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10. Income Taxes | 12 Months Ended
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Dec. 31, 2014
Income Tax Disclosure [Abstract] |
Income Taxes | Income taxes consist of the following:
|  | Year Ended December 31, |
|  | 2014 |  |  | 2013 |  |  | 2012 |
|  | (In thousands) |
Current federal tax expense |  | $ | 1,348 |  |  | $ | 977 |  |  | $ | 369 |
Current state tax expense |  |  | 1,316 |  |  |  | 365 |  |  |  | 49 |
Deferred federal tax expense |  |  | 18,338 |  |  |  | 13,306 |  |  |  | 2,826 |
Deferred state tax expense (benefit) |  |  | 1,724 |  |  |  | 1,520 |  |  |  | (654 | )
Change in valuation allowance |  |  | – |  |  |  | – |  |  |  | (62,811 | )
Income tax expense (benefit) |  | $ | 22,726 |  |  | $ | 16,168 |  |  | $ | (60,221 | )
Income tax expense/(benefit) for the years ended December 31, 2014, 2013 and 2012 differs from the amount determined by applying the statutory federal rate of 35% to income before income taxes as follows:
|  | Year Ended December 31, |
|  | 2014 |  |  | 2013 |  |  | 2012 |
|  | (In thousands) |
Expense at federal tax rate |  | $ | 18,285 |  |  | $ | 13,011 |  |  | $ | 3,215 |
State taxes, net of federal income tax effect |  |  | 2,651 |  |  |  | 2,079 |  |  |  | 1,190 |
Other adjustments to tax reserve |  |  | (54 | ) |  |  | (419 | ) |  |  | (1,153 | )
Effect of change in state tax rate |  |  | 144 |  |  |  | (239 | ) |  |  | (1,105 | )
Change in valuation allowance |  |  | – |  |  |  | – |  |  |  | (62,811 | )
Stock-based compensation |  |  | 1,182 |  |  |  | 911 |  |  |  | 321 |
Non-deductible expenses |  |  | 116 |  |  |  | 619 |  |  |  | 63 |
Other |  |  | 402 |  |  |  | 206 |  |  |  | 59 |
|  | $ | 22,726 |  |  | $ | 16,168 |  |  | $ | (60,221 | )
The tax effected cumulative temporary differences that give rise to deferred tax assets and liabilities as of December 31, 2014 and 2013 are as follows:
|  | December 31, |
|  | 2014 |  |  | 2013 |
|  | (In thousands) |
Deferred Tax Assets: |  |  |  |  |  |  |  |
Finance receivables |  | $ | 19,046 |  |  | $ | 17,258 |
Accrued liabilities |  |  | 2,551 |  |  |  | 5,079 |
Furniture and equipment |  |  | 16 |  |  |  | 196 |
NOL carryforwards |  |  | 6,922 |  |  |  | 23,811 |
Built in losses |  |  | 11,698 |  |  |  | 13,074 |
Pension accrual |  |  | 1,090 |  |  |  | – |
AMT credit carryforward |  |  | 2,899 |  |  |  | 1,993 |
Other |  |  | 941 |  |  |  | 839 |
Total deferred tax assets |  |  | 45,163 |  |  |  | 62,250 |
Deferred Tax Liabilities: |  |  |  |  |  |  |  |
FAS 91 deferred costs |  |  | (2,316 | ) |  |  | (1,555 | )
Pension accrual |  |  | – |  |  |  | (1,136 | )
Investment residual |  |  | – |  |  |  | (344 | )
Total deferred tax liabilities |  |  | (2,316 | ) |  |  | (3,035 | )
Net deferred tax asset |  | $ | 42,847 |  |  | $ | 59,215 |
We acquired certain net operating losses and built-in loss assets as part of our acquisitions of MFN Financial Corp. (“MFN”) in 2002 and TFC Enterprises, Inc. (“TFC”) in 2003. Moreover, both MFN and TFC have undergone an ownership change for purposes of Internal Revenue Code (“IRC”) Section 382. In general, IRC Section 382 imposes an annual limitation on the ability of a loss corporation (that is, a corporation with a net operating loss (“NOL”) carryforward, credit carryforward, or certain built-in losses (“BILs”)) to utilize its pre-change NOL carryforwards or BILs to offset taxable income arising after an ownership change. In determining the possible future realization of deferred tax assets, we have considered future taxable income from the following sources: (a) reversal of taxable temporary differences; and (b) tax planning strategies that, if necessary, would be implemented to accelerate taxable income into years in which net operating losses might otherwise expire. Deferred tax assets are recognized subject to management’s judgment that realization is more likely than not. A valuation allowance is recognized for a deferred tax asset if, based on the weight of the available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. In making such judgements, significant weight is given to evidence that can be objectively verified. As a result of the unprecedented adverse changes in the market for securitizations, the recession and the resulting high levels of unemployment that occurred in 2008 and 2009, we incurred substantial operating losses from 2009 through 2011 which led us to establish a valuation allowance against a substantial portion of our deferred tax assets. We determined at December 31, 2012 that, based on the weight of the available objective evidence, it was more likely than not that we would generate sufficient future taxable income to utilize our net deferred tax assets. Accordingly, we reversed the related valuation allowance of $62.8 million in the fourth quarter of 2012. Although realization is not assured, we believe that the realization of the recognized net deferred tax asset of $42.8 million as of December 31, 2014 is more likely than not based on forecasted future net earnings. Our net deferred tax asset of $42.8 million consists of approximately $32.7 million of net U.S. federal deferred tax assets and $10.1 million of net state deferred tax assets. The major components of the deferred tax asset are $18.6 million in net operating loss carryforwards and built in losses and $24.2 million in net deductions which have not yet been taken on a tax return. As of December 31, 2014, we had net operating loss carryforwards for federal and state income tax purposes of $3.5 million and $108.5 million, respectively. The federal net operating losses begin to expire in 2022. The state net operating losses begin to expire in 2015. The following is a tabular reconciliation of the total amounts of unrecognized tax benefits including interest and penalties for the year:
|  | 2014 |  |  | 2013 |
|  | (In thousands) |
Unrecognized tax benefit - opening balance |  | $ | – |  |  | $ | 1,331 |
Gross increases - tax positions in prior period |  |  | – |  |  |  | – |
Gross decreases - tax positions in current period |  |  | – |  |  |  | – |
Gross increases - tax positions in current period |  |  | – |  |  |  | – |
Settlements |  |  | – |  |  |  | (686 | )
Lapse of statute of limitations |  |  | – |  |  |  | (645 | )
Unrecognized tax benefit - ending balance |  | $ | – |  |  | $ | – |
We recognize a tax position as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. We recognize potential interest and penalties related to unrecognized tax benefits as income tax expense. At December 31, 2014, we had no unrecognized tax benefits for uncertain tax positions. We are subject to taxation in the US and various state jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state, or local examinations by tax authorities for years before 2011.

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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 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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