Note 8: Income Taxes

9 Months Ended

Mar. 31, 2018

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 nine-month periods ended
(dollars in thousands)	March 31, 2018	March 31, 2017	March 31, 2018	March 31, 2017
Income taxes
Current	$2,864	$1,457	$7,525	$4,316
Deferred	(1,054)	6	(1,280)	240
Total income tax provision	$1,810	$1,463	$6,245	$4,556

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

(dollars in thousands)	March 31, 2018	June 30, 2017
Deferred tax assets:
Provision for losses on loans	$4,193	$5,563
Accrued compensation and benefits	618	1,068
Other-than-temporary impairment on available for sale securities	-	128
NOL carry forwards acquired	286	513
Minimum Tax Credit	130	130
Unrealized loss on other real estate	124	131
Unrealized loss on available for sale securities	585	-
Other	407	-
Total deferred tax assets	6,343	7,533

Deferred tax liabilities:
Purchase accounting adjustments	946	1,193
Depreciation	1,100	2,734
FHLB stock dividends	130	203
Prepaid expenses	128	213
Unrealized gain on available for sale securities	-	295
Other	270	991
Total deferred tax liabilities	2,574	5,629

Net deferred tax asset	$3,769	$1,904

As of March 31, 2018and June 30, 2017, the Company had approximately $1.3 million and $2.7 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, and the June 2017 acquisition of Tammcorp, Inc. (Capaha Bank). 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 nine-month periods ended
(dollars in thousands)	March 31, 2018	March 31, 2017	March 31, 2018	March 31, 2017
Tax at statutory rate	$1,986	$1,896	$6,052	$5,738
Increase (reduction) in taxes resulting from:
Nontaxable municipal income	(115)	(124)	(341)	(385)
State tax, net of Federal benefit	287	52	530	160
Cash surrender value of Bank-owned life insurance	(66)	(176)	(197)	(323)
Tax credit benefits	(224)	(81)	(672)	(267)
Tax benefits realized on acquisition	-	-	-	-
Adjustment of deferred tax asset for enacted changes in tax laws	-	-	1,124	-
Other, net	(58)	(104)	(251)	(367)
Actual provision	$1,810	$1,463	$6,245	$4,556

For the three and nine month periods ended March 31, 2018, income tax expense at the statutory rate was calculated using a 28.1% annual effective tax rate (AETR), compared to 35.0% for the three and nine month periods ended March 31, 2017, as a result of the Tax Cuts and Jobs Act ("Tax Act") signed into law December 22, 2017. The Tax Act ultimately reduces the corporate Federal income tax rate for the Company from 35% to 21%, and for the current fiscal year ending June 30, 2018, the Company is administratively subject to a 28.1% AETR. U. S. GAAP requires that the impact of the provisions of the Tax Act be accounted for in the period of enactment and the income tax effects of the Tax Act were recognized in the Company’s financial statements for the quarter ended December 31, 2017, and for the nine-month period ended March 31, 2018. The Tax Act is complex and requires significant detailed analysis. During the preparation of the Company's June 30, 2018 income tax returns, additional adjustments related to enactment of the Tax Act may be identified. We do not currently expect significant adjustments will be necessary, but any further adjustments identified will be recognized in accordance with guidance contained in Staff Accounting Bulletin No. 118 from the U. S. Securities and Exchange Commission.