Note K - Income Taxes -
The total provision for income taxes charged to income amounted to approximately $267,000 and $110,000 for the years ended December 31, 2017 and 2016, respectively. The Tax Cut and Jobs Act enacted December 22, 2017 reduced federal corporate income tax rate from 34% to 21% effective January 1, 2018. As a result of the change in statutory rates, the Company recorded a $12,000 write-off of its net deferred tax asset, which was recorded as an additional income tax expense during 2017.
The provision for income tax for the years ended December 31 is summarized as follows:
| (Dollars in thousands) | 2017 | 2016 | ||||||
| Current Tax Provision | $ | 302 | $ | 63 | ||||
| Deferred Tax Expense (Benefit) | (35 | ) | 47 | |||||
| Provision | $ | 267 | $ | 110 | ||||
The provision for income taxes differs from that computed by applying the federal statutory rate to income before income tax expense primarily due to tax-exempt interest income and certain non-deductible expenses.
The provision for federal income taxes differs from that computed by applying federal statutory rates to income before federal income tax expense, as indicated in the following analysis:
| (Dollars in thousands) | 2017 | 2016 | ||||||||||||||
| Federal Stautory Income Tax at 34% | $ | 277 | 34.0 | % | $ | 91 | 34.0 | % | ||||||||
| Tax Exempt Income | (17 | ) | -2.1 | % | (18 | ) | -6.7 | % | ||||||||
| Adjustment to Deferred Taxes for Change in Statutory Rate | 12 | 1.5 | % | - | 0.0 | % | ||||||||||
| Other - Net | (5 | ) | -0.6 | % | 37 | 13.8 | % | |||||||||
| $ | 267 | 32.8 | % | $ | 110 | 41.1 | % | |||||||||
Deferred tax assets and liabilities at December 31 consist of the following components utilizing federal corporate income tax rates of 21% at December 31, 2017 and 34% at December 31, 2016:
| (Dollars in thousands) | 2017 | 2016 | ||||||
| Deferred Tax Assets: | ||||||||
| Allowance for Loan Losses | $ | 159 | $ | 235 | ||||
| Deferred Loan Fees and Costs, net | 26 | 36 | ||||||
| Nondeductible Writedowns on Foreclosed Real Estate | 3 | 6 | ||||||
| Deferred Compensation | 144 | 166 | ||||||
| Other | - | 11 | ||||||
| 332 | 454 | |||||||
| Deferred Tax Liabilities: | ||||||||
| Tax over Book Depreciation | 171 | 276 | ||||||
| Dividends on FHLB Stock | 27 | 39 | ||||||
| Mortgage Servicing Rights | 73 | 110 | ||||||
| Net Unrealized Gains on Securities | 2 | 16 | ||||||
| 273 | 441 | |||||||
| Valuation Allowance | - | - | ||||||
| Net Deferred Tax Asset | $ | 59 | $ | 13 | ||||
The net deferred tax asset is included in prepaid expenses and other assets in the balance sheet.
The Bank's tax filings for the years ended December 31, 2014 through the current date are open to audit under statutes of limitations by the Internal Revenue Service. Management believes that its tax positions would be sustained if audited. There were no penalties or interest incurred in 2017 or 2016 related to the Bank's tax positions but, if incurred, they would be classified in the statement of income as other expense.