Entity information:
INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 2017, 2016 and 2015 consists of the following:

(Dollars in thousands)
 
2017
 
2016
 
2015
Current income tax expense (benefit):
 
 
 
 
 
 
Federal
 
$
—

 
$
—

 
$
264

State
 
202

 
434

 
251

Total current income tax expense
 
202

 
434

 
515

 
 
 
 
 
 
 
Deferred income tax expense (benefit):
 
 
 
 
 
 
Federal
 
9,973

 
(2,785
)
 
(4,717
)
State
 
(244
)
 
(601
)
 
(456
)
Total deferred income tax expense (benefit)
 
9,729

 
(3,386
)
 
(5,173
)
 
 
 
 
 
 
 
Total income tax expense (benefit)
 
$
9,931

 
$
(2,952
)
 
$
(4,658
)


No penalties or interest related to taxes were recognized for the years ended December 31, 2017, 2016 and 2015.
The Company's consolidated effective tax rates were 329%, 12% and 19%, while the Company's US effective tax rates were 219%, 28% and 32% for the years ended December 31, 2017, 2016 and 2015, respectively. The consolidated and US effective tax rates were significantly higher in 2017 than in prior years as a result of the Tax Reform, which reduced the US federal corporate tax rate from 35% to 21% in 2018, and for which the Company recognized a one-time $12.5 million charge. The differences between the provision for income tax and the amount that would result if the federal statutory rate were applied to the pre-tax financial income for the years ended December 31, 2017, 2016 and 2015 were as follows:
 
(Dollars in thousands)
 
2017
 
2016
 
2015
Federal statutory rate of 35%
 
$
1,055

 
$
(8,854
)
 
$
(8,599
)
State income tax provision
 
(537
)
 
(109
)
 
(166
)
Permanent differences
 
161

 
690

 
640

Change in valuation allowance
 
(1,198
)
 
(878
)
 
(3,131
)
Rate differential
 
(1,616
)
 
2,511

 
1,588

Change in federal statutory rate - US tax reform
 
12,462

 
—

 
—

Change in foreign statutory tax rate
 
399

 
2,033

 
2,753

Change in reserve for uncertain tax positions
 
190

 
1,525

 
1,491

Other
 
(985
)
 
130

 
766

Total
 
$
9,931

 
$
(2,952
)
 
$
(4,658
)


Also on December 22, 2017, the SEC issued SAB 118, which provides guidance on accounting for tax effects of the Act. SAB 118 provides a measurement period of up to one year from the enactment date to complete the accounting. The Company has completed its accounting of the impact of the reduction in the corporate tax rate and remeasurement of certain deferred tax assets and liabilities based on the rate at which they are expected to reverse in the future, generally 21%. The below table reconciles the changes to the Deferred tax asset balance, including impacts of the Act, with deferred income tax expense.
(Dollars in thousands)
 
2017
Beginning balance
 
$
31,197

Deferred income tax expense
 
(9,729
)
Impact of adoption of ASU 2016-09 (offset to Retained earnings)
 
3,347

Tax effect of equity issuance costs (offset to Additional paid-in capital)
 
(1,196
)
Tax adjustment for foreign currency translation
 
(74
)
Ending balance
 
$
23,545



The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at December 31, 2017 and 2016 are presented below:
 
(Dollars in thousands)
 
2017
 
2016
Deferred Tax Assets:
 
 
 
 
Allowance for losses on loans receivable
 
$
13,781

 
$
20,372

Net operating loss carryforward – foreign
 
4,179

 
5,648

Net operating loss carryforward – domestic
 
10,321

 
10,690

Cumulative translation adjustment – domestic
 
2,274

 
2,347

Accrued expenses
 
1,718

 
1,246

Deferred equity issuance costs
 
25

 
1,895

Other
 
1,880

 
1,817

Total deferred tax assets
 
34,178

 
44,015

Deferred Tax Liabilities:
 
 
 
 
Property and equipment, principally due to differences in depreciation
 
(638
)
 
(1,092
)
Amortization of intangible assets
 
(4,382
)
 
(4,549
)
Prepaid expenses
 
(1,068
)
 
(1,180
)
Net deferred tax assets before valuation allowance
 
28,090

 
37,194

Valuation allowance
 
(4,545
)
 
(5,997
)
Deferred tax assets, net
 
$
23,545

 
$
31,197


Uncertain tax positions
The following table sets forth the changes in the Company’s unrecognized tax benefits related to the UK tax provision for the years ended December 31, 2017, 2016 and 2015:
 
(Dollars in thousands)
 
2017
 
2016
 
2015
Balance at beginning of the year
 
$
5,736

 
$
4,211

 
$
2,720

Reductions for tax positions related to the prior year
 
(166
)
 
(1,079
)
 
