NOTE 11: 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 years before 2011. 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, 2017 | June 30, 2016 |
| Deferred tax assets: | ||
| Provision for losses on loans | $ 5,563 | $ 4,760 |
| Accrued compensation and benefits | 1,068 | 885 |
| Other-than-temporary impairment on available for sale securities | 128 | 139 |
| NOL carry forwards acquired | 513 | 631 |
| Minimum Tax Credit | 130 | 130 |
| Unrealized loss on other real estate | 131 | 183 |
| Total deferred tax assets | 7,533 | 6,728 |
| Deferred tax liabilities: | ||
| Purchase accounting adjustments | 1,193 | 1,132 |
| Depreciation | 2,734 | 1,781 |
| FHLB stock dividends | 203 | 194 |
| Prepaid expenses | 213 | 177 |
| Unrealized gain on available for sale securities | 295 | 977 |
| Other | 991 | 82 |
| Total deferred tax liabilities | 5,629 | 4,343 |
| Net deferred tax (liability) asset | $ 1,904 | $ 2,385 |
As of June 30, 2017, the Company had approximately $1.3 million and $3.2 million in federal and state net operating loss carryforwards, 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.
A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense is shown below:
| For the year ended June 30 | |||
| (dollars in thousands) | 2017 | 2016 | 2015 |
| Tax at statutory rate | $ 7,565 | $ 7,536 | $ 6,903 |
| Increase (reduction) in taxes resulting from: | |||
| Nontaxable municipal income | (513) | (567) | (530) |
| State tax, net of Federal benefit | 215 | 624 | 523 |
| Cash surrender value of Bank-owned life insurance | (397) | (325) | (193) |
| Tax credit benefits | (367) | (286) | (364) |
| Other, net | (441) | (300) | (283) |
| Actual provision | $ 6,062 | $ 6,682 | $ 6,056 |
Tax credit benefits are recognized under the flow-through method of accounting for investments in tax credits.