Note 8: Income Taxes

9 Months Ended

Mar. 31, 2019

The Company and its subsidiary file 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 tax years ending June 30, 2014, and before. 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 periods ended		For the nine-month periods ended
(dollars in thousands)	March 31, 2019	March 31, 2018	March 31, 2019	March 31, 2018
Income taxes
Current	$ 1,719	$ 2,864	$ 5,375	$ 7,525
Deferred	6	(1,054)	(181)	(1,280)
Total income tax provision	$ 1,725	$ 1,810	$ 5,194	$ 6,245

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

(dollars in thousands)	March 31, 2019	June 30, 2018
Deferred tax assets:
Provision for losses on loans	$ 4,534	$ 4,418
Accrued compensation and benefits	662	708
NOL carry forwards acquired	212	273
Minimum Tax Credit	130	130
Unrealized loss on other real estate	131	124
Unrealized loss on available for sale securities	152	730
Purchase accounting adjustments	272	(949)
Losses and credits from LLC's	907	1,003
Total deferred tax assets	7,000	6,437

Deferred tax liabilities:
Depreciation	1,174	1,475
FHLB stock dividends	120	130
Prepaid expenses	113	98
Other	210	327
Total deferred tax liabilities	1,617	2,030

Net deferred tax asset	$5,383	$4,407

As of March 31, 2019 the Company had approximately $963,000 and $1.7 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. 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 periods ended		For the nine-month periods ended
(dollars in thousands)	March 31, 2019	March 31, 2018	March 31, 2019	March 31, 2018
Tax at statutory rate	$ 1,852	$ 1,986	$ 5,574	$ 6,052
Increase (reduction) in taxes resulting from:
Nontaxable municipal income	(103)	(115)	(295)	(341)
State tax, net of Federal benefit	128	287	352	530
Cash surrender value of Bank-owned life insurance	(50)	(66)	(227)	(197)
Tax credit benefits	(68)	(224)	(203)	(672)
Adjustment of deferred tax asset for enacted changes in tax laws	-	-	-	1,124
Other, net	(34)	(58)	(7)	(251)
Actual provision	$ 1,725	$ 1,810	$ 5,194	$ 6,245

For the three- and nine- month periods ended March 31, 2019, income tax expense at the statutory rate was calculated using a 21% annual effective tax rate (AETR), compared to 28.1% for the three- and nine- month periods ended March 31, 2018, as a result of the Tax Cuts and Jobs Act ("Tax Act") signed into law December 22, 2017. The For the three- and nine- month periods ended March 31, 2019, income tax expense at the statutory rate was calculated using a 21% annual effective tax rate (AETR), compared to 28.1% for the three- and nine- month periods ended March 31, 2018, as a result of the Tax Cuts and Jobs Act ("Tax Act") signed into law December 22, 2017. The Tax Act ultimately reduced the corporate Federal income tax rate for the Company from 35% to 21%, and for the fiscal year ended June 30, 2018, the Company was 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 twelve months ended June 30, 2018. The Tax Act is complex and requires significant detailed analysis. During the preparation of the Company's June 30, 2018 income tax returns, no significant adjustments related to enactment of the Tax Act were identified.

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