 2024. The Federal loss carryforward begins to expire in 2032. Due to these losses being incurred by acquired institutions, prior to the acquisitions by Horizon, the annual losses which can be used are subject to an annual limitation. Management believes that the Company will be able to utilize the benefits recorded for both state and federal loss carryforwards within the allotted time periods, except for the amount represented by the valuation allowance. The valuation allowance has been recorded for the possible inability to use a portion of the state net operating loss carryover.

Retained earnings of the Bank include approximately $12.8 million for which no deferred income tax liability has been recognized. This amount represents an allocation of previously acquired institutions income to bad debt deductions as of December 31, 1987 for tax purposes only. Reductions of amounts so allocated for purposes other than tax bad debt losses including redemption of bank stock or excess dividends, or loss of “bank” status would create income for tax purposes only, which would be subject to the then-current corporate income tax rate. The unrecorded deferred income tax liability on the above amount for the Company was approximately $2.7 million at December 31, 2017.

The Company files income tax returns in the U.S. federal jurisdiction. With a few exceptions, the Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2014.