Income Taxes
The components of current and deferred tax expense for the years ended June 30, 2017, 2016 and 2015 were as follows:
|
| | | | | | | | | | | |
| Year Ended June 30, |
| 2017 | | 2016 | | 2015 |
| | | | | |
Current | $ | 21 |
| | $ | 126 |
| | $ | — |
|
Deferred | 1,018 |
| | (87 | ) | | 148 |
|
Change in valuation allowance | — |
| | — |
| | (8,469 | ) |
Total | $ | 1,039 |
| | $ | 39 |
| | $ | (8,321 | ) |
Retained earnings at June 30, 2017 and 2016, included $5.5 million in tax-basis bad debt reserves for which no income tax liability has been recorded. In the future, if this tax-basis bad debt reserve is used for purposes other than to absorb bad debts, or if legislation is enacted requiring recapture of all tax-basis bad debt reserves, the Bank will incur a federal tax liability at the then-prevailing corporate tax rate.
A reconciliation of the provision for income taxes based on statutory corporate tax rates on pre-tax income and the provision shown in the accompanying consolidated statements of income at the dates indicated is summarized as follows:
|
| | | | | | |
| Amount | | Percent of Pre-Tax Income (loss) |
June 30, 2017 | | | |
Income taxes computed at statutory rates | $ | 1,152 |
| | 34.0 | % |
Tax-exempt income | (178 | ) | | (5.3 | ) |
Other, net | 65 |
| | 1.9 |
|
Provision for income taxes | $ | 1,039 |
| | 30.6 | % |
June 30, 2016 | |
| | |
|
Income taxes computed at statutory rates | $ | 182 |
| | 34.0 | % |
Tax-exempt income | (189 | ) | | (35.4 | ) |
Deferred tax asset valuation allowance | — |
| | — |
|
Other, net | 46 |
| | 8.6 |
|
Provision for income taxes | $ | 39 |
| | 7.2 | % |
June 30, 2015 | |
| | |
|
Income taxes computed at statutory rates | $ | 511 |
| | 34.0 | % |
Tax-exempt income | (193 | ) | | (12.8 | ) |
Deferred tax asset valuation allowance | (8,469 | ) | | (562.5 | ) |
Other, net | (170 | ) | | (11.4 | ) |
Provision for income taxes | $ | (8,321 | ) | | (552.7 | )% |
The components of net deferred tax assets and liabilities at the dates indicated are summarized as follows:
|
| | | | | | | |
| June 30, |
| 2017 | | 2016 |
Deferred tax assets | | | |
Allowance for loan losses | $ | 3,270 |
| | $ | 3,159 |
|
AMT credit carryforward | 388 |
| | 352 |
|
Deferred compensation - SERP | 558 |
| | 561 |
|
Stock awards | 299 |
| | 350 |
|
Securities impairment charge | 340 |
| | 340 |
|
Net operating loss carryforward | 3,139 |
| | 4,304 |
|
Real estate owned | 216 |
| | 155 |
|
Accumulated depreciation | 56 |
| | 305 |
|
Unrealized loss on securities available-for-sale | 76 |
| | — |
|
Other, net | 294 |
| | 53 |
|
Total deferred tax assets | 8,636 |
| | 9,579 |
|
Deferred tax liabilities | | | |
|
Deferred loan fees and costs | 499 |
| | 434 |
|
FHLB stock dividends | 47 |
| | 166 |
|
Mortgage servicing rights | 79 |
| | 70 |
|
Unrealized gain on securities available-for-sale | — |
| | 39 |
|
Total deferred tax liabilities | 625 |
| | 709 |
|
| | | |
|
Net deferred tax asset | $ | 8,011 |
| | $ | 8,870 |
|
DTAs are deferred tax consequences attributable to deductible temporary differences and carryforwards. After the DTA has been measured using the applicable enacted tax rate and provisions of the enacted tax law, it is then necessary to assess the need for a valuation allowance. A valuation allowance is needed when, based on the weight of the available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. As required by generally accepted accounting principles, available evidence is weighted heavily on cumulative losses with less weight placed on future projected profitability. Realization of the DTA is dependent on whether there will be sufficient future taxable income of the appropriate character in the period during which deductible temporary differences reverse or within the carryback and carryforward periods available under tax law. During fiscal 2015, the Company reversed its DTA valuation allowance related to the Company’s deferred tax assets as management deemed that it was no longer appropriate to carry a DTA valuation allowance as a result of changes in the factors considered by management when the Company initially established the valuation allowance. In reaching this determination, management considered, among other factors, the scheduled reversal of deferred tax assets and liabilities, taxes paid in carryback years, available tax planning strategies, the Company’s cumulative earnings during the past three years, including the Company’s recent financial performance, the improvement in the Company’s asset quality and financial condition, as well as projected earnings. As of June 30, 2017 and 2016, management deemed that a deferred tax asset valuation allowance related to the Company’s DTA was not necessary.
As of June 30, 2017, the Company had a federal net operating loss carryforwards totaling $9.2 million and insignificant Oregon state and local net operating loss carryforwards which can be used to offset future taxable income. The net operating losses begin to expire in 2031 for federal and 2024 for Oregon. The Company’s net operating loss carryforwards may be subject to limitations under Internal Revenue Code Section 382.
The Company had no uncertain tax positions at June 30, 2017, 2016, and 2015. The Company recognizes interest accrued on and penalties related to uncertain tax positions in tax expense. During the years ended June 30, 2017, 2016, and 2015, the Company recognized no interest and penalties.
The Company files income tax returns in the U.S. federal and Oregon state and local jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal or state/local income tax examinations by tax authorities for years before 2014.