Note 8: Income Taxes

6 Months Ended

Dec. 31, 2017

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, 2017	December 31, 2016	December 31, 2017	December 31, 2016
Income taxes
Current	$2,484	$386	$4,366	$2,859
Deferred	62	1,349	69	234
Total income tax provision	$2,546	$1,735	$4,435	$3,093

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

(dollars in thousands)	December 31, 2017	June 30, 2017
Deferred tax assets:
Provision for losses on loans	$3,904	$5,563
Accrued compensation and benefits	544	1,068
Other-than-temporary impairment on available for sale securities	80	128
NOL carry forwards acquired	301	513
Minimum Tax Credit	130	130
Unrealized loss on other real estate	84	131
Unrealized loss on available for sale securities	121	-
Total deferred tax assets	5,164	7,533

Deferred tax liabilities:
Purchase accounting adjustments	741	1,193
Depreciation	1,442	2,734
FHLB stock dividends	130	203
Prepaid expenses	134	213
Unrealized gain on available for sale securities	-	295
Other	466	991
Total deferred tax liabilities	2,913	5,629

Net deferred tax asset	$2,251	$1,904

As of December 31, 2017 the Company had approximately $1.3 million and $3.2 million in federal and state net operating loss carryforwards, respectively, 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, 2017	December 31, 2016	December 31, 2017	December 31, 2016
Tax at statutory rate	$2,168	$2,069	$4,066	$3,842
Increase (reduction) in taxes resulting from:
Nontaxable municipal income	(114)	(129)	(225)	(261)
State tax, net of Federal benefit	137	60	243	108
Cash surrender value of Bank-owned life insurance	(66)	(74)	(131)	(147)
Tax credit benefits	(225)	(93)	(449)	(187)
Adjustment of deferred tax asset for enacted changes in tax laws	1,124	-	1,124	-
Other, net	(478)	(98)	(193)	(262)
Actual provision	$2,546	$1,735	$4,435	$3,093

For the three and six month periods ended December 31, 2017, income tax expense at the statutory rate was calculated using a 28.1% annual effective tax rate, compared to 35.0% for the three and six month periods ended December 31, 2016. Tax credit benefits are recognized under the flow-through method of accounting for investments in tax credits.