Income Taxes (Tables)
|
12 Months Ended |
Dec. 31, 2015 |
Income Tax Disclosure [Abstract] |
|
Schedule of income tax expense |
Income tax expense for the years ended December 31, 2015, 2014 and 2013 consisted of the following: | | | | | | | | | | | | | | | | Years Ended December 31, | | | 2015 | | 2014 | | 2013 | | | (In thousands) | Current tax expense | | $ | 9,760 |
| | $ | 9,992 |
| | $ | 4,344 |
| Deferred tax (benefit) expense | | 4,058 |
| | (3,087 | ) | | 326 |
| Decrease in valuation allowance | | — |
| | — |
| | (77 | ) | Income tax expense | | $ | 13,818 |
| | $ | 6,905 |
| | $ | 4,593 |
|
|
Reconciliation of effective income tax rate |
A reconciliation of the Company's effective income tax rate with the Federal statutory income tax rate of 35% is as follows: | | | | | | | | | | | | | | | | Years Ended December 31, | | | 2015 | | 2014 | | 2013 | | | (In thousands) | Income tax expense at Federal statutory rate | | $ | 17,957 |
| | $ | 9,772 |
| | $ | 4,959 |
| Tax-exempt instruments | | (2,482 | ) | | (1,598 | ) | | (858 | ) | Non-deductible acquisition costs | | — |
| | 373 |
| | 469 |
| Federal tax credits (1) | | (812 | ) | | (812 | ) | | — |
| Effects of BOLI | | (474 | ) | | (159 | ) | | (25 | ) | Tax resolutions (2) | | (300 | ) | | (728 | ) | | — |
| Valuation allowance | | — |
| | — |
| | (77 | ) | Other, net | | (71 | ) | | 57 |
| | 125 |
| Income tax expense | | $ | 13,818 |
| | $ | 6,905 |
| | $ | 4,593 |
|
| | (1) | Federal tax credits are provided for under the New Market Tax Credit program. A subsidiary of Heritage Bank was awarded an allocation of New Market Tax Credit investments consisting of three tranches totaling $25.0 million. Gross tax credits related to these tranches totaling $9.8 million are available through 2020. The subsidiary is required to fund 85 percent of a tranche to claim the entire tax credit, and it had until May 15, 2015 to complete the funding. The tranche was funded in 2015 before the deadline. Tax benefits related to these credits were recognized for financial reporting purposes in the same period that the credits were recognized in the Company's income tax returns. As the tax credits were realized, the Company has reflected the impact of these credits in its estimated annual effective tax rate for 2015 and 2014. |
| | (2) | Washington Banking Company had recorded tax-related liabilities prior to the merger effective date, which the Company assumed as part of the Washington Banking Merger. These tax-related liabilities were resolved during the years ended December 31, 2015 and 2014, resulting in a decrease of the Company's income tax expense for the years ended December 31, 2015 and 2014. |
|
Components of deferred income tax asset (liability) |
The following table presents major components of the deferred income tax asset (liability) resulting from differences between financial reporting and tax basis: | | | | | | | | | | | | December 31, 2015 | | December 31, 2014 | | | (In thousands) | Deferred tax assets: | | | | | Allowance for loan losses | | $ | 6,317 |
| | $ | 5,460 |
| Accrued compensation | | 1,011 |
| | 1,382 |
| Stock compensation | | 890 |
| | 818 |
| Capital loss carryforward | | — |
| | 30 |
| Unrealized losses charged to earnings on other than temporarily impaired investment securities | | — |
| | 338 |
| Market discount on purchased loans | | 15,562 |
| | 17,949 |
| Foregone interest on nonaccrual loans | | 2,665 |
| | 2,337 |
| Net operating loss carryforward acquired from NCB | | 518 |
| | 553 |
| Difference in amounts reflected in financial statements and income tax basis of certain liabilities assumed in business combinations | | 89 |
| | 3,492 |
| Other deferred tax assets | | 1,503 |
| | 1,394 |
| Total deferred tax assets | | 28,555 |
|
| 33,753 |
| Deferred tax liabilities: | | | | | Deferred loan fees, net | | (3,489 | ) | | (1,982 | ) | Premises and equipment | | (1,853 | ) | | (1,937 | ) | FHLB stock | | (926 | ) | | (2,768 | ) | Net unrealized gains charged to other comprehensive income on securities | | (1,389 | ) | | (1,832 | ) | Indemnification asset | | — |
| | (392 | ) | Goodwill and other intangible assets | | (1,021 | ) | | (1,560 | ) | Federal tax credits | | (876 | ) | | (439 | ) | Junior subordinated debentures | | (2,225 | ) | | (2,349 | ) | Other deferred tax liabilities | | (627 | ) | | (730 | ) | Total deferred tax liabilities | | (12,406 | ) |
| (13,989 | ) | Deferred income tax asset, net | | $ | 16,149 |
|
| $ | 19,764 |
|
|