(220
)
Additions for tax positions related to the current year
 
356

 
2,604

 
1,711

Balance at the end of the period
 
$
5,926

 
$
5,736

 
$
4,211


If the cumulative unrecognized tax benefit is recognized, there will be no effect on the Company's effective tax rate due to the full valuation allowance on the UK's deferred tax asset. Due to the nature of the unrecognized tax benefits and the existence of tax attributes, the Company has not accrued any interest or penalties associated with unrecognized tax benefits in the Consolidated Statements of Operations nor has it recognized a liability in the Consolidated Balance Sheets. The Company does not believe the total amount of unrecognized benefit as of December 31, 2017 will increase or decrease significantly in the next twelve months.
For purposes of evaluating the need for a deferred tax valuation allowance, significant weight is given to evidence that can be objectively verified. The following provides an overview of the assessment that was performed for both the domestic and foreign deferred tax assets, net.

US deferred tax assets, net
At December 31, 2017 and 2016, the Company did not establish a valuation allowance for its US deferred tax assets "DTAs” based on management’s expectation of generating sufficient taxable income in a look forward period over the next three to five years. The NOL carryforward from US operations at December 31, 2017 was approximately $42.9 million. The NOL carryforward expires beginning in 2034. The ultimate realization of the resulting deferred tax asset is dependent upon generating sufficient taxable income prior to the expiration of this carryforward. The Company considered the following positive and negative factors when making their assessment regarding the ultimate realizability of the deferred tax assets.
Significant positive factors include the following:
•
In 2017, the Company continued to grow its operating income (from $9 million in 2015 to $48 million in 2016 and to $71 million in 2017). The US-only pre-tax loss decreased from $10.4 million in 2016 to $4.5 million in 2017, a 57% improvement from prior year. The US only pre-tax loss is attributed to slower loan growth for Rise early in the year, due to a delay in the tax refund season, coupled with slower loan growth for Elastic, in September and October, due to the impact of the hurricanes in Texas and Florida.
•
For 2018, the Company is forecasting U.S. taxable income as it continues to scale its business and generate even greater operating income. The continued growth of the loan portfolio within the credit quality and marketing cost targets will drive improved gross margins for the Company. The Company's operating expenses are within targeted efficiency ratios and are expected to hold flat. The Company used the IPO proceeds to pay down its debt balances, as well as re-negotiated its debt facilities to lower interest rates, which will drive improved profitability from lower interest costs in future years. Various forecast scenarios have been performed with the results reflecting a majority, if not total, usage of the US NOL in 2018.
•
Management’s success in developing accurate forecasts and management’s track record of launching new and successful products, is another source of positive evidence which was evaluated. The Company believes that the unique circumstance of the 2014 spin-off from a company that was successful prior to the spin-off provides it with several positive objectively verifiable factors that would not normally be available to a new company with a limited operating history.
Significant negative factor include:
•
The Company has cumulative losses and a lack of taxable income from the 2014 spin-off through 2017. A net taxable loss was incurred for the years ended December 31, 2017, 2016 and 2015 due to the establishment of an infrastructure for the Company separate from Think Finance while the Company was scaling the growth of the relatively new products of Rise and Elastic. Additionally, the Company originally forecasted US taxable income for the year ended December 31, 2017. The slower loan growth than expected in Rise and Elastic as well as the impact of the adoption of ASU 2016-09 and the 2017 deductible IPO transaction costs were significant contributors to the net taxable loss for the year ended December 31, 2017 as compared to the expected results for 2017.
The Company has given due consideration to all the factors and believes the positive evidence outweighs the negative evidence and has concluded that the US deferred tax asset is expected to be realized based on management’s expectation of generating sufficient taxable income in a look-forward period over the next three to five years. Although realization is not assured, management believes it is more likely than not that all of the recorded deferred tax assets will be realized. The amount of the deferred tax assets considered realizable, however, could be adjusted in the future if estimates of future taxable income change. As a result, at December 31, 2017 and 2016, the Company did not establish a valuation allowance for the US DTA.
UK deferred tax assets, net
At December 31, 2017 and 2016, the Company recognized a full valuation allowance for its foreign deferred tax assets due to the lack of sufficient objective evidence regarding the realization of these assets in the foreseeable future. For the years ended December 31, 2017 and 2016, the valuation allowance decreased by approximately $1.2 million and decreased by approximately $0.9 million, respectively, due to the decrease of the net deferred tax assets related to the UK, which primarily consists of the NOL carryforward. Regardless of the deferred tax valuation allowance recognized at December 31, 2017 and 2016, the Company continues to retain NOL carryforwards for foreign income tax purposes of approximately $22.5 million and $30.0 million, respectively, available to offset future foreign taxable income. To the extent that the Company generates taxable income in the future to utilize the tax benefits of the related deferred tax assets, subject to certain potential limitations, it may be able to reduce its effective tax rate by reducing the valuation allowance. The Company’s foreign NOL carryforward of approximately $22.5 million and $30.0 million for December 31, 2017 and 2016, respectively, can be carried forward indefinitely.