American Fork—People’s Utah Bancorp announces financial impact of amendment to the federal tax code. On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act. The Tax Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. For businesses, the Tax Act reduces the federal corporate tax rate from a maximum of 35 percent to a flat 21 percent rate. The rate reduction is effective January 1, 2018.
Under generally accepted accounting principles, the Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
As a result of the reduction in the federal corporate income tax rate under the Tax Act, the Company will revalue its net deferred tax asset at December 31, 2017. The Company’s unaudited estimate is that it will record a one-time, additional income tax expense in the Company’s consolidated statement of income for the three months ended December 31, 2017 of between $4.6 million and $5.1 million in addition to the normal provision for income taxes related to pre-tax operating income. The unaudited impact to the Company’s diluted earnings per common share estimate is a reduction of between $0.25 and $0.27 per share for the three months ended December 31, 2017.
The Company has not completed its determination of the valuation adjustments related to these items, and the ultimate amount of the actual net tax charge and deferred tax asset write-down will be based upon a number of factors, including completion of the Company’s consolidated financial statements as of and for the year ended December 31, 2017 and completion of the Company’s 2017 tax returns. As a result, the actual impact on the adjustment to the net deferred tax asset may vary from the estimated amount due to uncertainties in the Company’s preliminary review.
The Company anticipates an effective tax rate, including state income taxes, of up to 25 percent for 2018 compared with an effective tax rate of 36 percent for 2106 and an estimated effective tax rate of 34 percent in 2017. The Company will continue to analyze the financial impact of the Tax Act.