Income Taxes

12 Months Ended

Dec. 31, 2016

Income Tax Disclosure [Abstract]

Income Taxes

Note 7 - Income Taxes

The provision for income taxes for 2016 and 2015 consists of the following:

	2016			2015
	(In Thousands)
Current
Federal	$	439		$	247
State		4			5
Deferred		(115	)		(116	)
	$	328		$	136

The Company’s effective tax rate was 26% and 21% in 2016 and 2015, respectively. The effective tax rate primarily reflects the impact of non-tax interest and dividends from tax exempt securities, as well as a partial release of a component of the deferred tax asset valuation allowance during 2016.

Items that give rise to differences between income tax expense included in the consolidated statements of income and taxes computed by applying the statutory federal tax at a rate of 34% in 2016 or 2015 included the following (dollars in thousands):

	2016						2015
	Amount			% of Pre-tax  Income			Amount			% of Pre-tax Income
Federal Tax at a Statutory rate	$	431			34	%	$	221			34	%
State taxes, net of Federal provision		119			9			(223	)		(34	)
Change in valuation allowance		(178	)		(14	)		182			28
Nontaxable interest and dividend income		(44	)		(3	)		(44	)		(7	)
Other items		-			-			-			-
Income tax provision	$	328			26	%	$	136			21	%

Deferred income tax assets and liabilities resulting from temporary differences are summarized as follows and are included in other assets at December 31, 2016 and at December 31, 2015 in the accompanying consolidated balance sheets:

	2016			2015
	(In Thousands)
Deferred tax assets:
Deferred loan origination fees		$95			$43
Allowance for loan losses - Federal		379			314
State tax credits		1,102			1,381
Depreciation		64			81
Supplemental Executive Retirement Plan		290			226
Other-than-temporary impairment loss on securities		-			22
Unrealized loss on securities available for sale and transferred to held to maturity		43			117
Net operating loss		159			-
Other		-			1
		2,132			2,185
Valuation allowance		(1,318	)		(1,507	)
Total deferred tax assets, net of valuation allowance		814			678
Deferred tax liabilities:
Mortgage servicing rights		(308	)		(217	)
Total deferred tax liabilities		(308	)		(217	)
Net deferred tax asset	$	506		$	461

The Company has recorded a valuation allowance for mortgage recording tax credits incurred before 2015 as well as state tax deductions since anticipated levels of future state taxable income makes it more likely than not that all of these tax benefits will not be used. Beginning in 2015, the New York State Special Additional Mortgage Recording Tax Credit became a refundable credit. To the extent that the credit exceeds the Company’s New York State tax liability, any remaining credit will be refunded to the Company. In addition, a valuation allowance in the amount of $88,000 was established in 2010 against a portion of the allowance for loan loss because future realization of the full tax benefit of that deferred tax asset was deemed to be unlikely. After fully utilizing its Federal Net Operating Loss (“NOL”) carryforward during 2013 and realizing increased and consistent current taxable income over the past 3 years, management determined that half (or $44,000) of that component of the valuation allowance should be reversed during 2015, with the remaining to be reversed in 2016.

As a thrift institution, the Bank is subject to special provisions in the income tax laws regarding its allowable income tax bad debt deduction and related tax basis bad debt reserves. Deferred income tax liabilities are to be recognized with respect to any base-year reserves which are to become taxable (or "recaptured") in the foreseeable future.

Under current income tax laws, the base-year reserves would be subject to recapture if the Company pays a cash dividend in excess of earnings and profits or liquidates. The Bank does not expect to take any actions in the foreseeable future that would require the recapture of any Federal reserves. As a result, a deferred tax liability has not been recognized with respect to the Federal base-year reserve of $1,518,000 at December 31, 2016 and 2015, because the Bank does not expect that this amount will become taxable in the foreseeable future. The unrecognized deferred tax liability with respect to the Federal base-year reserve was $516,000 at December 31, 2016 and 2015. It is more likely than not that this liability will never be incurred because, as noted above, the Bank does not expect to take any action in the future that would result in this liability being incurred.

The Company's Federal and New York State tax returns, constituting the returns of the major taxing jurisdictions, are subject to examination by the taxing authorities for 2013, 2014, and 2015 as prescribed by applicable statute. No waivers have been executed that would extend the period subject to examination beyond the period prescribed by statute.