|
10. |
INCOME TAXES |
Allocation of federal and state income taxes between current and deferred portions is as follows (in thousands):
|
|
|
Years Ended December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Current tax expense (benefit): |
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(462 |
) |
|
$ |
— |
|
|
State |
|
|
19 |
|
|
|
13 |
|
|
Total current tax expense (benefit) |
|
|
(443 |
) |
|
|
13 |
|
|
Deferred tax expense (benefit): |
|
|
|
|
|
|
|
|
|
Federal |
|
|
(518 |
) |
|
|
(550 |
) |
|
Effect of change in federal tax rate |
|
|
1,627 |
|
|
|
— |
|
|
State |
|
|
(23 |
) |
|
|
23 |
|
|
|
|
|
1,086 |
|
|
|
(527 |
) |
|
Change in valuation allowance |
|
|
541 |
|
|
|
527 |
|
|
Effect of change in federal tax rate - valuation allowance |
|
|
(1,627 |
) |
|
|
— |
|
|
Total deferred tax expense |
|
|
— |
|
|
|
— |
|
|
Total tax expense (benefit) |
|
$ |
(443 |
) |
|
$ |
13 |
|
The reasons for the differences between the statutory federal income tax expense (benefit) and the actual tax expense (benefit) are summarized as follows (in thousands):
|
|
|
Years Ended December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Statutory federal tax at 34% |
|
$ |
(874 |
) |
|
$ |
162 |
|
|
Increase (decrease) resulting from: |
|
|
|
|
|
|
|
|
|
State taxes, net of federal tax effect |
|
|
(3 |
) |
|
|
24 |
|
|
Bank-owned life insurance |
|
|
(52 |
) |
|
|
(81 |
) |
|
Tax exempt income |
|
|
(118 |
) |
|
|
(125 |
) |
|
Dividends received deduction |
|
|
(5 |
) |
|
|
(4 |
) |
|
Change in valuation allowance |
|
|
541 |
|
|
|
527 |
|
|
Change in AOCI deferred effect |
|
|
(36 |
) |
|
|
(525 |
) |
|
Effect of change in federal tax rate |
|
|
1,627 |
|
|
|
— |
|
|
Effect of change in federal tax rate-valuation allowance |
|
|
(1,627 |
) |
|
|
— |
|
|
Other, net |
|
|
104 |
|
|
|
35 |
|
|
Total tax expense (benefit) |
|
$ |
(443 |
) |
|
$ |
13 |
|
The federal tax benefit in 2017 results from repeal of the alternative minimum tax (“AMT”) under the Tax Cuts and Jobs Act of 2017 (the “Act”) which was signed into law on December 22, 2017. The Act also provides that existing AMT credit carryforwards be refunded over the next four years.
The Act includes a number of changes in existing tax law impacting businesses including, among other things, a permanent reduction in the corporate income tax rate from 35% to 21% effective on January 1, 2018 and repeal of the AMT. As a result of these changes, the Company revalued its net deferred tax asset as of December 22, 2017 resulting in a reduction in the value of the net deferred tax asset of $1,627,000 which was offset by a corresponding decrease in the valuation allowance.
The components of the net deferred tax asset are as follows (in thousands):
|
|
|
December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
4,436 |
|
|
$ |
6,332 |
|
|
State |
|
|
1,008 |
|
|
|
875 |
|
|
|
|
|
5,444 |
|
|
|
7,207 |
|
|
Valuation allowance |
|
|
(3,326 |
) |
|
|
(4,652 |
) |
|
|
|
|
2,118 |
|
|
|
2,555 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Federal |
|
|
(1,447 |
) |
|
|
(1,982 |
) |
|
State |
|
|
(671 |
) |
|
|
(573 |
) |
|
|
|
|
(2,118 |
) |
|
|
(2,555 |
) |
|
Net deferred tax asset |
|
$ |
— |
|
|
$ |
— |
|
The tax effects of items giving rise to deferred tax assets (liabilities) are as follows (in thousands):
|
|
|
December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Employee benefit plans |
|
$ |
951 |
|
|
$ |
1,211 |
|
|
Allowance for loan losses |
|
|
1,050 |
|
|
|
1,306 |
|
|
Funded status of post-retirement benefits |
|
|
52 |
|
|
|
36 |
|
|
Securities available for sale |
|
|
137 |
|
|
|
237 |
|
|
Alternative minimum tax credit |
|
|
— |
|
|
|
462 |
|
|
Depreciation and amortization |
|
|
193 |
|
|
|
179 |
|
|
Net deferred loan origination costs |
|
|
(321 |
) |
|
|
(445 |
) |
|
Mortgage servicing rights |
|
|
(1,624 |
) |
|
|
(1,738 |
) |
|
Net operating loss carryforward |
|
|
2,171 |
|
|
|
2,682 |
|
|
Charitable contribution carryforward |
|
|
702 |
|
|
|
988 |
|
|
Derivatives |
|
|
(98 |
) |
|
|
(254 |
) |
|
Stock-based compensation |
|
|
48 |
|
|
|
— |
|
|
Other, net |
|
|
65 |
|
|
|
(12 |
) |
|
|
|
|
3,326 |
|
|
|
4,652 |
|
|
Valuation allowance on deferred tax assets |
|
|
(3,326 |
) |
|
|
(4,652 |
) |
|
Net deferred tax asset |
|
$ |
— |
|
|
$ |
— |
|
At December 31, 2017, the Company has a federal net operating loss carryforward of $10,337,000, of which $4,745,000 expires on December 31, 2033, $406,000 expires on December 31, 2034, $1,542,000 expires on December 31, 2035, $501,000 expires on December 31, 2036 and $3,143,000 expires on December 31, 2037.
At December 31, 2017, the Company has a charitable contribution carryforward of $2,488,000 of which all but $174,000 expires on December 31, 2021.
Since 2014, the Company has maintained a valuation allowance for all of its deferred tax assets based on a determination that it was more likely than not that such assets would not be realized. This determination was based on the Company’s net operating loss (“NOL”) carryforward position, its current period operating results exclusive of non-recurring items and its expectations for the upcoming year. In performing subsequent assessments, management has concluded that no significant changes in the key factors affecting the realizability of the deferred tax asset has occurred and that a valuation allowance for all deferred tax assets should be maintained.
The federal income tax reserve for loan losses at the Company’s base year amounted to $2,033,000. If any portion of the reserve is used for purposes other than to absorb the losses for which it was established, approximately 150% of the amount actually used (limited to the amount of the reserve) would be subject to taxation in the fiscal year in which used. As the Company intends to use the reserve only to absorb loan losses, a deferred income tax liability of $571,000 has not been provided.
The Company’s income tax returns are subject to review and examination by federal and state taxing authorities. The Company is currently open to audit under the applicable statutes of limitations by the Internal Revenue Service for the years ended December 31, 2014 through 2017. The years open to examination by state taxing authorities vary by jurisdiction; no years prior to 2014 are open.