NOTE 16 – INCOME TAXES
The components of the provision for income taxes are summarized as follows:
| For the year ended June 30, | ||||||||
| 2017 | 2016 | |||||||
| (In thousands) | ||||||||
| Current tax expense: | ||||||||
| Federal | $ | 542 | $ | 478 | ||||
| State | 175 | 92 | ||||||
| 717 | 570 | |||||||
| Deferred tax expense (benefit): | ||||||||
| Federal | 178 | (60 | ) | |||||
| State | 58 | 31 | ||||||
| 236 | (29 | ) | ||||||
| $ | 953 | $ | 541 | |||||
The tax effect of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at June 30, 2017 and 2016 are as follows:
| June 30, | ||||||||
| 2017 | 2016 | |||||||
| (In thousands) | ||||||||
| Deferred tax assets arising from: | ||||||||
| Loan loss allowance | $ | 1,650 | $ | 1,877 | ||||
| Reserve for loss on real estate owned | - | 100 | ||||||
| Vacation and bonus accrual | 256 | 255 | ||||||
| Supplemental retirement | 318 | 294 | ||||||
| Stock-based compensation | 49 | 173 | ||||||
| Acquisition-related expenses | 98 | 110 | ||||||
| State depreciation differences | 51 | 53 | ||||||
| Yield adjustment for purchased loans | 165 | 166 | ||||||
| Nonaccrual interest | 93 | 85 | ||||||
| AMT credit carryforward | 1,226 | 884 | ||||||
| Unrealized loss in market value of investments | 548 | - | ||||||
| Other | - | 49 | ||||||
| Total deferred tax assets | 4,454 | 4,046 | ||||||
| Deferred tax liabilities arising from: | ||||||||
| Mortgage servicing rights | (294 | ) | (246 | ) | ||||
| Depreciation | (199 | ) | (233 | ) | ||||
| Deferred loan fees | (455 | ) | (428 | ) | ||||
| Amortization of intangible assets | (240 | ) | (185 | ) | ||||
| Unrealized gain in market value of investments | - | (881 | ) | |||||
| Total deferred tax liabilities | (1,188 | ) | (1,973 | ) | ||||
| Net deferred tax asset | $ | 3,266 | $ | 2,073 | ||||
The rate reconciliation is as follows:
| For the year ended June 30, | ||||||||
| 2017 | 2016 | |||||||
| (In thousands) | ||||||||
| Federal income taxes at statutory rate | $ | 1,496 | $ | 1,350 | ||||
| State taxes, net of federal benefit | 174 | 92 | ||||||
| Increase (decrease) in taxes resulting primarily from: | ||||||||
| Non-taxable income on bank-owned life insurance | (212 | ) | (263 | ) | ||||
| Tax exempt income | (662 | ) | (617 | ) | ||||
| Expiration of stock options | 118 | - | ||||||
| Other | 39 | (21 | ) | |||||
| $ | 953 | $ | 541 | |||||
| Effective tax rate | 21.66 | % | 13.63 | % | ||||
Retained earnings at June 30, 2017 and 2016, include approximately $749,000 related to the pre-1987 allowance for loan losses for which no deferred federal income tax liability has been recognized. These amounts represent an allocation of income to bad debt deductions for tax purposes only. If the Bank no longer qualifies as a bank, or in the event of a liquidation of the Bank, income would be created for tax purposes only, which would be subject to the then-current corporate income tax rate. The unrecorded deferred income tax liability on the above amount for financial statement purposes was approximately $255,000.
The Company accounts for uncertainty in tax positions under ASC 275-10-50-8. The Company had no unrecognized tax benefits as of June 30, 2017 and 2016. The Company recognized no interest and penalties on the underpayment of income taxes during the fiscal years ended June 30, 2017 and 2016, and had no accrued interest and penalties on the balance sheet as of June 30, 2017 and 2016. The Company has no tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase with the next twelve months. The Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for tax years ending on or before June 30, 2013.