Bank of Marin BancorpBMRC

Bank of Marin Bancorp Income Taxes Disclosure

10-KFiled Mar 11, 20163 min read
Income Taxes

The current and deferred components of the income tax provision for each of the three years ended December 31 are as follows:
(in thousands)
2015

2014

2013

Current tax provision
 
 
 
Federal
$
7,097

$
8,523

$
6,717

State
2,931

3,195

2,574

Total current
10,028

11,718

9,291

Deferred tax provision (benefit)
 
 
 
Federal
382

(146
)
(873
)
State
80

126

(479
)
Total deferred
462

(20
)
(1,352
)
Total income tax provision
$
10,490

$
11,698

$
7,939





The following table shows the tax effect of our cumulative temporary differences as of December 31:
(in thousands)
2015

2014

Deferred tax assets:
 
 
Allowance for loan losses and off-balance sheet credit commitments
$
5,918

$
5,544

Net operating loss carryforwards from the NorCal Acquisition
4,090

4,598

Deferred compensation plan and salary continuation plan
1,619

1,499

Fair value adjustment on loans acquired from the NorCal Acquisition
1,197

1,647

Accrued but unpaid expenses
1,188

1,119

State franchise tax
1,005

1,100

Interest received on non-accrual loans
864

651

Deferred rent and other lease incentives
595

584

Other real estate owned
448

448

Stock-based compensation
273

231

Depreciation and disposals on premises and equipment
231

94

Accretion on loans and investment securities
110

630

Net unrealized loss on securities available-for-sale
59

—

Other
174

195

  Total gross deferred tax assets
17,771

18,340

 
 
 
Deferred tax liabilities:
 
 
Deferred loan origination costs and fees
(2,567
)
(2,385
)
Core deposit intangible asset
(1,309
)
(1,569
)
Unaccreted discount on subordinated debentures from the NorCal Acquisition
(1,200
)
(1,288
)
Net unrealized gain on securities available-for-sale
—

(498
)
  Total gross deferred tax liabilities
(5,076
)
(5,740
)
 
 
 
Net deferred tax assets
$
12,695

$
12,600



As of December 31, 2015, we had Federal and California net operating loss carryforwards ("NOLs") from the NorCal Acquisition of approximately $7.6 million and $21.3 million, respectively. If not fully utilized, the federal NOLs will begin to expire in 2029, and the California NOLs will begin to expire in 2028. The acquisition resulted in limitations on the annual utilization of these NOLs under section 382 of the Internal Revenue Code. Although we expect to fully utilize all of the federal NOLs prior to their expiration, $819 thousand of California NOLs are expected to expire unutilized in 2031. As a result, we wrote down $58 thousand of deferred tax assets associated with these California NOLs as part of the purchase accounting adjustments in 2013. Based upon the level of historical taxable income and projections for future taxable income over the periods during which the deferred tax assets are expected to be deductible, Management believes it is more likely than not we will realize the benefit of the remaining deferred tax assets. Accordingly, no other valuation allowance has been established as of December 31, 2015 or 2014.

The effective tax rate for 2015, 2014 and 2013 differs from the current Federal statutory income tax rate as follows:
 
2015

2014

2013

Federal statutory income tax rate
35.0
 %
35.0
 %
35.0
 %
Increase (decrease) due to:
 
 
 
California franchise tax, net of federal tax benefit
6.8
 %
6.8
 %
6.5
 %
Tax exempt interest on municipal securities and loans
(4.2
)%
(3.3
)%
(4.0
)%
Tax exempt earnings on bank owned life insurance
(1.0
)%
(0.9
)%
(1.5
)%
Low income housing tax credits
(0.2
)%
(0.1
)%
(0.3
)%
Other
(0.1
)%
(0.3
)%
—
 %
Effective Tax Rate
36.3
 %
37.2
 %
35.7
 %


Bancorp and the Bank have entered into a tax allocation agreement which provides that income taxes shall be allocated between the parties on a separate entity basis. The intent of this agreement is that each member of the consolidated group will incur no greater tax liability than it would have incurred on a stand-alone basis.

We file a consolidated return in the U.S. Federal tax jurisdiction and a combined return in the State of California tax jurisdiction. There were no ongoing federal or state income tax examinations at the issuance of this report. In June 2015, the State of California completed its examination of the 2011 and 2012 corporate income tax returns, resulting in a minor adjustment. At December 31, 2015 and 2014, neither the Bank nor Bancorp had accruals for interest and penalties related to unrecognized tax benefits.
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About Income Taxes Disclosures

The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.

Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.

Other Available Disclosures

Fair ValuePP&EDebtCommitmentsNew Standards