Note 12 - Income Taxes

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

12.     INCOME TAXES

The provisions (benefits) for income taxes are summarized as follows (in thousands):

	Year Ended December 31
	2013			2012
Income tax provision (benefit):
Current:
Federal	$	--		$	--
State		--			--
Total current		--			--
Deferred:
Federal		2			1,946
State		(16	)		45
Valuation allowance		25			(1,991	)
Total deferred		11			--
Total	$	11		$	--

The reasons for the differences between the statutory federal income tax rates and the effective tax rates are summarized as follows (in thousands):

	Year Ended December 31
	2013					2012
Taxes at statutory rate	$	252		34.0	%	$	258		34.0	%
Increase (decrease) resulting from:
State income tax—net		33		4.4			33		4.3
Section 382 write-down		370		49.9			2,381		315.5
Change in valuation allowance		25		3.4			(1,991	)	(263.8	)
Earnings on life insurance policies		(275	)	(37.1	)		(269	)	(35.6	)
Nontaxable investments		(404	)	(54.5	)		(409	)	(54.1	)
Other—net		10		1.4			(3	)	(.3	)
Total	$	11		1.5	%	$	--		0.0	%

The Company’s net deferred tax asset account was comprised of the following at December 31 (in thousands):

	2013			2012
Deferred tax assets:
Allowance for loan and lease losses	$	6,011		$	9,369
Real estate owned		3,511			6,810
Section 382 net operating loss carryforward		2,390			2,527
Net operating loss carryforward		10,410			3,930
Nonaccrual loan interest		806			676
Other		422			313
Total deferred tax assets		23,550			23,625
Valuation allowance		(22,873	)		(22,859	)
Deferred tax asset, net of allowance		677			766
Deferred tax liabilities:
Office properties		(430	)		(580	)
Federal Home Loan Bank stock		(16	)		(22	)
Pension plan contribution		(118	)		(83	)
Prepaid expenses		(113	)		(81	)
Total deferred tax liabilities		(677	)		(766	)
Net deferred tax asset (liability)	$	--		$	--

A deferred tax asset or liability is recognized for the tax consequences of temporary differences in the recognition of revenue and expense, and unrealized gains and losses, for financial and tax reporting purposes. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company conducted an analysis to assess the need for a valuation allowance at December 31, 2013 and December 31, 2012. As part of this assessment, all available evidence, including both positive and negative, was considered to determine whether based on the weight of such evidence, a valuation allowance on the Company’s deferred tax assets was needed. In accordance with ASC Topic 740-10, Income Taxes (ASC 740), a valuation allowance is deemed to be needed when, based on the weight of the available evidence, it is more likely than not (a likelihood of more than 50%) that some portion or all of a deferred tax asset will not be realized. The future realization of the deferred tax asset depends on the existence of sufficient taxable income within the carryback and carryforward periods.

As part of its analysis, the Company considered the following positive evidence:

● The Company has a long history of earnings profitability prior to 2009 and returned to profitability in 2012.

● Future reversals of certain deferred tax liabilities.

● Credit quality has improved, including significant improvements in classified loans and nonperforming loans.

As part of its analysis, the Company considered the following negative evidence:

● The Company is in a cumulative tax loss position for the 3-year period ended December 31, 2013.

● The Company may not meet its internal projections concerning future taxable income.

● Although the Company returned to profitability in 2012, positive taxable income has not been attained.

● Limitations on the Company’s ability to utilize its pre-change NOLs and certain recognized built-in losses to offset future taxable income pursuant to Section 382 of the Internal Revenue Code.

At December 31, 2013, and December 31, 2012, based on the weight of negative evidence presented, the Company determined that a valuation allowance relating to both the federal and state portion of its deferred tax asset was necessary.  In addition, the determination for the state deferred tax asset included negative evidence represented by the level of state tax exempt interest income which reduces state taxable income to a level that makes it unlikely the Company will realize its state deferred tax asset. Therefore, valuation allowances of $18.1 million and $4.8 million at December 31, 2013 were recorded for the federal deferred tax asset and the state deferred tax asset, respectively.

A financial institution may, for federal income tax purposes, carry back net operating losses ("NOLs") to the preceding two taxable years and forward to the succeeding 20 taxable years. At December 31, 2013, the Company had a $31.7 million NOL for federal income tax purposes that will be carried forward. The federal NOL carryforwards, if unused, expire in calendar years 2029 through 2033.The federal NOL includes $7.0 million remaining from the pre-ownership change NOL carryforward. Bear State’s investment in the Company on May 3, 2011, constituted an “ownership change” as defined in the Internal Revenue Code (the “Code”). In general, under Section 382 of the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income. Section 382 imposes an annual limitation on the amount of post-ownership change taxable income a corporation may offset with pre-ownership change NOL carryforwards and certain recognized built-in losses. The annual limit under Section 382 is approximately $405,000. At December 31, 2013, the Company had a $47.0 million NOL for state income tax purposes. The state NOL carryforwards, if unused, expire in calendar years 2014 through 2018.

Specifically exempted from deferred tax recognition requirements are bad debt reserves for tax purposes of U.S. savings and loans in the institution’s base year, as defined. Base year reserves totaled approximately $4.2 million. Consequently, a deferred tax liability of approximately $1.6 million related to such reserves was not provided for in the consolidated statements of financial condition at December 31, 2013 and December 31, 2012. Payment of dividends to stockholders out of retained earnings deemed to have been made out of earnings previously set aside as bad debt reserves may create taxable income to the Bank. No provision has been made for income tax on such a distribution as the Bank does not anticipate making such distributions.

The Company files consolidated income tax returns in the U.S. federal jurisdiction and the state of Arkansas. The Company is subject to U.S. federal and state income tax examinations by tax authorities for tax years ended December 31, 2009 and forward. During the year ended December 31, 2013, the Company amended its 2010 federal income tax return and recorded income tax expense of $11,000 representing the Company’s alternative minimum tax payment (“AMT”) resulting from the amendment and the recording of a valuation allowance against the AMT tax credit.