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Note 12 - Income Taxes
 12 Months Ended
Dec. 31, 2019
Notes to Financial Statements  
Income Tax Disclosure [Text Block]
(
12
)
INCOME TAXES
 
The Company and its corporate subsidiaries file consolidated tax returns. The components of consolidated income tax expense for the years ended
December 31, 2019,
2018
and
2017
were as follows:
 
(In thousands)
   2019   2018   2017
             
Current   $
1,505
     $
1,789
     $
2,755
  
Deferred    
482
      
(395
 )    
348
  
                         
Totals   $
1,987
     $
1,394
     $
3,103
  
The reconciliation of income tax expense with the amount which would have been provided at the federal statutory rate of
21%
for the years ended
December 31, 2019
and
2018
and
34%
for the year ended
December 31, 2017,
follows:
 
(In thousands)
   2019   2018   2017
             
Provision at federal statutory tax rate   $
2,588
     $
2,239
     $
3,589
  
State income tax-net of federal tax benefit    
121
      
100
      
91
  
Revaluation of net deferred tax asset due to change in federal income tax rate    
-
      
-
      
290
  
Tax-exempt interest income    
(379
 )    
(328
 )    
(507
 )
Bank-owned life insurance income    
(44
 )    
(67
 )    
(73
 )
Captive insurance net premiums    
(209
 )    
(195
 )    
(290
 )
Investment in tax credit entities    
(114
 )    
(272
 )    
-
  
Other    
24
      
(83
 )    
3
  
Totals   $
1,987
     $
1,394
     $
3,103
  
                         
Effective tax rate    
16.1
 %    
13.1
 %    
29.4
 %
 
Significant components of the deferred tax assets and liabilities as of
December 31, 2019
and
2018
were as follows:
 
(In thousands)
   2019   2018
         
Deferred tax assets (liabilities):                
Deferred compensation plans   $
101
     $
115
  
Allowance for loan losses    
1,122
      
855
  
Unrealized loss on securities available for sale    
-
      
1,118
  
Unrealized loss on equity securities    
42
      
49
  
Restricted stock    
48
      
31
  
Valuation allowance on foreclosed real estate    
-
      
174
  
Interest on nonaccrual loans    
185
      
215
  
Other    
21
      
39
  
Deferred tax assets    
1,519
      
2,596
  
                 
Unrealized gain on securities available for sale    
(601
 )    
-
  
Depreciation    
(691
 )    
(491
 )
Deferred loan fees and costs    
(247
 )    
(246
 )
FHLB stock dividends    
(35
 )    
(36
 )
Prepaid expenses    
(276
 )    
(232
 )
Acquisition purchase accounting adjustments    
(419
 )    
(125
 )
Other    
(8
 )    
(23
 )
Deferred tax liabilities    
(2,277
 )    
(1,153
 )
                 
Net deferred tax asset (liability)   $
(758
 )   $
1,443
  
 
 
The Tax Cuts and Jobs Act (“TCJA”) enacted on
December 22, 2017
reduced the Company’s federal corporate tax rate from
34%
to
21%
effective for tax years beginning after
December 31, 2017.
FASB ASC
740,
Income Taxes
, requires recognition of the effect of a change in tax law or rate in the period that includes the enactment date. As such, deferred tax assets and liabilities have been adjusted for the change in the federal corporate tax rate as of
December 31, 2017.
The resulting adjustments of deferred tax assets and liabilities was recognized as a component of income tax expense in the consolidated statement of income for the year ended
December 31, 2017,
resulting in additional income tax expense of
$290,000.
In accordance with ASU
No.
2018
-
02,
the Bank elected to reclassify the income tax effect of the change in the federal corporate tax rate from AOCI to retained earnings as of
December 31, 2017
in the amount of
$352,000.
At
December 31, 2019
and
2018,
the Company had
no
liability for unrecognized income tax benefits related to uncertain tax positions and does
not
anticipate any increase in the liability for unrecognized tax benefits during the next
twelve
months. The Company believes that its income tax positions would be sustained upon examination and does
not
anticipate any adjustments that would result in a material change to its financial position or results of operations. The Company files consolidated U.S. federal income tax returns and Indiana state income tax returns. Returns filed in these jurisdictions for tax years ended on or after
December 31,
2016
are subject to examination by the relevant taxing authorities. Each entity included in the consolidated federal and Indiana state income tax returns filed by the Company are charged or given credit for the applicable tax as though separate returns were filed.
 
Retained earnings of the Bank at
December 31, 2019
and
2018
include approximately
$909,000
for which
no
deferred federal income tax liability has been recognized. This amount represents an allocation of income to bad debt deductions as of
December 31, 1987
for tax purposes only. Reduction of such allocated amounts for purposes other than tax bad debt losses, including redemption of bank stock, excess dividends or loss of “bank” status, would create income for tax purposes only, subject to the then-current corporate income tax rate. The unrecorded deferred liability on these amounts was approximately
$191,000
at
December 31, 2019
and
2018.