Income Taxes |
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | INCOME TAXES Income taxes for the years ended December 31, 2017, 2016, and 2015 were as follows, in thousands:
In response to the enactment of the Tax Cuts and Jobs Act on December 22, 2017, which reduced the corporate federal tax rate from a graduated maximum 35% to a flat 21%, Heartland recorded $10.4 million of income tax expense in 2017 to adjust the value of its deferred tax assets and liabilities. Heartland adopted ASU 2016-09, "Compensation-Stock Compensation (Topic 718)," on January 1, 2017, as required, using the prospective transition method. The requirement to record the excess tax benefit or shortfall related to settlements of share-based payment awards in earnings as an increase or decrease to tax expense was applied to settlements occurring during 2017 and resulted in a reduction to income tax expense of $1.2 million. In years prior to 2017, the income tax provisions did not include the effects of income tax deductions resulting from exercises of stock options and the vesting of stock awards in the amounts of $374,000 and $676,000 in 2016 and 2015 respectively, which were recorded as increases to stockholders’ equity. Temporary differences between the amounts reported in the financial statements and the tax basis of assets and liabilities result in deferred taxes. Deferred tax assets and liabilities at December 31, 2017 and 2016, with the 2017 amounts adjusted for the impact of the Tax Cuts and Jobs Act, were as follows, in thousands:
The deferred tax assets (liabilities) related to net unrealized gains (losses) on securities available for sale and on derivatives had no effect on income tax expense as these gains and losses, net of taxes, were recorded in other comprehensive income, other than for the effect of the federal tax rate change enacted on December 22, 2017, under the Tax Cuts and Jobs Act. The effect of the enacted change in the federal corporate tax rate from a graduated maximum of 35% to a flat 21% resulted in tax expense totaling $4.5 million to adjust the deferred tax assets (liabilities) related to net unrealized gains (losses) on securities available for sale and on derivatives. As a result of acquisitions, Heartland had net operating loss carryforwards for federal income tax purposes of approximately $36.0 million at December 31, 2017, and $34.1 million at December 31, 2016. The associated deferred tax asset, as adjusted for the impact of the Tax Cuts and Jobs Act, was $8.4 million at December 31, 2017, and $11.9 million at December 31, 2016. These net carryforwards expire during the period from December 31, 2026, through December 31, 2037, and are subject to an annual limitation of approximately $5.8 million. Net operating loss carryforwards for state income tax purposes were approximately $113.3 million at December 31, 2017, and $105.6 million at December 31, 2016. The associated deferred tax asset, net of federal tax, was $8.2 million at December 31, 2017, and $5.7 million at December 31, 2016. These carryforwards have begun to expire and will continue to do so until December 31, 2037. A valuation allowance against the deferred tax asset due to the uncertainty surrounding the utilization of these state net operating loss carryforwards was $6.6 million at December 31, 2017, and $4.5 million at December 31, 2016. During both 2017 and 2016, Heartland had book write-downs on investments that, for tax purposes, would generate capital losses upon disposal. Due to the uncertainty of Heartland's ability to utilize the potential capital losses, a valuation allowance for these potential losses totaled $3.9 million at December 31, 2017, and $5.4 million at December 31, 2016. Realization of the deferred tax asset over time is dependent upon the existence of taxable income in carryback periods or the ability to generate sufficient taxable income in future periods. In determining that realization of the deferred tax asset was more likely than not, Heartland gave consideration to a number of factors, including its taxable income during carryback periods, its recent earnings history, its expectations for earnings in the future and, where applicable, the expiration dates associated with its tax carryforwards. The actual income tax expense from continuing operations differs from the expected amounts for the years ended December 31, 2017, 2016, and 2015, (computed by applying the U.S. federal corporate tax rate of 35% to income before income taxes) are as follows, in thousands:
Heartland's income taxes included solar energy credits totaling $449,000 during 2017 and $160,000 during 2016. Federal historic rehabilitation tax credits were also included in Heartland's income taxes totaling $713,000 during 2017 and $5.4 million during 2015. Additionally, investments in certain low-income housing partnerships totaled $7.8 million at December 31, 2017, $8.8 million at December 31, 2016, and $10.4 million at December 31, 2015. These investments generated federal low-income housing tax credits of $1.2 million for both the years ended December 31, 2017, and December 31, 2016, and $581,000 for the year ended December 31, 2015. These investments are expected to generate federal low-income housing tax credits of approximately $1.2 million for 2018, $1.1 million for 2019, $779,000 for 2020, $538,000 for 2021 through 2023, $322,000 for 2024, $86,000 for 2025 and $34,000 for 2026. On December 31, 2017, the amount of unrecognized tax benefits was $481,000, including $64,000 of accrued interest and penalties. On December 31, 2016, the amount of unrecognized tax benefits was $374,000, including $48,000 of accrued interest and penalties. If recognized, the entire amount of the unrecognized tax benefits would affect the effective tax rate. A reconciliation of the beginning and ending balances for liabilities associated with unrecognized tax benefits for the years ended December 31, 2017 and 2016, is as follows, in thousands:
The tax years ended December 31, 2014, and later remain subject to examination by the Internal Revenue Service. For state purposes, the tax years ended December 31, 2012, and later remain open for examination. Heartland does not anticipate any significant increase or decrease in unrecognized tax benefits during the next twelve months. |