Note 12 - Income Taxes

3 Months Ended

Mar. 31, 2015

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

12. INCOME TAXES

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

	Three Months Ended March 31,
	2015		2014
Income tax provision (benefit):
Current:
Federal	$	--	$	--
State		--		--
Total current		--		--
Deferred:
Federal		735		(225	)
State		150		(18	)
Valuation allowance		--		243
Total deferred		885		--
Total	$	885	$	--

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

	Three Months Ended March 31
	2015					2014
Taxes at statutory rate	$	1,072		34.0	%	$	(94	)	34.0	%
Increase (decrease) resulting from:
State income tax—net		99		3.1			(12	)	4.2
Section 382 write-down		--		--			27		(9.8	)
Change in valuation allowance		--		--			243		(87.8	)
Earnings on life insurance policies		(125	)	(4.0	)		(68	)	24.6
Nontaxable investments		(148	)	(4.6	)		(98	)	35.4
Other—net		(13	)	(0.4	)		2		(0.6	)
Total	$	885		28.1	%	$	--		--	%

During the three months ended March 31, 2015, the effective tax rate was of 28.1%, compared to 0.0% for the three months ended March 31, 2014.

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company recognizes deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. If the Company determines that it would be able to realize the deferred tax assets in the future in excess of its net recorded amount, the Company would make an adjustment to the deferred tax valuation allowance, which would reduce the provision for income taxes.

The Company’s temporary differences and carry-forwards that give rise to deferred tax assets and liabilities are comprised of the following (in thousands):

	March 31, 2015			December 31, 2014
Deferred tax assets:
Allowance for loan and lease losses	$	6,319		$	6,343
Discount on loans		3,492			4,511
Real estate owned		2,639			2,649
Section 382 net operating loss carry-forward		2,218			2,252
Net operating loss carry-forward		11,305			11,239
Nonaccrual loan interest		870			920
Other		785			736
Total deferred tax assets		27,628			28,650
Valuation allowance		(1,017	)		(1,017	)
Deferred tax asset, net of allowance		26,611			27,633
Deferred tax liabilities:
Office properties		(3,234	)		(3,240	)
Core deposit intangible		(2,750	)		(2,810	)
Unrealized gain on investments		(675	)		(426	)
Pension plan		(12	)		(24	)
Prepaid expenses		(376	)		(436	)
Total deferred tax liabilities		(7,047	)		(6,936	)
Net deferred tax asset	$	19,564		$	20,697

At March 31, 2015, the deferred tax assets were primarily the result of net operating loss (“NOL”) carry-forwards and temporary differences for the allowance for loan and lease losses and the discount on purchased loans.

A financial institution may, for federal income tax purposes, carry back NOLs to the preceding two taxable years and forward to the succeeding 20 taxable years. At March 31, 2015, the Company had a $35.1 million NOL for federal income tax purposes that will be carried forward. The federal NOL carry-forwards, if unused, expire in calendar years 2029 through 2035. The federal NOL includes $6.5 million remaining from the pre-ownership change NOL carry-forward. The investment by Bear State Financial Holdings, LLC 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 carry-forwards and certain recognized built-in losses. The annual limit under Section 382 is approximately $405,000. At March 31, 2015, the Company had a $37.0 million NOL for state income tax purposes. The state NOL carry-forwards, if unused, expire in calendar years 2015 through 2020.

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 under IRC Section 593(g)(2)(A)(ii). 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 March 31, 2015 and December 31, 2014. 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. Also, the Bank files a separate income tax return in the state of Oklahoma. The Company and the Bank are subject to U.S. federal and state income tax examinations by tax authorities for tax years ended December 31, 2011 and forward.