Note 15: Income Taxes

12 Months Ended

Dec. 31, 2016

Notes

Note 15: Income Taxes

Note 15:    Income Taxes

The Company files a consolidated federal income tax return.  As of December 31, 2016 and 2015, 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, 2016 and 2015.

During the years ended December 31, 2016, 2015 and 2014, the provision for income taxes included these components:

	2016	2015	2014
	(In Thousands)
Taxes currently payable	$             20,137	$             20,234	$             20,013
Deferred income taxes	(3,621)	(4,670)	(6,260)
Income taxes	$             16,516	$             15,564	$             13,753

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

	December 31,
	2016	2015
	(In Thousands)
Deferred tax assets
Allowance for loan losses	$              13,576	$              13,848
Interest on nonperforming loans	364	259
Accrued expenses	1,288	1,302
Write-down of foreclosed assets	3,300	4,056
Write-down of fixed assets	535	417
Difference in basis for acquired assets and liabilities	4,533	—
	23,596	19,882
Deferred tax liabilities
Tax depreciation in excess of book depreciation	(6,425)	(6,483)
FHLB stock dividends	(1,805)	(1,549)
Partnership tax credits	(1,651)	(1,991)
Prepaid expenses	(728)	(515)
Unrealized gain on available-for-sale securities	(980)	(3,369)
Difference in basis for acquired assets and
liabilities	—	(435)
Other	(318)	(185)
	(11,907)	(14,527)
Net deferred tax asset	$             11,689	$                5,355

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

	2016	2015	2014
Tax at statutory rate	35.0%	35.0%	35.0%
Nontaxable interest and
dividends	(2.1)	(2.4)	(3.0)
Tax credits	(7.3)	(8.1)	(9.5)
State taxes	1.1	1.4	1.5
Other	—	(0.8)	—
	26.7%	25.1%	24.0%

The Company and its consolidated subsidiaries have not been audited recently by the Internal Revenue Service (IRS) 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 Internal Revenue Service examination for 2006 and 2007.  As a result, the Company’s 2006 and subsequent tax years remain open for examination.  The examinations of the partnerships have been advanced during 2016.  One of the partnerships has advanced to Tax Court and has entered a Motion for Entry of Decision with an agreed upon settlement.  The other partnership is at the IRS appeals level.  The Company does not currently expect significant adjustments to its financial statements from these partnership examinations.

The Company is currently under State of Missouri income and franchise tax examinations for its 2013 through 2015 tax years and is in administrative appeals with the State of Kansas for its 2010 through 2012 tax years.  The Company protested the initial assessment of the State of Kansas and is having ongoing discussions with the Kansas Department of Revenue.  The Company does not currently expect significant adjustments to its financial statements from these state examinations.