Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes

Note 27 — Income Taxes

Federal

Total federal income tax provision is as follows:

	For the Years Ended December 31,
	2011		2010		2009
	(Dollars in thousands)
Provision from operations	$	1,056	$	2,104	$	55,008
Stockholders’ equity, for the tax effect of other comprehensive loss		—		—		18,027
Stockholders’ equity, for the tax effect of stock-based compensation		—		—		466
	$	1,056	$	2,104	$	73,501

Components of the benefit for federal income taxes from operations consist of the following:

	For the Years Ended December 31,
	2011		2010		2009
	(Dollars in thousands)
Current provision (benefit)	$	1,056	$	2,104	$	(331	)
Deferred provision		—		—		55,339
	$	1,056	$	2,104	$	55,008

The Company’s effective tax rate differs from the statutory federal tax rate. The following is a summary of such differences.

	For the Years Ended December 31,
	2011			2010			2009
	(Dollars in thousands)
Benefit at statutory federal income tax rate (35%)	$	(63,253	)	$	(130,448	)	$	(154,585	)
Increases resulting from:
Valuation allowance		52,999			129,080			201,035
Litigation settlement		11,655			—			—
Warrant (income) expense		(2,411	)		1,466			8,168
Non-deductible compensation		1,267			1,704			430
Other		799			302			(40	)
Provision (benefit) at effective federal income tax rate	$	1,056		$	2,104		$	55,008

Deferred income tax assets and liabilities at December 31, 2011 and 2010 include the effect of temporary differences between assets, liabilities and equity for financial reporting purposes and the bases of such assets, liabilities and equity as measured by tax laws, as well as tax loss and tax credit carryforwards.

Temporary differences and carryforwards that give rise to deferred tax assets and liabilities are comprised of the following.

	December 31,
	2011			2010
	(Dollars in thousands)
Deferred tax assets:
Tax loss carry forwards (expiration dates 2030 and 2029)	$	339,425		$	316,015
Allowance for loan and other losses		225,973			229,636
Non-accrual interest revenue		11,223			7,642
Premises and equipment		5,319			6,619
REMIC		4,779			4,714
Other		13,950			16,577
		600,669			581,203
Valuation allowance		(383,832	)		(330,809	)
		216,837			250,394
Deferred tax liabilities:
Mortgage loan servicing rights		(163,589	)		(187,448	)
Loan securitizations		(45,691	)		(39,910	)
Mark-to-market adjustments		(1,173	)		(15,454	)
Other		(6,384	)		(7,582	)
		(216,837	)		(250,394	)
Net deferred tax asset	$	—		$	—

The Company incurred federal net operating loss carry forwards of $532.0 million, $243.7 million, and $223.7 million in calendar years 2011, 2010, and 2009, respectively. These carry forwards, if unused, expire in calendar years 2030, 2029, and 2028, respectively.

The Company has not provided deferred income taxes for the Bank’s pre-1988 tax bad debt reserve of approximately $4.0 million because it is not anticipated that this temporary difference will reverse in the foreseeable future. Such reserves would only be taken into taxable income if the Bank, or a successor institution, liquidates, redeems shares, pays dividends in excess of earnings and profits, or ceases to qualify as a bank for tax purposes.

The Company regularly reviews the carrying amount of its deferred tax assets to determine if the establishment of a valuation allowance is necessary. If based on the available evidence, it is more likely than not that all or a portion of the Company’s deferred tax assets will not be realized in future periods, a deferred tax valuation allowance would be established. Consideration is given to all positive and negative evidence related to the realization of the deferred tax assets.

In evaluating this available evidence, management considers, among other things, historical financial performance, expectation of future earnings, the ability to carry back losses to recoup taxes previously paid, length of statutory carry forward periods, experience with operating loss and tax credit carry forwards not expiring unused, tax planning strategies and timing of reversals of temporary differences. Significant judgment is required in assessing future earning trends and the timing of reversals of temporary differences. The Company’s evaluation is based on current tax laws as well as management’s expectations of future performance. Furthermore, on January 30, 2009, the Company incurred a change in control within the meaning of Section 382 of the Internal Revenue Code. As a result, federal tax law places an annual limitation of approximately $17.4 million on the amount of the Company’s net operating loss carryforward that may be used.

In particular, additional scrutiny must be given to deferred tax assets of an entity that has incurred pre-tax losses during the three most recent years because it is significant negative evidence that is objective and verifiable and therefore difficult to overcome. The Company had pre-tax losses for 2011, 2010, and 2009, and the Company’s management considered this factor in its analysis of deferred tax assets. As a result the Company recorded a $383.8 million valuation allowance against its net deferred tax assets.

The details of the net tax asset recorded as a component of “other assets” as of December 31, 2011 and 2010 are as follows.

	December 31,
	2011			2010
	(Dollars in thousands)
Current tax loss carryback claims	$	76,645		$	76,603
Other current, net		(2,750	)		(1,560	)
Current tax asset		73,895			75,043
Net deferred tax asset		—			—
Net tax asset	$	73,895		$	75,043

The Company’s income tax returns are subject to review and examination by federal, state and local government authorities. On an ongoing basis, numerous federal, state and local examinations are in progress and cover multiple tax years. As of December 31, 2011, the Internal Revenue Service had completed its examination of the Company through the taxable year ended December 31, 2008. The years open to examination by state and local government authorities vary by jurisdiction.

The following table provides a reconciliation of the total amounts of unrecognized tax benefits for the years ended December 31, 2011 and 2010.

	2011		2010
	(Dollars in thousands)
Balance at January 1,	$	1,550	$	1,493
Additions to tax positions recorded during the current year		—		—
Additions to tax positions recorded during prior years		92		105
Reductions to tax positions recorded during prior years		—		(47	)
Settlements		—		—
Reductions in tax positions due to lapse of statutory limitations		—		(1	)
Balance at December 31,	$	1,642	$	1,550

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense and/or franchise tax expense. For the years ended December 31, 2011, 2010 and 2009, the Company recognized interest expense of approximately $92,000, $100,000 and $528,000 respectively, and no penalty expense for the years ended December 31, 2011 and 2010 and approximately $84,000 in penalty expense during the year ended December 31, 2009. Approximately $1.6 million of the above tax positions are expected to reverse during the next 12 months, all of which relates to state tax controversies expected to be settled on resolution of a state tax audit.

State

The Company accrues and pays state taxes in numerous states in which it does business. State tax provisions (benefits) are included in the Consolidated Statements of Operations under non-interest expense-other taxes.

State tax (expense) benefits are as follows.

	For the Years Ended December 31,
	2011			2010			2009
	(Dollars in thousands)
State tax benefits	$	(7,818	)	$	(15,155	)	$	(15,065	)
Valuation allowance		6,487			13,561			25,700
Net (benefits) expense	$	(1,331	)	$	(1,594	)	$	10,635

State deferred tax assets are as follows.

	December 31,
	2011			2010
	(Dollars in thousands)
Tax loss carryforwards (expiration dates through 2031)	$	46,620		$	43,729
Temporary differences, net		6,550			5,466
		53,170			49,195
Valuation allowance		(53,170	)		(49,195	)
Net deferred state tax assets	$	—		$	—

For reasons discussed above in the Federal income tax portion of this footnote, the Company has recorded a valuation allowance against its state deferred tax assets of $53.2 million as of December 31, 2011 and $49.2 million as of December 31, 2010.