Note 14: Income Taxes

12 Months Ended

Dec. 31, 2013

Notes

Note 14: Income Taxes

Note 14:    Income Taxes

The Company files a consolidated federal income tax return.  As of December 31, 2013 and 2012, retained earnings included approximately $17.5 million for which no deferred income tax liability had been recognized.  This amount represents an allocation of income to bad debt deductions for tax purposes only for tax years prior to 1988.  If the Bank were to liquidate, the entire amount would have to be recaptured and 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 $6.5 million at December 31, 2013 and 2012.

During the years ended December 31, 2013, 2012 and 2011, the provision for income taxes included these components:

	2013	2012	2011
(In Thousands)
Taxes currently payable	$12,242	$(142)	$14,817
Deferred income taxes	(8,839)	13,252	(9,304)
Income taxes	3,403	13,110	5,513
Taxes attributable to
discontinued operations	--	(2,487)	(330)
Income tax expense attributable to continuing operations	$3,403	$10,623	$5,183

The tax effects of temporary differences related to deferred taxes shown on the statements of financial condition were:

	December 31,
	2013	2012
(In Thousands)
Deferred tax assets
Allowance for loan losses	$14,041	$14,227
Interest on nonperforming loans	210	549
Accrued expenses	599	611
Realized impairment on available-for-sale
securities	--	1,247
Write-down of foreclosed assets	3,697	4,119
	18,547	20,753
Deferred tax liabilities
Tax depreciation in excess of book depreciation	(3,619)	(3,717)
FHLB stock dividends	(1,656)	(2,091)
Partnership tax credits	(3,068)	(3,241)
Prepaid expenses	(598)	(1,134)
Unrealized gain on available-for-sale securities	(1,344)	(8,965)
Difference in basis for acquired assets and
liabilities	(12,049)	(21,619)
Other	(256)	(274)
	(22,590)	(41,041)
Net deferred tax liability	$(4,043)	$(20,288)

Reconciliations of the Company’s effective tax rates from continuing operations to the statutory corporate tax rates were as follows:

	2013	2012	2011
Tax at statutory rate	35.0%	35.0%	35.0%
Nontaxable interest and
dividends	(4.6)	(3.5)	(6.3)
Tax credits	(22.8)	(12.5)	(15.2)
State taxes	1.6	0.5	0.7
Other	--	(0.1)	0.7
	9.2%	19.4%	14.9%

The Company and its consolidated subsidiaries have not been audited recently by the Internal Revenue Service or the state taxing authorities with respect to income or franchise tax returns, and as such, tax years through December 31, 2005, have been closed without audit.  The Company, through one of its subsidiaries, is a partner in two partnerships currently under Internal Revenue Service examinations for 2006 and 2007.  As a result, the Company’s 2006 and subsequent tax years remain open for examination.  It is too early in the examination process to predict the outcome of the underlying partnership examinations; however, the Company does not expect significant adjustments to its financial statements from these examinations.