Entity information:
Note
9:
     Income Taxes
 
A reconciliation of the federal income tax benefit at the statutory rate to the
Company’s actual income tax benefit is shown below:
 
 
   
Year Ended December 31,
  
   
2016
    
2015
  
   
(In thousands)
  
                 
Computed at statutory rate (34%)
   $
(182
 )   $
(59
 )
Increase (decrease) resulting from:
                
Bank-owned life insurance
    
(58
 )    
(56
 )
Change in valuation allowance
    
234
      
112
  
Other
    
3
      
(36
 )
                 
Actual income tax benefit
   $
-
     $
-
  
 
The composition of the
Company’s net deferred tax asset at
December
31,
2016
and
2015,
is as follows:
 
   
2016
    
2015
  
   
(In thousands)
  
Deferred tax assets
                
Allowance for loan losses
   $
368
     $
400
  
Deferred compensation
    
58
      
48
  
Expenses on foreclosed assets held for sale
    
-
      
35
  
Net operating loss carryforward
    
4,287
      
3,943
  
Deferred loan origination costs
    
12
      
-
  
Other
    
8
      
26
  
                 
Deferred tax assets
    
4,733
      
4,452
  
                 
Deferred tax liabilities
                
Federal Home Loan Bank stock dividends
    
(16
 )    
(16
 )
Mortgage servicing rights
    
(167
 )    
(110
 )
Deferred loan orgination fees
    
-
      
(1
 )
Depreciation
    
(24
 )    
(33
 )
                 
Deferred tax liabilities
    
(207
 )    
(160
 )
                 
Net deferred tax asset before valuation allowance
    
4,526
      
4,292
  
                 
Valuation allowance
                
Beginning balance
    
(4,292
 )    
(4,180
 )
Increase during period
    
(234
 )    
(112
 )
                 
Ending balance
    
(4,526
 )    
(4,292
 )
                 
Net deferred tax asset
   $
-
     $
-
  
 
 
As of
December
31,
2016
and
2015,
the net deferred tax asset was fully reserved. Management recorded a valuation allowance against the net deferred tax asset at
December
31,
2016
and
2015,
based on consideration of, but not limited to, the Company’s cumulative pre-tax losses during the past
three
years, the composition of recurring and non-recurring income from operations over the past several years and the magnitude of recent taxable income as compared to net operating loss carryforwards. When determining the amount of deferred tax assets that are more-likely-than-not to be realized, and therefore recorded as a benefit, the Company conducts a regular assessment of all available information. This information includes, but is not limited to, taxable income in prior periods, projected future income and projected future reversals of deferred tax items. Based on these criteria, the Company determined that it was necessary to maintain a full valuation allowance against the entire net deferred tax asset.
 
The
Company’s net operating loss of
$12.4
million at
December
31,
2016,
will be carried forward to use against future federal taxable income. The net operating loss carryforwards begin to expire in the year ending
December
31,
2030
.
Indiana net operating loss carryforwards totaled
$1.1
million at
December
31,
2016
and will begin to expire in the year ending
December
31,
2024
.
 
Retained earnings at
both
December
31,
2016
and
2015,
includes approximately
$1.5
million for which
no
deferred federal income tax liability has been recognized. This amount represents an allocation of income to bad debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes only, which would be subject to the then-current corporate income tax rate. The deferred income tax liability on the preceding amount that would have been recorded if it was expected to reverse into taxable income in the foreseeable future was approximately
$510,000
at
December
31,
2016
and
2015.
 
As of
December
31,
2016
and
2015,
the Company had
no
unrecognized tax benefits or accrued interest and penalties recorded. The Bank does not expect the total amount of unrecognized tax benefits to significantly increase within the next
twelve
months. The Company will record interest and penalties as a component of income tax expense.
 
The Company is subject to U.S. federal and Indiana income tax. The Company is no longer subject to examination by taxing authorities for years prior to
2013.