Note 10 - Income Taxes

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE

1

0

:     INCOME TAXES

As of

December 31,

201

7

and

2016,

retained earnings included approximately

$5,075,000

for which

no

deferred income tax liability has been recognized. This amount represents an allocation of income to bad debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes only, which would be subject to the then current corporate income tax rate. The unrecorded deferred income tax liability on the above amount was approximately

$1,294,000

as of both

December 31, 2017.

The provision for income taxes consists of:

	December 31,
	2017		2016		2015
Taxes currently payable	$	1,490,297	$	1,889,673	$	2,140,591
Deferred income taxes		68,340		123,091		320,738
Deferred income taxes related to 2017 Tax Act		1,012,112		-		-
	$	2,570,749	$	2,012,764	$	2,461,329

The tax effects of temporary differences related to deferred taxes shown on the

December 31,

201

7

and

2016

balance sheets are:

	December 31,			December 31,
	2017			2016
Deferred tax assets:
Allowances for loan losses	$	1,492,558		$	1,952,433
Writedowns on foreclosed assets held for sale		86,610			681,281
Deferred loan fees/costs		168,961			141,418
Unrealized depreciation on available-for-sale securities		215,317			768,879
Tax Credits		445,151			441,908
Other		71,395			66,486
		2,479,992			4,052,405
Deferred tax liabilities:
FHLB stock dividends		(32,035	)		(46,481	)
Unrealized appreciation on interest rate swaps		(144,765	)		-
Accumulated depreciation		(544,560	)		(470,883	)
Other		(31,458	)		(60,906	)
		(752,818	)		(578,270	)
Net deferred tax asset	$	1,727,174		$	3,474,135

A reconciliation of income tax expense at the statutory rate to income tax expense at the Company

’s effective rate is shown below:

	Years ended
	December 31,
	2017			2016			2015
Computed at statutory rate		34.0	%		34.0	%		34.0	%
Increase (reduction) in taxes resulting from:
State financial institution tax and credits		(10.2%	)		(4.2%	)		(4.8%	)
Cash surrender value of life insurance		(2.1%	)		(2.2%	)		(1.5%	)
Tax exempt interest		(3.0%	)		(3.3%	)		(1.7%	)
Impact of 2017 Tax Act		13.1	%		-			-
Other		1.5	%		2.2	%		4.1	%
Actual effective rate		33.3	%		26.5	%		30.1	%

The Tax Cuts and Jobs Act ("Tax Act") was signed into law on

December 22, 2017,

making several changes to U. S. corporate income tax laws, including reducing the corporate Federal income tax rate from

35%

to

21%

effective

January 1, 2018.

  U. S. GAAP requires that the impact of the provisions of the Tax Act be accounted for in the period of enactment and the Company recognized the income tax effects of the Tax Act in its

2017

financial statements.  The Tax Act is complex and requires significant detailed analysis.  During the preparation of the Company's

2017

income tax returns in

2018,

additional adjustments related to enactment of the Tax Act

may

be identified.  We do

not

currently expect significant adjustments will be necessary, but any further adjustments identified will be recognized in accordance with guidance contained in Staff Accounting Bulletin

No.

118

from the U. S. Securities and Exchange Commission.