Community Savings Bancorp, Inc.

A reconciliation of the federal income tax expense (benefit) at the statutory rate to the Company’s actual income tax expense for the years ended June 30, 2017 and 2016 is shown below:

	Years Ended June 30,
	2017			2016
	(In thousands)
Computed at statutory rate (34%)		$	(75)		$	238
Increase (decrease) resulting from:
Tax exempt interest			(17)			(29)
Nondeductible expenses			2			2
Other			2			(4)
Deferred tax asset valuation allowance			—			(185)
Total income tax expense (benefit)		$	(88)		$	22
Effective tax rate			(39.6)%			3.2%

The composition of the Company’s net deferred tax assets (liabilities) at June 30, 2017 and 2016 is as follows:

	June 30,
	2017			2016
	(In thousands)
Deferred tax assets
Allowance for loan losses		$	86		$	86
Charitable contributions carryforward			6			4
Net operating loss carry forward			268			189
Total deferred tax assets			360			279
Deferred tax liabilities
Federal Home Loan Bank stock dividends			(209)			(209)
Book/tax depreciation differences			(26)			(30)
Cash versus accrual basis of accounting			(59)			(62)
Unrealized gains on available-for-sale securities			(12)			(45)
Total deferred tax liabilities			(306)			(346)
Net deferred tax assets (liabilities) before valuation allowance			54			(67)
Valuation allowance
Beginning balance			—			(185)
(Increase) decrease			—			185
Ending balance			—			—
Net deferred tax assets (liabilities)		$	54		$	(67)

The Company conducts a regular assessment of all available information when determining the amount of deferred tax assets that are more likely than not to be realized, and therefore recorded as a benefit. 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 not necessary to maintain a valuation allowance against the deferred tax asset.

The Company’s net operating loss, as of June 30, 2017, of approximately $787,000 will be carried forward to use against future taxable income. The net operating loss carryforwards begin to expire in the year ending 2034.

In addition, the Company has charitable contribution carryovers of $19,000 that can be deducted against future taxable income. These carryover amounts begin to expire in the year ending 2020.

Retained earnings at both June 30, 2017 and 2016, includes approximately $909,000 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 $309,000 at both June 30, 2017 and 2016.

As of June 30, 2017 and 2016, the Company had no unrecognized tax benefits or accrued interest and penalties recorded. The Company 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 income tax and Ohio franchise tax. The Company is subject to tax in Ohio based on its net worth. The Company is no longer subject to examination by taxing authorities for fiscal years prior to 2014.