Note 9: Income Taxes

3 Months Ended

Sep. 30, 2019

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 federal and state 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 Company’s income tax provision is comprised of the following components:

	For the three-month periods ended
(dollars in thousands)	September 30, 2019	September 30, 2018
Income taxes
Current	$ 1,970	$ 1,660
Deferred	6	6
Total income tax provision	$ 1,976	$ 1,666

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

(dollars in thousands)	September 30, 2019	June 30, 2019
Deferred tax assets:
Provision for losses on loans	$ 4,758	$ 4,601
Accrued compensation and benefits	493	692
NOL carry forwards acquired	300	199
Minimum Tax Credit	130	130
Unrealized loss on other real estate	51	134
Purchase accounting adjustments	-	255
Losses and credits from LLC's	1,236	1,206
Total deferred tax assets	6,968	7,217

Deferred tax liabilities:
Purchase accounting adjustments	176	-
Depreciation	1,469	1,749
FHLB stock dividends	120	120
Prepaid expenses	175	313
Unrealized gain on available for sale securities	422	364
Other	60	61
Total deferred tax liabilities	2,422	2,607

Net deferred tax asset	$ 4,546	$ 4,610

As of September 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 is shown below:

	For the three-month periods ended
(dollars in thousands)	September 30, 2019	September 30, 2018
Tax at statutory rate	$ 2,059	$ 1,778
Increase (reduction) in taxes resulting from:
Nontaxable municipal income	(113)	(73)
State tax, net of Federal benefit	109	122
Cash surrender value of Bank-owned life insurance	(53)	(52)
Tax credit benefits	-	(68)
Other, net	(26)	(41)
Actual provision	$ 1,976	$ 1,666

For the three month periods ended September 30, 2019 and September 30, 2018, income tax expense at the statutory rate was calculated using a 21% annual effective tax rate (AETR).

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