Note 8: Income Taxes

3 Months Ended

Sep. 30, 2016

The Company and its subsidiary files income tax returns in the U.S. Federal jurisdiction and various states. The Company is no longer subject to U.S. federal and state examinations by tax authorities for fiscal years before 2011. The Company recognized no interest or penalties related to income taxes.

The Company’s income tax provision is comprised of the following components:

	For the three-month period ended
(dollars in thousands)	September 30, 2016	September 30, 2015
Income taxes
Current	$117	$2,203
Deferred	1,241	(538)
Total income tax provision	$1,358	$1,665

The components of net deferred tax assets are summarized as follows:

(dollars in thousands)	September 30, 2016	June 30, 2016
Deferred tax assets:
Provision for losses on loans	$5,055	$4,760
Accrued compensation and benefits	682	885
Other-than-temporary impairment on available for sale securities	133	139
NOL carry forwards acquired	609	631
Minimum Tax Credit	130	130
Unrealized loss on other real estate	182	183
Other	-	-
Total deferred tax assets	6,791	6,728

Deferred tax liabilities:
Purchase accounting adjustments	1,147	1,132
Depreciation	1,664	1,781
FHLB stock dividends	194	194
Prepaid expenses	145	177
Unrealized gain on available for sale securities	881	977
Other	506	82
Total deferred tax liabilities	4,537	4,343

Net deferred tax (liability) asset	$2,254	$2,385

As of September 30 and June 30, 2016, the Company had approximately $1.8 and $3.9 million in federal and state net operating loss carryforwards, which were acquired in the July 2009 acquisition of Southern Bank of Commerce, the February 2014 acquisition of Citizens State Bankshares of Bald Knob, Inc. and the August 2014 acquisition of Peoples Service Company. The amount reported is net of the IRC Sec. 382 limitation, or state equivalent, related to utilization of net operating loss carryforwards of acquired corporations. Unless otherwise utilized, the net operating losses will begin to expire in 2027.

A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax is shown below:

	For the three-month period ended
(dollars in thousands)	September 30, 2016	September 30, 2015
Tax at statutory rate	$1,773	$1,855
Increase (reduction) in taxes resulting from:
Nontaxable municipal income	(132)	(143)
State tax, net of Federal benefit	47	150
Cash surrender value of Bank-owned life insurance	(74)	(51)
Tax credit benefits	(93)	(63)
Tax benefits realized on acquisition	-	-
Acquisition costs	-	-
Other, net	(163)	(83)
Actual provision	$1,358	$1,665

Tax credit benefits are recognized under the flow-through method of accounting for investments in tax credits.