9. Income Taxes

The components of the income tax provision are as follows (dollars in thousands):

The income tax provision differs from the amounts determined by applying the statutory federal income tax rate of 34% to the income (loss) before income tax provision for the following reasons (dollars in thousands):

 

Deferred income taxes consisted of the following (dollars in thousands):

The Company assesses the ability to realize its deferred tax assets and assesses the need for a valuation allowance on an ongoing basis. The Company is required to consider all available positive and negative evidence in evaluating the likelihood that it will be able to realize the benefit of its deferred tax assets in the future. Such evidence includes scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and the results of recent operations.

In considering the impact of recent operations on the Company’s deferred tax asset assessment, the Company utilizes a rolling three years of actual results as the primary measure of cumulative income or losses.  These are adjusted for permanent differences between financial reporting and taxable income.  For the year ended December 31, 2017, the Company incurred a pretax loss from operations.  In addition, as of December 31, 2017, the Company had a cumulative loss from operations for the three year period.  Because of the three year cumulative losses, the Company is required to look only to sources of income that are deemed objective and verifiable based on historical experience.  The Company considered that the cumulative loss was caused, in part, by costs not expected to recur in future periods such as merger costs.  However, the loss was also caused by costs, such as pension settlement losses, that are not deemed part of core operations but the frequency of which is hard to predict.  For example, in 2017, the level of retirements and related pension settlements ramped up making it more challenging to conclude such expenses will not recur in future periods.  With the challenge of predicting future taxable income based on actual historical results, the Company had to limit the amount of taxable income included in its assessment of deferred income tax asset recoverability.

Based on the more likely than not criteria for realization of deferred income tax assets, the Company established a full valuation allowance for its deferred income tax assets during the year ended December 31, 2017. If, in future periods, new positive evidence becomes available, the conclusion regarding the need for a full valuation allowance may change resulting in the reversal of some or all of the valuation allowance.

The following is a summary of activity for the valuation allowance (dollars in thousands):

 

On December 22, 2017, the United States enacted tax reform legislation through the Tax Cuts and Jobs Act which significantly changes the existing U.S. tax laws including a reduction in the corporate tax rate from 34% to 21%.  The Company gave recognition to the new law as of the effective date with a revised measurement of its deferred federal income tax assets and liabilities.  The impact was to reduce the Company’s net deferred income tax asset by $28.0 million.  The Company also reduced its valuation allowance by the same amount as of that date as it had previously established a full valuation allowance as discussed above.

As of December 31, 2017, net operating losses available for carry forward through 2037 amounted to $222.6 million for federal purposes and $227.0 million for state purposes. Availability of net operating losses in future periods may be subject to additional limitations if there is a deemed change in control for income tax reporting purposes. Such change in control will be determined for income tax reporting purposes based on future changes in stock ownership.

The Company evaluates its tax positions for liability recognition.  As of December 31, 2017, 2016 and 2015, the Company had no unrecognized tax benefit. No interest or penalties related to tax assessments were recognized in the Company’s consolidated statements of income (loss) for the years ended December 31, 2017, 2016 or 2015. All tax years from 2014 remain open for both federal and Hawaii state purposes.