NOTE 12: Income Taxes

12 Months Ended

Jun. 30, 2019

NOTE 12: Income Taxes

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 tax examinations by tax authorities for tax years ending June 30, 2015 and before. The Company recognized no interest or penalties related to income taxes.

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

(dollars in thousands)	June 30, 2019	June 30, 2018
Deferred tax assets:
Provision for losses on loans	$ 4,601	$ 4,418
Accrued compensation and benefits	692	708
NOL carry forwards acquired	199	273
Minimum Tax Credit	130	130
Unrealized loss on other real estate	134	124
Unrealized loss on available for sale securities	-	730
Purchase accounting adjustments	255	-
Losses and credits from LLC's	1,206	1,003
Total deferred tax assets	7,218	7,386

Deferred tax liabilities:
Purchase accounting adjustments	-	949
Depreciation	1,749	1,475
FHLB stock dividends	120	130
Prepaid expenses	313	98
Unrealized gain on available for sale securities	364	-
Other	61	327
Total deferred tax liabilities	2,607	2,979

Net deferred tax asset	$ 4,611	$ 4,407

As of June 30, 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 expense is shown below:

	For the year ended June 30
(dollars in thousands)	2019	2018	2017
Tax at statutory rate	$ 7,550	$ 8,074	$ 7,565
Increase (reduction) in taxes resulting from:
Nontaxable municipal income	(400)	(441)	(513)
State tax, net of Federal benefit	487	553	215
Cash surrender value of Bank-owned life insurance	(279)	(266)	(397)
Tax credit benefits	(270)	(871)	(367)
Adjustment of deferred tax asset for enacted changes in tax laws	-	1,124	-
Other, net	(41)	(370)	(441)
Actual provision	$ 7,047	$ 7,803	$ 6,062

For the year ended June 30, 2019, income tax expense at the statutory rate was calculated using a 21% annual effective tax rate (AETR), compared to 28.1% for the year ended June 30, 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 ending 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 deferral method of accounting for investments in tax credits.