Note 9: Income Taxes

The provision for income taxes includes these components for the years ended December 31, 2019 and 2018.


	2019		2018

Taxes currently payable	$	68,865	$	46,232
Deferred income taxes		18,829		145,046

Income tax expense	$	87,694	$	191,278


	2019		2018

Computed at the statutory rate	$	186,095	$	523,447
Increase (decrease) resulting from:

Effect of gain on merger with Kentucky Federal		—		(460,391)
Bank-owned life insurance		(55,103)		(15,598)
Merger expenses		—		59,681
Other		(43,298)		84,139

Actual tax expense	$	87,694	$	191,278

A reconciliation between the statutory income tax and the Company’s effective rate follows:


	2019		2018

Computed at the statutory rate	21.00	%	21.00	%
Increase (decrease) resulting from

Effect of gain on merger with Kentucky Federal	—		(18.47)	%
Bank-owned life insurance	(2.12)	%	(0.63)	%
Acquired bank-owned life insurance	(4.10)	%	2.39	%
Other	(4.88)	%	3.38	%

Effective tax rate	9.90	%	7.67	%

The tax effects of temporary differences related to deferred taxes shown on the balance sheets at December 31, 2019 and 2018 were:


	2019		2018

Deferred tax assets
Allowance for loan losses	$	282,653	$	277,403
Loans held for sale		13,437		5,437
Unrealized gains on
available-for-sale securities		1,520		—
Directors’ Retirement Plan		117,452		102,287
Net operating loss		183,123		244,401
Other		24,939		19,161
		623,124		648,689
Deferred tax liabilities
Deferred loan costs		(101,363)		(105,737)
Prepaid penalties on FHLB advances		(648)		(1,620)
Dividends on FHLB stock		(332,211)		(332,211)
Mortgage servicing rights		(254,901)		(263,075)
FHLB lender risk account receivable		(359,780)		(357,688)
Depreciation		(195,450)		(183,604)
Unrealized gains on available-for-sale securities		—		(192)
Other		(116,524)		(135,971)
		(1,360,877)		(1,380,098)
Valuation allowance		(19,322)		(19,322)
Net deferred tax liability	$	(757,075)	$	(750,731)

Retained earnings at both December 31, 2019 and December 31, 2018, include approximately $766,000 for which no deferred federal 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 deferred income tax liability on the preceding amount that would have been recorded if it was expected to reverse into taxable income in the foreseeable future was approximately $160,900 and $160,900 at December 31, 2019 and December 31, 2018, respectively.

As of December 31, 2019, the Company has net operating loss carryforwards of approximately $631,535 which expire between 2028 and 2037 and $240,481 with no expiration. A valuation allowance for deferred tax assets is provided for all or some portion of the deferred tax asset when it is more likely than not an amount will not be realized. An increase or decrease in the valuation allowance that results from a change in circumstances is included in income tax expense in the period they are identified. At December 31, 2019, the Company has a valuation allowance of $19,322 to reduce deferred tax assets to the amount that is more likely than not to be realized under Code Section 382 limitations.