Note 13 - Income Taxes

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE 1 3 : INCOME TAXES

As of

December 31, 2018

and

2017,

retained earnings included approximately

$5,075,000

for which

no

deferred income tax liability has been recognized. This amount represents an allocation of income to bad debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes only, which would be subject to the then current corporate income tax rate. The unrecorded deferred income tax liability on the above amount was approximately

$1,294,000

as of

December 31, 2018.

The provision for income taxes consists of:

	Years Ended
	December 31,
	2018		2017		2016
Taxes currently payable	$	1,230,427	$	1,490,297	$	1,889,673
Deferred income taxes		624,386		68,340		123,091
Deferred income taxes related to 2017 Tax Act		-		1,012,112		-
	$	1,854,813	$	2,570,749	$	2,012,764

The tax effects of temporary differences related to deferred taxes shown on the

December 31, 2018

and

2017

balance sheets are:

	December 31,			December 31,
	2018			2017
Deferred tax assets:
Allowances for loan losses	$	1,679,069		$	1,492,558
Writedowns on foreclosed assets held for sale		208,434			86,610
Deferred loan fees/costs		130,011			168,961
Unrealized depreciation on available-for-sale securities		468,298			215,317
Other purchase accounting adjustments		692,849			-
Tax credit partnerships and related tax credit carryforwards		1,543,723			445,151
Other		75,714			71,395
		4,798,098			2,479,992
Deferred tax liabilities:
FHLB stock dividends		(31,941	)		(32,035	)
Unrealized appreciation on interest rate swaps		(324,242	)		(144,765	)
Accumulated depreciation		(704,543	)		(544,560	)
Other		(86,819	)		(31,458	)
		(1,147,545	)		(752,818	)
Net deferred tax asset	$	3,650,553		$	1,727,174

A reconciliation of income tax expense at the statutory rate to income tax expense at the Company’s effective rate is shown below:

	Years ended
	December 31,
	2018			2017			2016
Computed at statutory rate		21.0	%		34.0	%		34.0	%
Increase (reduction) in taxes resulting from:
State financial institution tax and credits		(1.3%	)		(10.2%	)		(4.2%	)
Cash surrender value of life insurance		(1.1%	)		(2.1%	)		(2.2%	)
Tax exempt interest		(1.4%	)		(3.0%	)		(3.3%	)
Non-dedecutible merger costs		1.0	%		-			-
Impact of 2017 Tax Act		-			13.1	%		-
Other		2.0	%		1.5	%		2.2	%
Actual effective rate		20.2	%		33.3	%		26.5	%

The Tax Cuts and Jobs Act ("Tax Act") was signed into law on

December 22, 2017,

making several changes to U. S. corporate income tax laws, including reducing the corporate Federal income tax rate from

35%

to

21%

effective

January 1, 2018. 

U. S. GAAP requires that the impact of the provisions of the Tax Act be accounted for in the period of enactment and the Company recognized the income tax effects of the Tax Act in its

2017

financial statements. 

As part of the acquisition of Hometown, the Company acquired net operating loss (NOL) carryforwards that Hometown had accumulated through acquisition date. The Company estimates the amount of NOL that it expects to utilize in the future will be approximately

$2.0

million, and has recorded a deferred tax asset related to the NOL, which is included in the purchase accounting adjustments above.