NOTE 12: Income Taxes

12 Months Ended

Jun. 30, 2018

NOTE 12: Income Taxes

The Company and its subsidiary files income tax returns in the U.S. Federal jurisdiction and various states. The Company is no longer subject to U.S. federal and state tax examinations by tax authorities for tax years ending June 30, 2014 and before. The Company recognized no interest or penalties related to income taxes.

The components of net deferred tax assets are summarized as follows:

(dollars in thousands)	June 30, 2018	June 30, 2017
Deferred tax assets:
Provision for losses on loans	$ 4,418	$ 5,563
Accrued compensation and benefits	708	1,068
Other-than-temporary impairment on available for sale securities	-	128
NOL carry forwards acquired	273	513
Minimum Tax Credit	130	130
Unrealized loss on other real estate	124	131
Unrealized loss on available for sale securities	730	-
Losses and credits from LLC’s	1,003	-
Total deferred tax assets	7,386	7,533

Deferred tax liabilities:
Purchase accounting adjustments	949	1,193
Depreciation	1,475	2,734
FHLB stock dividends	130	203
Prepaid expenses	98	213
Unrealized gain on available for sale securities	-	295
Other	327	991
Total deferred tax liabilities	2,979	5,629

Net deferred tax asset	$ 4,407	$ 1,904

As of June 30, 2018, the Company had approximately $1.1 million and $2.5 million in federal and state net operating loss carryforwards, respectively, which were acquired in the July 2009 acquisition of Southern Bank of Commerce, the February 2014 acquisition of Citizens State Bankshares of Bald Knob, Inc. the August 2014 acquisition of Peoples Service Company, and the June 2017 acquisition of Tammcorp, Inc. (Capaha Bank). The amount reported is net of the IRC Sec. 382 limitation, or state equivalent, related to utilization of net operating loss carryforwards of acquired corporations. Unless otherwise utilized, the net operating losses will begin to expire in 2027.

A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense is shown below:

(dollars in thousands)	2018	2017	2016
Tax at statutory rate	$ 8,074	$ 7,565	$ 7,536
Increase (reduction) in taxes resulting from:
Nontaxable municipal income	(441)	(513)	(567)
State tax, net of Federal benefit	553	215	624
Cash surrender value of Bank-owned life insurance	(266)	(397)	(325)
Tax credit benefits	(871)	(367)	(286)
Adjustment of deferred tax asset for enacted changes in tax laws	1,124	-	-
Other, net	(370)	(441)	(300)
Actual provision	$ 7,803	$ 6,062	$ 6,682

For the year ended June 30, 2018, income tax expense at the statutory rate was calculated using a 28.1% annual effective tax rate (AETR), compared to 35.0% for the year ended June 30, 2017, as a result of the Tax Cuts and Jobs Act ("Tax Act") signed into law December 22, 2017. The Tax Act ultimately reduces the corporate Federal income tax rate for the Company from 35% to 21%, and for the current fiscal year ending June 30, 2018, the Company is administratively subject to a 28.1% AETR. U. S. GAAP requires that the impact of the provisions of the Tax Act be accounted for in the period of enactment and the income tax effects of the Tax Act were recognized in the Company’s financial statements for the quarter ended December 31, 2017, and for the twelve months ended June 30, 2018. The Tax Act is complex and requires significant detailed analysis. During the preparation of the Company's June 30, 2018 income tax returns, additional adjustments related to enactment of the Tax Act may be identified. We do not currently expect significant adjustments will be necessary, but any further adjustments identified will be recognized in accordance with guidance contained in Staff Accounting Bulletin No. 118 from the U. S. Securities and Exchange Commission.

Tax credit benefits are recognized under the flow-through method of accounting for investments in tax credits.