NOTE 12 - INCOME TAXES

 

The provision for income taxes consists of the following (in thousands):

 





 

The following tabulation reconciles the federal statutory tax rate of 34% to the effective rate of taxes provided for income taxes (dollars in thousands):

 





 







The components of the Company’s net deferred tax asset as of December 31, 2016 and 2015 are summarized as follows (in thousands):

 







 

 







Management evaluated whether a valuation allowance was necessary based on taxes paid in prior periods and recoverable, projected future income, projected future reversals of deferred tax items, and tax planning strategies. Based on its assessments, management concluded that it was more likely than not that all deferred tax assets could be realized based primarily on current taxes paid and recoverable and projected reversals of deferred tax liabilities, as well as future income. As such, no valuation allowance was recorded as of December 31, 2016 or 2015.



At December 31, 2016, the Company deferred tax assets had net operating loss carryforwards of $787,000 from the Commonwealth acquisition. The deductibility of the net operating loss carryforwards is limited under IRC Sec. 382 and estimated to be $41,000 annually. 

 

The Company is subject to U.S. federal income tax. The Company is no longer subject to examination by taxing authorities for years before December 31, 2013.

 

The Company had no unrecognized tax benefits at December 31, 2016 or 2015. No change in unrecognized tax benefits is expected in the next twelve months.

 

Retained earnings at December 31, 2016 and 2015 included approximately $2.3 million, for which no provision for federal income taxes has been made. This amount represents the tax bad debt reserve at September 30, 1987, which is the end of the Bank’s base year for purposes of calculating the bad debt deduction for tax purposes. If this portion of retained earnings is used in the future for any purpose other than to absorb bad debts, the amount used will be added to future taxable income. The unrecorded deferred tax liability on the above amount at December 31, 2016 and 2015 was approximately $796,000.