Note 11 - Income Taxes

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note

11

– Income Taxes

Deferred tax assets and liabilities were due to the following as of:

	March 31,		December 31,
	20 20		201 9
	(in thousands)
Deferred tax assets:
Net operating loss carry-forward	$	22,403	$	22,915
Allowance for loan losses		2,283		2,090
OREO write-down		2,665		2,665
Alternative minimum tax credit carry-forward		—		173
Net assets from acquisitions		188		228
Net unrealized loss on securities		646		—
New market tax credit carry-forward		208		208
Nonaccrual loan interest		310		303
Accrued expenses		99		102
Lease liability		719		766
Other		295		309
		29,816		29,759
Deferred tax liabilities:
FHLB stock dividends		563		563
Fixed assets		49		57
Deferred loan costs		170		170
Net unrealized gain on securities		—		331
Lease right-of-use assets		719		766
Other		107		107
		1,608		1,994
Net deferred tax asset	$	28,208	$	27,765

At

March 31, 2020,

the Company had net federal operating loss carryforwards of

$100.5

million, which will begin to expire in

2032,

and state net operating loss carryforwards of

$32.7

million, which begin to expire in

2025.

As of

March 31, 2020,

a total of

$173,000

in alternative minimum tax credit carryforward was reclassified to other assets as it is currently refundable for the

2019

tax year due to the enactment of the Coronavirus Aid Relief and Economic Security Act ("CARES Act").

The Company does

not

have any beginning and ending unrecognized tax benefits. The Company does

not

expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next

twelve

months. There were

no

interest and penalties recorded in the income statement or accrued for the

three

months ended

March 31, 2020

or

March 31, 2019

related to unrecognized tax benefits.

Under Section

382

of the Internal Revenue Code, as amended (“Section

382”

), the Company’s net operating loss carryforwards and other deferred tax assets can generally be used to offset future taxable income and therefore reduce federal income tax obligations. However, the Company's ability to use its NOLs would be limited if there was an “ownership change” as defined by Section

382.

This would occur if shareholders owning (or deemed to own under the tax rules)

5%

or more of the Company's voting and non-voting common shares increase their aggregate ownership of the Company by more than

50

percentage points over a defined period of time.

In

2015,

the Company took

two

measures to preserve the value of its NOLs. First, the Company adopted a tax benefits preservation plan designed to reduce the likelihood of an “ownership change” occurring as a result of purchases and sales of the Company's common shares. Upon adoption of this plan, the Company declared a dividend of

one

preferred stock purchase right for each common share outstanding as of the close of business on

July 10, 2015.

Any shareholder or group that acquires beneficial ownership of

5%

or more of the Company (an “acquiring person”) could be subject to significant dilution in its holdings if the Company's Board of Directors does

not

approve such acquisition. Existing shareholders holding

5%

or more of the Company will

not

be considered acquiring persons unless they acquire additional shares, subject to certain exceptions described in the plan. In addition, the Board of Directors has the discretion to exempt certain transactions and certain persons whose acquisition of securities is determined by the Board

not

to jeopardize the Company's deferred tax assets. The rights plan was extended in

May 2018

to expire upon the earlier of (i)

June 30, 2021, (

ii) the beginning of a taxable year with respect to which the Board of Directors determines that

no

tax benefits

may

be carried forward, (iii) the repeal or amendment of Section

382

or any successor statute, if the Board of Directors determines that the plan is

no

longer needed to preserve the tax benefits, and (iv) certain other events as described in the plan.

On

September 23, 2015,

the Company’s shareholders approved an amendment to its articles of incorporation to further help protect the long-term value of the Company’s NOLs. The amendment provides a means to block transfers of our common shares that could result in an ownership change under Section

382.

The transfer restrictions were extended in

May 2018

by shareholder vote and will expire on the earlier of (i)

May 23, 2021, (

ii) the beginning of a taxable year with respect to which the Board of Directors determines that

no

tax benefit

may

be carried forward, (iii) the repeal of Section

382

or any successor statute if our Board determines that the transfer restrictions are

no

longer needed to preserve the tax benefits of our NOLs, or (iv) such date as the Board otherwise determines that the transfer restrictions are

no

longer necessary.

The Company and its subsidiaries are subject to U.S. federal income tax and the Company is subject to income tax in the Commonwealth of Kentucky. The Company is

no

longer subject to examination by taxing authorities for years before

2016.