Note 18 – Income Taxes

The Corporation and its subsidiaries file a consolidated federal income tax return and separate state income tax returns. The provision for income taxes consists of the following:


	Year Ended March 31,
	2013			2012		2011
	(In thousands)
Current:
Federal	$	(51	)	$	—	$	150
State		(130	)		10		14

		(181	)		10		164
Deferred:
Federal		—			—		—
State		—			—		—

		—			—		—

Total income tax expense (benefit)	$	(181	)	$	10	$	164

At March 31, 2013, 2012 and 2011, the affiliated group had a federal net operating loss carryover of $285.9 million, $232.4 million and $168.7 million, respectively, and at March 31, 2013, 2012 and 2011, certain subsidiaries had state net operating loss carryovers of $403.4 million, $350.4 million and $288.2 million, respectively. These carryovers expire in varying amounts in 2013 through 2033.

The provision for income taxes differs from that computed at the federal statutory corporate tax rate as follows:


	Year Ended March 31,
	2013						2012						2011
	Amount			% of Pretax Income			Amount			% of Pretax Income			Amount			% of Pretax Income
	(Dollars in thousands)
Net loss before income taxes	$	(34,353	)		100.0	%	$	(36,728	)		100.0	%	$	(41,014	)		100.0	%

Income tax expense (benefit) at federal statutory rate	$	(12,024	)		35.0	%	$	(12,855	)		35.0	%	$	(14,355	)		35.0	%
State income taxes, net of federal income tax benefits		(1,840	)		5.4			(1,874	)		5.1			(2,126	)		5.2
Increase in tax exposure reserve		—			—			—			—			150			(0.4	)
Increase in valuation allowance		13,643			(39.7	)		14,666			(39.9	)		16,656			(40.6	)
Other		40			(0.1	)		73			(0.2	)		(161	)		0.4

Income tax expense (benefit)	$	(181	)		0.5	%	$	10			0.0	%	$	164			(0.4	)%

The Corporation accounts for income taxes based on the asset and liability method. Deferred tax assets and liabilities are recorded based on the difference between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes, computed using enacted tax rates. Significant net deferred tax assets have been created for NOL carryforwards and deductible temporary differences, the largest of which relates to our allowance for loan losses. For income tax purposes, only net charge-offs on uncollectible loans are deductible, not the provision for credit losses.

Under generally accepted accounting principles, a valuation allowance is required to be recognized if it is “more likely than not” that a deferred tax asset will not be realized. The determination of the realizability of the deferred tax assets is highly subjective and dependent upon management’s evaluation and judgment of both positive and negative evidence, the forecasts of future income, applicable tax planning strategies, and assessments of the current and future economic and business conditions. The Corporation considers both positive and negative evidence regarding the ultimate realizability of deferred tax assets. Positive evidence includes the existence of taxes paid in available carry back years as well as the probability that taxable income will be generated in future periods while negative evidence includes significant losses in the current year or cumulative losses in the current and past several years as well as general business and economic trends.

At March 31, 2013 and 2012, the Corporation determined that a valuation allowance relating to the deferred tax asset was necessary. This determination was based largely on the negative evidence represented by the losses in the current and prior fiscal years caused by the significant loss provisions associated with the loan portfolio. In addition, general uncertainty surrounding future economic and business conditions increase the potential volatility and uncertainty of projected earnings. Therefore, a valuation allowance of $162.1 million and $149.8 million at March 31, 2013 and 2012, respectively, was recorded to offset net deferred tax assets.

The significant components of deferred tax assets (liabilities) are as follows:


	March 31,
	2013			2012			2011
	(In thousands)
Deferred tax assets:
Allowance for loan losses	$	32,275		$	44,604		$	60,174
OREO valuation allowance and other loss reserves		17,101			12,094			10,835
Federal NOL carryforwards		101,629			82,885			61,433
State NOL carryforwards		20,929			18,178			14,906
Unrealized gains (losses)		—			—			7,984
Other		3,629			3,851			4,310

Total deferred tax assets		175,563			161,612			159,642
Valuation allowance		(162,077	)		(149,831	)		(143,505	)

Adjusted deferred tax assets		13,486			11,781			16,137
Deferred tax liabilities:
FHLB stock dividends		(1,928	)		(2,636	)		(3,962	)
Mortgage servicing rights		(8,754	)		(8,825	)		(9,884	)
Unrealized securities gains, net		(1,435	)		(53	)		—
Other		(1,369	)		(267	)		(2,291	)

Total deferred tax liabilities		(13,486	)		(11,781	)		(16,137	)

Net deferred tax assets	$	—		$	—		$	—

The Corporation is subject to U.S. federal income tax as well as income tax of various state jurisdictions. The tax years 2010-2013 remain open to examination by the Internal Revenue Service and certain state jurisdictions while the years 2009-2013 remain open to examination by certain other state jurisdictions.

The Corporation recognizes any interest and penalties related to uncertain tax positions in income tax expense. As of March 31, 2013 and 2012, the Corporation has not recognized any accrued interest and penalties related to uncertain tax positions.