Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.6.0.2
Income Taxes
 12 Months Ended
Dec. 31, 2016
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]
Note 7 – Income Taxes
 
At year-end, components of income tax expense/(benefit) consist of the following:
 
 
 
(Dollars in thousands)
 
 
 
2016
 
 
2015
 
Federal:
 
 
 
 
 
 
 
 
Current
 
$
2,343
 
 
$
2,387
 
Deferred
 
 
(129
)
 
 
(527
)
State:
 
 
 
 
 
 
 
 
Current
 
 
80
 
 
 
79
 
Deferred, net of valuation allowance
 
 
254
 
 
 
82
 
Removal of valuation allowance on state NOL, net
 
 
-
 
 
 
(223
)
Income tax expense
 
$
2,548
 
 
$
1,798
 
 
Effective tax rates differ from the federal statutory rate of 34% applied to income before income taxes due to the following:
 
 
 
(Dollars in thousands)
 
 
 
2016
 
 
2015
 
Federal statutory rate
 
 
34
%
 
 
34
%
Tax expense at statutory rate
 
$
3,975
 
 
$
3,281
 
State tax, net of federal effect
 
 
220
 
 
 
106
 
Tax exempt income
 
 
(1,318
)
 
 
(1,271
)
Bank owned life insurance
 
 
(160
)
 
 
(150
)
Captive insurance
 
 
(179
)
 
 
 
 
Removal of valuation allowance on state NOL, net
 
 
-
 
 
 
(223
)
Other
 
 
10
 
 
 
55
 
Total income tax expense
 
$
2,548
 
 
$
1,798
 
 
At December 31, the components of the net deferred tax asset recorded in the consolidated balance sheets are as follows:
 
 
 
(Dollars in thousands)
 
 
 
2016
 
 
2015
 
Deferred tax assets:
 
 
 
 
 
 
 
 
Bad debts
 
$
2,872
 
 
$
2,591
 
Deferred loan fees
 
 
60
 
 
 
65
 
Deferred compensation
 
 
503
 
 
 
498
 
Unrealized depreciation on securities available-for-sale, net
 
 
771
 
 
 
-
 
Net operating loss, state
 
 
294
 
 
 
449
 
Tax credits
 
 
98
 
 
 
91
 
Nonaccrual loan interest income
 
 
109
 
 
 
53
 
Share based compensation
 
 
126
 
 
 
39
 
REO writedowns
 
 
-
 
 
 
12
 
Unqualified deferred compensation plan
 
 
74
 
 
 
70
 
Post retirement benefit
 
 
-
 
 
 
47
 
Other-than-temporary impairment
 
 
92
 
 
 
92
 
Accrued vacation
 
 
129
 
 
 
116
 
Impairment on land
 
 
71
 
 
 
71
 
Purchase accounting
 
 
-
 
 
 
21
 
Other
 
 
29
 
 
 
28
 
Total deferred tax assets
 
 
5,228
 
 
 
4,243
 
 
 
 
 
 
 
 
 
 
Deferred tax liabilities:
 
 
 
 
 
 
 
 
Depreciation
 
 
(850
)
 
 
(901
)
Prepaids
 
 
(346
)
 
 
(133
)
Mortgage servicing rights
 
 
(51
)
 
 
(60
)
Deferred stock dividends
 
 
(97
)
 
 
(97
)
Unrealized appreciation on securities available-for-sale, net
 
 
-
 
 
 
(722
)
Post retirement unrealized gain
 
 
-
 
 
 
(20
)
Purchase accounting
 
 
(88
)
 
 
-
 
Other
 
 
(181
)
 
 
(90
)
Total deferred tax liabilities
 
 
(1,613
)
 
 
(2,023
)
Valuation allowance
 
 
(98
)
 
 
(91
)
Net deferred tax asset
 
$
3,517
 
 
$
2,129
 
 
At December 31, 2016, the Bancorp has a state net operating loss carry forward of approximately $6.9 million which will begin to expire in 2024 if not used. The Bancorp also has a state tax credit carry forward of approximately $148 thousand which will begin to expire in 2017 if not used. Management concluded in 2015 that the state net operating loss will be fully utilized and reversed the portion of the valuation allowance that was in place on the state net operating loss. A valuation allowance remains in place on the state tax credit carryforward. A valuation allowance of $98 thousand and $91 thousand was provided at December 31, 2016 and December 31, 2015, respectively, for the state tax credits.
 
The Bancorp qualified under provisions of the Internal Revenue Code, to deduct from taxable income a provision for bad debts in excess of the provision for such losses charged to income in the financial statements, if any. Accordingly, retained earnings at December 31, 2016 and 2015 includes, approximately $6.0 million for which no provision for federal income taxes has been made. If, in the future this portion of retained earnings is used for any purpose other than to absorb bad debt losses, federal income taxes would be imposed at the then applicable rate. The unrecorded deferred income tax liability on the above amounts was approximately $2.0 million at December 31, 2016 and 2015.
 
The Bancorp had no unrecognized tax benefits at any time during 2016 or 2015 and does not anticipate any significant increase or decrease in unrecognized tax benefits during 2017. Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is the Bancorp's policy to record such accruals through income tax accounts; no such accruals existed at any time during 2016 or 2015.
 
The Bancorp and its subsidiaries are subject to US Federal income tax as well as income tax of the states of Indiana and Illinois.