Note 9: Income Taxes

9 Months Ended

Mar. 31, 2020

Notes

Note 9: Income Taxes

Note 9: 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 federal and state examinations by tax authorities for tax years ending June 30, 2015 and before. The Company recognized no interest or penalties related to income taxes.

The Company’s income tax provision is comprised of the following components:

	For the three-month period ended				For the nine-month periods ended
(dollars in thousands)		March 31, 2020		March 31, 2019		March 31, 2020		March 31, 2019
Income taxes
Current	$	1,116	$	1,719	$	5,007	$	5,375
Deferred		13		6		19		(181)
Total income tax provision	$	1,129	$	1,725	$	5,026	$	5,194

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

(dollars in thousands)		March 31, 2020		June 30, 2019
Deferred tax assets:
Provision for losses on loans	$	5,392	$	4,601
Accrued compensation and benefits		667		692
NOL carry forwards acquired		162		199
Minimum Tax Credit		130		130
Unrealized loss on other real estate		114		134
Purchase accounting adjustments		-		255
Losses and credits from LLC's		189		1,206
Other		185		-
Total deferred tax assets		6,839		7,217
Deferred tax liabilities:
Purchase accounting adjustments		137		-
Depreciation		1,348		1,749
FHLB stock dividends		120		120
Prepaid expenses		279		313
Unrealized gain on available for sale securities		437		364
Other		-		61
Total deferred tax liabilities		2,321		2,607
Net deferred tax asset	$	4,518	$	$4,610

As of March 31, 2020 the Company had approximately $735,000 and $873,000 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., and the August 2014 acquisition of Peoples Service Company. 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.

As a result of the Gideon Bancshares Company acquisition in November of 2018, the Company inherited a net operating loss of approximately $516,000.  This net operating loss will be carried back pursuant to the CARES Act.  As outlined in Notice 2020-26, the loss will be carried back to the fifth and fourth preceding tax years and the Company will recognize the tax benefit on the net operating loss at a 34% federal tax rate.  

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

	For the three-month periods ended				For the nine-month periods ended
(dollars in thousands)	March 31, 2020		March 31, 2019		March 31, 2020		March 31, 2019
Tax at statutory rate	$	1,308	$	1,852	$	5,391	$	5,574
Increase (reduction) in taxes  resulting from:
Nontaxable municipal income		(109)		(103)		(335)		(295)
State tax, net of Federal benefit		27		128		223		352
Cash surrender value of      Bank-owned life insurance		(52)		(50)		(159)		(227)
Tax credit benefits		(21)		(68)		(27)		(203)
Other, net		(24)		(34)		(67)		(7)
Actual provision	$	1,129	$	1,725	$	5,026	$	5,194

For the three- and nine- month periods ended March 31, 2020 and March 31, 2019, income tax expense at the statutory rate was calculated using a 21% annual effective tax rate (AETR).

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