|
7. |
Income Taxes |
The Company’s deferred income tax assets and liabilities are as follows:
|
|
|
December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Deferred income tax assets: |
|
|
|
|
|
|
|
|
|
Discounting of net unpaid loss and loss adjustment expenses |
|
$ |
8,830 |
|
|
$ |
16,035 |
|
|
Unearned premiums |
|
|
8,466 |
|
|
|
14,483 |
|
|
Accrued expenses and other |
|
|
2,359 |
|
|
|
3,640 |
|
|
State income tax |
|
|
782 |
|
|
|
617 |
|
|
Accrued policyholder dividends |
|
|
1,918 |
|
|
|
2,024 |
|
|
Impaired securities |
|
|
42 |
|
|
|
70 |
|
|
Capital loss carryforward |
|
|
190 |
|
|
|
15 |
|
|
Accrued insurance-related assessments |
|
|
3,256 |
|
|
|
5,323 |
|
|
Net unrealized loss on securities |
|
|
— |
|
|
|
265 |
|
|
Total deferred tax assets |
|
|
25,843 |
|
|
|
42,472 |
|
|
Deferred income tax liabilities: |
|
|
|
|
|
|
|
|
|
Deferred policy acquisition costs |
|
|
(5,317 |
) |
|
|
(8,492 |
) |
|
Callable bond amortization |
|
|
(8 |
) |
|
|
(10 |
) |
|
Unrealized gain on securities available-for-sale |
|
|
(1,070 |
) |
|
|
— |
|
|
Property and equipment and other |
|
|
(3 |
) |
|
|
204 |
|
|
Salvage and subrogation |
|
|
(183 |
) |
|
|
(363 |
) |
|
Total deferred income tax liabilities |
|
|
(6,581 |
) |
|
|
(8,661 |
) |
|
Net deferred income taxes |
|
$ |
19,262 |
|
|
$ |
33,811 |
|
The components of consolidated income tax expense (benefit) are as follows:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
22,477 |
|
|
$ |
35,602 |
|
|
$ |
28,047 |
|
|
State |
|
|
732 |
|
|
|
1,603 |
|
|
|
1,012 |
|
|
|
|
|
23,209 |
|
|
|
37,205 |
|
|
|
29,059 |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
12,965 |
|
|
|
(2,120 |
) |
|
|
1,343 |
|
|
State |
|
|
(165 |
) |
|
|
(129 |
) |
|
|
103 |
|
|
|
|
|
12,800 |
|
|
|
(2,249 |
) |
|
|
1,446 |
|
|
Total |
|
$ |
36,009 |
|
|
$ |
34,956 |
|
|
$ |
30,505 |
|
During 2017, 2016 and 2015, there was no valuation allowance on the Company’s deferred income tax assets and liabilities.
Income tax expense from operations is different from the amount computed by applying the U.S. federal income tax statutory rate of 35% to income before income taxes as follows:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Income tax computed at federal statutory tax rate |
|
$ |
28,784 |
|
|
$ |
39,487 |
|
|
$ |
35,338 |
|
|
Tax-exempt interest, net |
|
|
(5,707 |
) |
|
|
(5,370 |
) |
|
|
(5,630 |
) |
|
State income tax |
|
|
311 |
|
|
|
913 |
|
|
|
762 |
|
|
Dividends received deduction |
|
|
(48 |
) |
|
|
(125 |
) |
|
|
(19 |
) |
|
Revaluation of net deferred income tax assets |
|
|
12,620 |
|
|
|
— |
|
|
|
— |
|
|
Other |
|
|
49 |
|
|
|
51 |
|
|
|
54 |
|
|
|
|
$ |
36,009 |
|
|
$ |
34,956 |
|
|
$ |
30,505 |
|
On December 22, 2017, the Tax Act was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017. As a result, we have recorded $12.6 million as additional income tax expense related to our net deferred tax assets revalued at the new lower rate of 21% in the fourth quarter of 2017, the period in which the legislation was enacted.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. There were no uncertain tax positions as of December 31, 2017, 2016 and 2015.
Tax years 2014 through 2017 are subject to examination by the federal and state taxing authorities.