Income Taxes

6 Months Ended

Jun. 30, 2020

INCOME TAXES

The Company and its subsidiaries are subject to U.S. federal income tax. In the ordinary course of business, we are routinely subject to audit by Internal Revenue Service. Currently, the Company is subject to examination by taxing authorities for the 2016 tax return year and forward.

A reconciliation of expected income tax expense using the federal statutory rate of 21% as of June 30, 2020 and 2019 and actual income tax expense is as follows:


	For the three months ended June 30,						For the six months ended June 30,
(Dollars in thousands)	2020		2019		2020		2019
Income tax expense based on federal corporate tax rate	$	706	$	908	$	1,642	$	1,793
Changes resulting from:
Tax-exempt income	(165)		(135)		(315)		(256)


Net operating loss carryback due to CARES Act	—		—		(290)		—
Disqualified dispositions from stock options	—		—		(175)		—
Other, net	102		(6)		130		(23)
Income tax expense	$	643	$	767	$	992	$	1,514

In March 2020, the United States government approved the CARES Act, allowing companies to carryback net operating losses generated in 2018 through 2020 for five years to periods in which the tax rate was higher. Ann Arbor State Bank had a net operating loss ("NOL") of approximately $2.2 million generated on its 2020 short tax return which resulted in an increase in value of the NOL (which is part of the deferred tax assets) and therefore a $290 thousand tax benefit to be recognized during the first quarter of 2020. Additionally, disqualified dispositions of Ann Arbor State Bank’s stock options generated a $175 thousand tax benefit.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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