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INCOME AND FRANCHISE TAXES
 12 Months Ended
Dec. 31, 2012
INCOME AND FRANCHISE TAXES  
INCOME AND FRANCHISE TAXES

20.                               INCOME AND FRANCHISE TAXES

 

Components of income tax benefit for the years ended December 31, 2012, 2011 and 2010 were as follows:

 

 

 

Current

 

Deferred

 

Total

 

 

 

(Dollars in thousands)

 

Year ended December 31, 2012

 

 

 

 

 

 

 

Federal

 

$

—

 

$

—

 

$

—

 

State

 

—

 

—

 

—

 

Total

 

$

—

 

$

—

 

$

—

 

 

 

 

 

 

 

 

 

Year ended December 31, 2011

 

 

 

 

 

 

 

Federal

 

$

—

 

$

—

 

$

—

 

State

 

—

 

—

 

—

 

Total

 

$

—

 

$

—

 

$

—

 

 

 

 

 

 

 

 

 

Year ended December 31, 2010

 

 

 

 

 

 

 

Federal

 

$

—

 

$

—

 

$

—

 

State

 

—

 

—

 

—

 

Total

 

$

—

 

$

—

 

$

—

 

 

Income tax expense for the periods presented differed from the “expected” tax expense (computed by applying the U.S. Federal corporate tax rate of 35% to income (loss) before income taxes) for the following reasons:

 

 

 

Year Ended December 31,

 

 

 

2012

 

2011

 

2010

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Computed “expected” tax expense (benefit)

 

$

16,598

 

$

12,802

 

$

(87,834

)

Increase (decrease) in taxes resulting from:

 

 

 

 

 

 

 

Goodwill impairment (not deductible for tax purposes)

 

—

 

—

 

35,941

 

Tax-exempt interest

 

(820

)

(273

)

(420

)

Other tax-exempt income

 

(976

)

(1,441

)

(1,669

)

Low-income housing and energy tax credits

 

(1,607

)

(1,678

)

(8,023

)

State income taxes, net of Federal income tax effect,
excluding impact of deferred tax valuation allowance

 

2,540

 

546

 

(8,724

)

Change in the beginning-of-the-year balance of the
valuation allowance for deferred tax assets
allocated to income tax expense

 

(15,862

)

(9,870

)

70,506

 

Other

 

127

 

(86

)

223

 

Total

 

$

—

 

$

—

 

$

—

 

 

At December 31, 2012, current Federal income taxes payable was $9 thousand. At December 31, 2011, current Federal income taxes receivable was $46 thousand. Current state income taxes receivable was $1.8 million and $2.3 million at December 31, 2012 and 2011, 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,

 

 

 

2012

 

2011

 

 

 

(Dollars in thousands)

 

Deferred tax assets

 

 

 

 

 

Allowance for loan and lease losses

 

$

33,418

 

$

42,589

 

Accrued expenses

 

6,727

 

5,417

 

Employee retirement benefits

 

8,952

 

8,439

 

Federal and state tax credit carryforwards

 

35,305

 

34,616

 

Investment write-downs and write-offs

 

3,051

 

3,021

 

Interest on nonaccrual loans

 

4,047

 

5,703

 

Federal and state net operating loss carryforwards

 

86,339

 

98,409

 

Other

 

26,289

 

25,213

 

Total deferred tax assets

 

$

204,128

 

$

223,407

 

 

 

 

 

 

 

Deferred tax liabilities

 

 

 

 

 

Intangible assets

 

$

14,962

 

$

16,308

 

FHLB stock dividends received

 

12,345

 

12,345

 

Net unrealized gain on derivatives recognized through AOCI

 

1,786

 

1,959

 

Leases

 

3,599

 

4,494

 

Deferred gain on curtailed retirement plan

 

3,339

 

3,339

 

Liability on utilization of state tax credits

 

7,475

 

7,851

 

Other

 

13,123

 

14,851

 

Total deferred tax liabilities

 

$

56,629

 

$

61,147

 

 

 

 

 

 

 

Deferred tax valuation allowance

 

$

147,499

 

$

162,260

 

 

 

 

 

 

 

Net deferred tax assets

 

$

—

 

$

—

 

 

The valuation allowance for deferred tax assets as of December 31, 2012 and 2011 was $147.5 million and $162.3 million, respectively. The net change in the total valuation allowance was a decrease of $14.8 million and $16.6 million in 2012 and 2011, respectively. Of the total decrease in the valuation allowance in 2012, $15.9 million was recognized as income tax benefit and $1.1 million was charged against AOCI, compared to $9.9 million recognized as income tax benefit and a $6.7 million benefit for AOCI in 2011.

 

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets 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. Based upon the Company’s cumulative three year loss position and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will be unable to realize the benefits of these deductible differences. The amount of the deferred tax asset considered realizable, however, could change in the near term if estimates of future taxable income during the carryforward period change.

 

At December 31, 2012, the Company had net operating loss carryforwards for Federal income tax purposes of $197.1 million, which are available to offset future Federal taxable income, if any, through 2030. At December 31, 2012, the Company had net operating loss carryforwards for Hawaii and California state income tax purposes of $193.5 million and $40.4 million, respectively, which are available to offset future state taxable income through 2030 for Hawaii and 2031 for California. In addition, we have state tax credit carryforwards of $22.9 million that do not expire, and federal tax credit carryforwards of $12.4 million, of which $10.4 million expire in 20 years, and $2.0 million do not expire.

 

As further described in Note 15, to help protect the Company’s tax benefits, the Company implemented the Tax Benefits Preservation Plan on November 23, 2011 and the Protective Charter Amendment on January 26, 2011.

 

At December 31, 2012, 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 2008 are closed.