Note 14: Income Taxes

12 Months Ended

Dec. 31, 2014

Notes

Note 14: Income Taxes

Note 14:     Income Taxes

The Company files a consolidated federal income tax return.  As of December 31, 2014 and 2013, retained earnings included approximately $17.5 million for which no deferred income tax liability had been recognized.  This amount represents an allocation of income to bad debt deductions for tax purposes only for tax years prior to 1988.  If the Bank were to liquidate, the entire amount would have to be recaptured and 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 $6.5 million at December 31, 2014 and 2013.

During the years ended December 31, 2014, 2013 and 2012, the provision for income taxes included these components:

	2014	2013	2012
(In Thousands)
Taxes currently payable	$20,013	$17,013	$3,815
Deferred income taxes	(6,260)	(8,839)	13,252
Income taxes	13,753	8,174	17,067
Taxes attributable to
discontinued operations	--	--	(2,487)
Income tax expense attributable to continuing operations	$13,753	$8,174	$14,580

The tax effects of temporary differences related to deferred taxes shown on the statements of financial condition were:

	December 31,
	2014	2013
(In Thousands)
Deferred tax assets
Allowance for loan losses	$13,452	$14,041
Interest on nonperforming loans	317	210
Accrued expenses	1,527	599
Write-down of foreclosed assets	3,970	3,697
Other	350	--
	19,616	18,547
Deferred tax liabilities
Tax depreciation in excess of book depreciation	(6,443)	(3,619)
FHLB stock dividends	(1,494)	(1,656)
Partnership tax credits	(2,176)	(3,068)
Prepaid expenses	(508)	(598)
Unrealized gain on available-for-sale securities	(3,895)	(1,344)
Difference in basis for acquired assets and
liabilities	(4,738)	(12,049)
Other	(236)	(256)
	(19,490)	(22,590)
Net deferred tax asset (liability)	$126	$(4,043)

Reconciliations of the Company’s effective tax rates from continuing operations to the statutory corporate tax rates were as follows:

	2014	2013	2012
Tax at statutory rate	35.0%	35.0%	35.0%
Nontaxable interest and dividends	(3.0)	(4.6)	(3.5)
Tax credits	(9.5)	(12.5)	(7.0)
State taxes	1.5	1.6	0.5
Other	--	--	(0.1)
	24.0%	19.5%	24.9%

The Company and its consolidated subsidiaries have not been audited recently by the Internal Revenue Service (IRS) or the state taxing authorities with respect to income or franchise tax returns, and as such, tax years through December 31, 2005, have been closed without audit.  The Company, through one of its subsidiaries, is a partner in two partnerships currently under IRS examination for 2006 and 2007.  As a result, the Company’s 2006 and subsequent tax years remain open for examination.  The IRS audits of the two partnerships are ongoing. The IRS has raised questions about the validity of the allocation of a portion of the credits by one of the partnerships. At this time, the Company believes that the partnership has sufficient technical support for its allocation position regarding these credits and that it is more likely than not these allocations will ultimately be sustained; therefore, a reserve for uncertain tax positions is not required.