NOTE 13 - Income Taxes
The Company’s income tax provision consisted of the following components:
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (Dollars in thousands) | |||||||||||
| Current: | |||||||||||
| Federal | $ | (4,591) | $ | 11,073 | $ | 7,983 | |||||
| State | 1,419 | 1,722 | 1,582 | ||||||||
| Total current | (3,172) | 12,795 | 9,565 | ||||||||
| Deferred | |||||||||||
| Federal | 986 | (1,742) | 475 | ||||||||
| State | 530 | (34) | (778) | ||||||||
| Total deferred | 1,516 | (1,776) | (303) | ||||||||
| Total income tax expense (benefit) | $ | (1,656) | $ | 11,019 | $ | 9,262 | |||||
In accordance with U.S. GAAP, uncertain tax positions taken or expected to be taken in a tax return are subject to potential financial statement recognition based on prescribed recognition and measurement criteria. Based on our evaluation, there are no unrecognized tax benefits, and we did not have any accrued interest and penalties as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015. We do not expect our unrecognized tax positions to change significantly over the next 12 months.
The periods subject to examination for the Company’s federal return include the 2014 tax year to the present. The Company files state income tax returns in various states which may have different statutes of limitations. Generally, state income tax returns for the years 2014 through the present are subject to examination. No material income tax interest or penalties were incurred for the years ended December 31, 2017, 2016 or 2015.
Deferred income tax expense results principally from the use of different revenue and expense recognition methods for tax and financial accounting purposes, primarily related to lease accounting. The Company estimates these differences and adjusts to actual upon preparation of the income tax returns.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the TCJA. The TCJA makes broad and complex changes to the U.S. tax code, including, but not limited to, reducing the U.S. federal corporate tax rate from 35 percent to 21 percent, effective January 1, 2018. Consequently, we have recorded a decrease related to deferred tax assets and deferred tax liabilities of $4.5 million and $14.7 million, respectively, with a corresponding net adjustment to deferred income tax benefit of $10.2 million for the year ended December 31, 2017. The Company will continue to analyze the TCJA as additional information becomes available to determine the full effects the new law has on its financial statements.
While we have substantially completed our provisional analysis of the income tax effects of the TCJA and recorded a reasonable estimate of such effects, the net one-time charge related to the TCJA may differ, possibly materially, due to, among other things, further refinement of our calculations, changes in interpretations and assumptions that we have made, additional guidance that may be issued by the U.S. Government, actions and related accounting policy decisions we may take as a result of the TCJA. We will complete our analysis over a one-year measurement period ending December 22, 2018, and any adjustments during this measurement period will be included in net earnings from continuing operations as an adjustment to income tax expense in the reporting period when such adjustments are determined.
The sources of these temporary differences and the related tax effects were as follows:
| December 31, | ||||||||
| 2017 | 2016 | |||||||
| (Dollars in thousands) | ||||||||
| Deferred income tax assets: | ||||||||
| Allowance for credit losses | $ | 4,143 | $ | 4,656 | ||||
| Accrued expenses | 1,977 | 1,109 | ||||||
| Deferred income | 1,548 | 2,027 | ||||||
| Deferred compensation | 945 | 1,072 | ||||||
| Other comprehensive income | 60 | 86 | ||||||
| Other | 399 | 354 | ||||||
| Total deferred income tax assets | 9,072 | 9,304 | ||||||
| Deferred income tax liabilities: | ||||||||
| Lease accounting | (23,077) | (21,049) | ||||||
| Deferred acquisition costs | (2,338) | (3,113) | ||||||
| Depreciation | (398) | (259) | ||||||
| Total deferred income tax liabilities | (25,813) | (24,421) | ||||||
| Net deferred income tax liability | $ | (16,741) | $ | (15,117) | ||||
The company has a gross state income tax net operating loss carryforward in that amount of $6.7 million and $8.0 million for years ending December 31, 2017 and December 31, 2016, respectively. Most of these net operating loss carryforwards are set to expire between 2028 and 2034. The deferred tax asset related to this carryforward item, net of federal benefit, is included in “Other deferred income tax assets.”
The following is a reconciliation of the statutory federal income tax rate to the effective income tax rate:
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Statutory federal income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | |||||
| State taxes, net of federal benefit | 2.7 | % | 4.1 | % | 3.2 | % | |||||
| Other permanent differences | (0.1) | % | (0.3) | % | (0.6) | % | |||||
| Excess stock based compensation | (1.5) | % | — | % | — | % | |||||
| Tax benefit due to TCJA | (43.4) | % | — | % | — | % | |||||
| Other | 0.3 | % | 0.1 | % | (0.9) | % | |||||
| Effective rate | (7.0) | % | 38.9 | % | 36.7 | % | |||||