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9. Income Taxes

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

Income Taxes

(9) Income Taxes

Income taxes consist of the following:

		Year Ended December 31,
		2017				2016				2015
		(In thousands)
Current federal tax expense		$	14,369			$	22,872			$	18,653
Current state tax expense			3,305				2,671				1,146
Deferred federal tax expense			10,131				(6,329	)			4,233
Deferred state tax expense			501				1,147				2,669
Income tax expense		$	28,306			$	20,361			$	26,701

Income tax expense for the years ended December 31, 2017, 2016 and 2015 differs from the amount determined by applying the statutory federal rate of 35% to income before income taxes as follows:

		Year Ended December 31,
		2017				2016				2015
		(In thousands)
Expense at federal tax rate		$	11,225			$	17,381			$	21,484
State taxes, net of federal income tax effect			1,831				2,679				3,235
Stock-based compensation			682				824				1,560
Non-deductible expenses			171				145				107
Effect of change in tax rate			15,117				–				–
Other			(720	)			(668	)			315
		$	28,306			$	20,361			$	26,701

For the year ended December 31, 2017, we recorded income tax expense of $28.3 million which includes $15.1 of income tax expense related to the effects of the Tax Act, which are required to be recorded in the period of enactment. Excluding the impact of the Tax Act, income tax expense for 2017 would have been $13.2 million.

The tax effected cumulative temporary differences that give rise to deferred tax assets and liabilities as of December 31, 2017 and 2016 are as follows:

		December 31,
		2017				2016
		(In thousands)
Deferred Tax Assets:
Finance receivables		$	23,034			$	28,986
Accrued liabilities			206				2,322
NOL carryforwards			529				1,697
Built in losses			5,277				8,915
Pension accrual			1,654				2,107
Stock compensation			3,642				–
Other			582				2,343
Total deferred tax assets			34,924				46,370
							$
Deferred Tax Liabilities:			$
Deferred loan costs			(2,233	)			(3,223	)
Furniture and equipment			(245	)			(302	)
Total deferred tax liabilities			(2,478	)			(3,525	)
							$
Net deferred tax asset		$	32,446			$	42,845

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. Although realization is not assured, we believe that the realization of the recognized net deferred tax asset of $32.4 million as of December 31, 2017 is more likely than not based on forecasted future net earnings. Our net deferred tax asset of $32.4 million consists of approximately $22.8 million of net U.S. federal deferred tax assets and $9.6 million of net state deferred tax assets. The major components of the deferred tax asset are $5.8 million in net operating loss carryforwards and built in losses and $23.2 million in net deductions which have not yet been taken on a tax return.

As of December 31, 2017, we had net operating loss carryforwards for state income tax purposes of $12.3 million. These state net operating losses begin to expire in 2018.

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, 2017, 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 2014.