Note 8: Income Taxes

3 Months Ended

Dec. 31, 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		For the six-month periods ended
(dollars in thousands)	December 31, 2016	December 31, 2015	December 31, 2016	December 31, 2015
Income taxes
Current	$386	$1,921	$2,859	$4,125
Deferred	1,349	(101)	234	(640)
Total income tax provision	$1,735	$1,820	$3,093	$3,485

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

(dollars in thousands)	December 31, 2016	June 30, 2016
Deferred tax assets:
Provision for losses on loans	$5,019	$4,760
Accrued compensation and benefits	717	885
Other-than-temporary impairment on available for sale securities	131	139
NOL carry forwards acquired	557	631
Minimum Tax Credit	130	130
Unrealized loss on other real estate	118	183
Unrealized loss on available for sale securities	373	-
Other	-	-
Total deferred tax assets	7,044	6,728

Deferred tax liabilities:
Purchase accounting adjustments	1,060	1,132
Depreciation	1,958	1,781
FHLB stock dividends	184	194
Prepaid expenses	199	177
Unrealized gain on available for sale securities	-	977
Other	142	82
Total deferred tax liabilities	3,543	4,343

Net deferred tax (liability) asset	$3,501	$2,385

As of December 31 and June 30, 2016, the Company had approximately $1.8 million 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		For the six-month periods ended
(dollars in thousands)	December 31, 2016	December 31, 2015	December 31, 2016	December 31, 2015
Tax at statutory rate	$2,069	$2,109	$3,842	$3,965
Increase (reduction) in taxes resulting from:
Nontaxable municipal income	(129)	(145)	(261)	(279)
State tax, net of Federal benefit	60	163	108	317
Cash surrender value of Bank-owned life insurance	(74)	(163)	(147)	(208)
Tax credit benefits	(93)	(63)	(187)	(125)
Other, net	(98)	(81)	(262)	(185)
Actual provision	$1,735	$1,820	$3,093	$3,485

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