Income Taxes

12 Months Ended

Jun. 30, 2020

Income Taxes

Income Taxes.

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, 2016 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, 2020		June 30, 2019
Deferred tax assets:
Provision for losses on loans	$	5,802	$	4,601
Accrued compensation and benefits		825		692
NOL carry forwards acquired		149		199
Minimum Tax Credit		130		130
Unrealized loss on other real estate		257		134
Purchase accounting adjustments		—		255
Losses and credits from LLC's		—		1,206
Other		26		—
Total deferred tax assets		7,189		7,218
Deferred tax liabilities:
Purchase accounting adjustments		64		—
Depreciation		1,665		1,749
FHLB stock dividends		120		120
Prepaid expenses		259		313
Unrealized gain on available for sale securities		1,265		364
Other		104		61
Total deferred tax liabilities		3,477		2,607
Net deferred tax asset	$	3,712	$	4,611

As of June 30, 2020, the Company had approximately $675,000 and $119,000 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., the August 2014 acquisition of Peoples Service Company, and the June 2017 acquisition of Tammcorp, Inc. 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)	2020		2019		2018
Tax at statutory rate	$	7,231	$	7,550	$	8,074
Increase (reduction) in taxes resulting from:
Nontaxable municipal income		(444)		(400)		(441)
State tax, net of Federal benefit		299		487		553
Cash surrender value of Bank-owned life insurance		(214)		(279)		(266)
Tax credit benefits		(48)		(270)		(871)
Adjustment of deferred tax asset for enacted changes in tax laws		—		—		1,124
Other, net		63		(41)		(370)
Actual provision	$	6,887	$	7,047	$	7,803

For the years ended June 30, 2020 and 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 income tax returns for June 30, 2018 and 2019, 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.