NOTE 14 – INCOME TAXES

Income tax expense was as follows:



	2014			2013		2012
Current Federal	$	-	$	-	$	-
Deferred Federal		-		-		-
Total	$	-	$	-	$	-

Effective tax rates differ from the federal statutory rate of 34% applied to income (loss) before income taxes due to the following:



	2014		2013		2012
Federal Statutory rate times financial statement income (loss)	$	163	$	(312)	$	(1,280)

Effect of:
Incentive Stock Options		75		47		3
Bank owned life insurance income		(44)		(44)		(45)
Increase (decrease) in deferred tax valuation allowance		(201)		303		1,314
Other		7		6		8
	$	-	$	-	$	-
Effective tax rate		0%		0%		0%

Year-end deferred tax assets and liabilities were due to the following:


	2014		2013
Deferred tax assets:
Allowance for loan losses	$	924	$	1,002
Post-retirement death benefits		73		69
Deferred compensation		169		88
Deferred loan fees		116		44
AMT Credit		75		60
Nonaccrual interest		110		80
Net operating loss carry forward		2,112		2,487
Other		67		38
		3,646		3,868

Deferred tax liability:
FHLB stock dividend		366		366
Mortgage servicing rights		5		7
Depreciation		14		31
Prepaid expenses		61		63
Unrealized gain on securities available for sale		33		33
		479		500
Net deferred tax asset before valuation allowance		3,167		3,368
Deferred tax valuation allowance		(3,167)		(3,368)
Net deferred tax asset	$	-	$	-

The Company maintained a valuation allowance against the net deferred tax assets at December 31, 2014 and December 31, 2013, based on its estimate of future reversal and utilization. When determining the amount of deferred tax assets that are more-likely-than-not to be realized, and therefore recorded as a benefit, the Company conducts a regular assessment of all available information. This information includes, but is not limited to, taxable income in prior periods, projected future income and projected future reversals of deferred tax items. Based on these criteria, the Company determined that it was necessary to maintain a full valuation allowance against the entire net deferred tax asset.

In 2012, a recapitalization program through the sale of $22.5 million in common stock improved the capital levels of the Bank and provided working capital for the holding company. The result of the change in stock ownership associated with the stock offering, within the guidelines of Section 382 of the Internal Revenue Code of 1986, was that the Company incurred an ownership change. At year-end 2014, the Company had net operating loss carryforwards of $26,732, which expire at various dates from 2024 to 2033, and has alternative minimum tax credit carryforwards of $75, which do not expire. As a result of the ownership change, the Company's ability to utilize carryforwards that arose before the stock offering closed is limited to $163 per year. Due to this limitation, management determined it is more likely than not that $20,520 of net operating loss carryforwards will expire unutilized. As required by accounting standards, the Company reduced the carrying value of deferred tax assets, and the corresponding valuation allowance, by the $6,977 tax effect of this lost realizability.

Federal income tax laws provided additional deductions, totaling $2,250, for thrift bad debt reserves established before 1988. Accounting standards do not require a deferred tax liability to be recorded on this amount, which otherwise would total $765 at year-end 2014. However, if CFBank were wholly or partially liquidated or otherwise ceases to be a bank, or if tax laws were to change, this amount would have to be recaptured and a tax liability recorded. Additionally, any distributions in excess of CFBank’s current or accumulated earnings and profits would reduce amounts allocated to its bad debt reserve and create a tax liability for CFBank. The amount of additional taxable income created by such a distribution is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. Thus, if CFBank makes a distribution that reduces the amount allocated to its bad debt reserve, then approximately one and one-half times the amount used would be includible in gross income for federal income tax purposes, assuming a 34% corporate income tax rate. CFBank does not intend to make distributions that would result in a recapture of any portion of its bad debt reserve.

At December 31, 2014 and 2013, the Company had no unrecognized tax benefits recorded. The Company does not expect the amount of unrecognized tax benefits to significantly change within the next twelve months. The Company is subject to U.S. federal income tax and is no longer subject to federal examination for years prior to 2011.