Note 14 - Income Taxes

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE

1

4

:     INCOME TAXES

As of

December 31, 2019

and

2018,

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

$1,218,000

as of

December 31, 2019.

The provision for income taxes consists of:

	Years Ended
	December 31,
	2019		2018		2017
Taxes currently payable	$	1,459,016	$	1,230,427	$	1,490,297
Deferred income taxes		224,142		624,386		68,340
Deferred income taxes related to 2017 Tax Act		-		-		1,012,112
	$	1,683,158	$	1,854,813	$	2,570,749

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

December 31, 2019

and

2018

balance sheets are:

	December 31,			December 31,
	2019			2018
Deferred tax assets:
Allowances for loan losses	$	1,825,853		$	1,679,069
Writedowns on foreclosed assets held for sale		409,031			208,434
Unrealized loss on interest rate swaps		390,804			-
Deferred loan fees/costs		96,700			130,011
Unrealized loss on available-for-sale securities		-			468,298
Other purchase accounting adjustments		690,341			692,849
Tax credit partnerships and related tax credit carryforwards		1,354,315			1,543,723
Other		284,925			75,714
		5,051,969			4,798,098
Deferred tax liabilities:
FHLB stock dividends		(30,062	)		(31,941	)
Unrealized gain on interest rate swaps		-			(324,242	)
Unrealized gain on available-for-sale securities		(262,217	)		-
Accumulated depreciation		(598,785	)		(704,543	)
Other		(749,964	)		(86,819	)
		(1,641,028	)		(1,147,545	)
Net deferred tax asset	$	3,410,941		$	3,650,553

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,
	2019			2018			2017
Computed at statutory rate		21.0	%		21.0	%		34.0	%
Increase (reduction) in taxes resulting from:
State financial institution tax and credits		(2.3	%)		(1.3	%)		(10.2	%)
Cash surrender value of life insurance		(1.0	%)		(1.1	%)		(2.1	%)
Tax exempt interest		(1.1	%)		(1.4	%)		(3.0	%)
Non-dedecutible merger costs		-			1.0	%		-
Impact of 2017 Tax Act		-			-			13.1	%
Other		(1.4	%)		2.0	%		1.5	%
Actual effective rate		15.2	%		20.2	%		33.3	%

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

$1,900,000

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