9. Income Taxes

12 Months Ended

Dec. 31, 2015

Income Tax Disclosure [Abstract]

Income Taxes

(9) Income Taxes

Income taxes consist of the following:

	Year Ended December 31,
	2015		2014		2013
	(In thousands)
Current federal tax expense	$	18,653	$	1,348	$	977
Current state tax expense		1,146		1,316		365
Deferred federal tax expense		4,233		18,338		13,306
Deferred state tax expense		2,669		1,724		1,520
Income tax expense	$	26,701	$	22,726	$	16,168

Income tax expense for the years ended December 31, 2015, 2014 and 2013 differs from the amount determined by applying the statutory federal rate of 35% to income before income taxes as follows:

	Year Ended December 31,
	2015		2014		2013
	(In thousands)
Expense at federal tax rate	$	21,484	$	18,285	$	13,011
State taxes, net of federal income tax effect		3,235		2,651		2,079
Stock-based compensation		1,560		1,182		911
Non-deductible expenses		107		116		619
Other		315		492		(452	)
	$	26,701	$	22,726	$	16,168

The tax effected cumulative temporary differences that give rise to deferred tax assets and liabilities as of December 31, 2015 and 2014 are as follows:

	December 31,
	2015			2014
	(In thousands)
Deferred Tax Assets:
Finance receivables	$	20,825		$	19,046
Accrued liabilities		3,091			2,551
Furniture and equipment		–			16
NOL carryforwards		3,272			6,922
Built in losses		10,254			11,698
Pension accrual		1,999			1,090
AMT credit carryforward		166			2,899
Other		1,109			941
Total deferred tax assets		40,716			45,163
Deferred Tax Liabilities:
Deferred loan costs		(2,894	)		(2,316	)
Furniture and equipment		(225	)		–
Total deferred tax liabilities		(3,119)			(2,316	)
Net deferred tax asset	$	37,597		$	42,847

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 $37.6 million as of December 31, 2015 is more likely than not based on forecasted future net earnings. Our net deferred tax asset of $37.6 million consists of approximately $29.9 million of net U.S. federal deferred tax assets and $7.7 million of net state deferred tax assets. The major components of the deferred tax asset are $13.5 million in net operating loss carryforwards and built in losses and $24.1 million in net deductions which have not yet been taken on a tax return.

As of December 31, 2015, we had net operating loss carryforwards for state income tax purposes of $67.3 million. These state net operating losses begin to expire in 2016.

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, 2015, 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 2012.