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INCOME TAXES | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
INCOME TAXES | 20. INCOME TAXES Components of income tax expense (benefit) for the years ended December 31, 2018, 2017 and 2016 were as follows:
| Year Ended December 31,
| 2018 |  | 2017 |  | 2016
| (Dollars in thousands)
Current expense: |  |  |  |  |
Federal | $ | 10,812 |  |  | $ | 2,471 |  |  | $ | 1,850 |
State | 72 |  |  | (81 | ) |  | (4 | )
Total current | 10,884 |  |  | 2,390 |  |  | 1,846 |
Deferred expense: |  |  |  |  |
Federal | 2,137 |  |  | 27,263 |  |  | 19,842 |
State | 5,737 |  |  | 4,943 |  |  | 4,585 |
Total deferred | 7,874 |  |  | 32,206 |  |  | 24,427 |
Provision for income taxes | $ | 18,758 |  |  | $ | 34,596 |  |  | $ | 26,273 |
On December 22, 2017, H.R.1, commonly referred to as the Tax Cuts and Jobs Act (“Tax Reform”) was signed into law making significant changes to the U.S. federal tax code. The most impactful, as related to the Company, included a decrease in the current U.S. federal corporate tax rate from 35% to 21% for the year beginning January 1, 2018. In the year ended December 31, 2017, the Company recorded additional income tax expense of $7.4 million related to the estimated impact of Tax Reform on the Company's net deferred tax assets ("DTA"). In 2018, the Company recorded an income tax benefit of $1.5 million related to the finalization of the impact of Tax Reform, which also included the impact of a tax method change for software development and prepaid expenses that was filed in 2018. Income tax expense (benefit) for the periods presented differed from the "expected" tax expense (computed by applying the U.S. federal corporate tax rate of 21% for the year ended December 31, 2018 and 35% for the years ended December 31, 2017 and 2016, to income (loss) before income taxes) for the following reasons:
| Year Ended December 31,
| 2018 |  | 2017 |  | 2016
| (Dollars in thousands)
Computed "expected" tax expense (benefit) | $ | 16,430 |  |  | $ | 26,270 |  |  | $ | 25,260 |
Increase (decrease) in taxes resulting from: |  |  |  |  |  |  |
Tax-exempt interest income | (808 | ) |  | (1,387 | ) |  | (1,410 | )
Other tax-exempt income | (445 | ) |  | (1,186 | ) |  | (940 | )
Low-income housing and energy tax credits | 35 |  |  | (594 | ) |  | (129 | )
State income taxes, net of Federal income tax effect, excluding impact of deferred tax valuation allowance | 4,756 |  |  | 3,348 |  |  | 3,256 |
Change in the beginning-of-the-year balance of the valuation allowance for deferred tax assets allocated to income tax expense | 140 |  |  | 570 |  |  | (52 | )
Impact of Tax Reform on net deferred tax assets | (1,542 | ) |  | 7,440 |  |  | — |
Other, net | 192 |  |  | 135 |  |  | 288 |
Total | $ | 18,758 |  |  | $ | 34,596 |  |  | $ | 26,273 |
See Note 1 - Summary of Significant Accounting Policies for discussion of the accounting policy change from the cost method to the proportional amortization method for our LIHTC investments, the effects of which are now reported on the income tax expense line in the consolidated statements of income and are included in the low-income housing and energy tax credits line above. Upon exercise or vesting of a share-based award, if the tax deduction exceeds the compensation cost that was previously recorded for financial statement purposes this will result in an excess tax benefit. ASU 2016-09, “Compensation-Stock Compensation (718) Improvements to Employee Share-Based Payment Accounting” requires the Company to recognize all excess tax benefits or tax deficiencies through the income statement as income tax expense/benefit. Under previous GAAP, any excess tax benefits were recognized in additional paid-in capital to offset current-period and subsequent-period tax deficiencies. Effective January 1, 2017, the Company adopted ASU 2016-09. An income tax benefit of $0.1 million and $0.5 million was recorded during the years ended December 31, 2018 and 2017, respectively, as a result of share awards vesting/exercised during the year. These amounts are included in the Other, net line in the table above. At December 31, 2018, there was $1.2 million of current federal income tax payable, compared to a $6.7 million receivable at December 31, 2017. Current state income taxes payable were $72 thousand, compared to a $6 thousand receivable at December 31, 2018 and 2017, respectively. The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities were as follows:
| December 31,
| 2018 |  | 2017
| (Dollars in thousands)
Deferred tax assets |  |  |  |  |
Allowance for loan and lease losses | $ | 10,112 |  |  | $ | 10,622 |
Accrued expenses | 1,517 |  |  | 294 |
Employee retirement benefits | 2,595 |  |  | 2,784 |
Federal and state tax credit carryforwards | 7,728 |  |  | 12,473 |
State net operating loss carryforwards | 3,291 |  |  | 3,306 |
Restricted stock and non-qualified stock options | 1,001 |  |  | 661 |
Premises and equipment | 3,157 |  |  | 3,633 |
Other | 3,485 |  |  | 3,169 |
Total deferred tax assets | 32,886 |  |  | 36,942 |
Deferred tax liabilities |  |  |  |
Intangible assets | 4,189 |  |  | 4,785 |
Other | 3,698 |  |  | 2,343 |
Total deferred tax liabilities | 7,887 |  |  | 7,128 |
Less: Deferred tax valuation allowance | 3,461 |  |  | 3,321 |
Net deferred tax assets | $ | 21,538 |  |  | $ | 26,493 |
In assessing the realizability of our net DTA, management considers whether it is more likely than not that some portion or all of the DTA will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income and tax-planning strategies in making this assessment. As of December 31, 2018, the valuation allowance on our net DTA totaled $3.5 million, of which $3.3 million related to our DTA from net apportioned net operating loss ("NOL") carryforwards for California state income tax purposes as we do not expect to generate sufficient income in California to utilize the DTA. The remaining $0.2 million relates to a valuation allowance on a Hawaii capital loss carry forward balance of $4.9 million that we do not expect to be able to utilize. The net change in the valuation allowance was an increase of $0.1 million in 2018, compared to an increase of $0.6 million in 2017. Net of this valuation allowance, the Company's net DTA totaled $21.5 million as of December 31, 2018, compared to a net DTA of $26.5 million as of December 31, 2017. At December 31, 2018, the Company had NOL carryforwards for California state income tax purposes of $38.4 million, which are available to offset future state taxable income. California NOL carryforwards will expire if unutilized beginning in 2028. The Company does not have any NOL carryforwards for U.S. federal or Hawaii state income tax purposes. In addition, we have gross Hawaii state tax credit carryforwards of $10.6 million that do not expire. In 2018, we utilized the remainder of our federal tax credit carryforwards. At December 31, 2018, we have no unrecognized tax benefits that, if recognized would favorably affect the effective income tax rate in future periods. We do not expect our unrecognized tax benefits to change significantly over the next 12 months. We are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. Taxable years through 2014 are closed.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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