Finward Bancorp Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Note 6 Income Taxes

At year-end, components of the income tax expense consist of the following:

	(Dollars in thousands)
	2013		2012
Federal:
Current	$	1,844	$	1,754
Deferred		276		146
State:
Current		44		35
Deferred, net of valuation allowance		233		6
Income tax expense	$	2,397	$	1,941

Effective tax rates differ from the federal statutory rate of 34% applied to income before income taxes due to the following:

	(Dollars in thousands)
	2013			2012
Federal statutory rate		34	%		34	%
Tax expense at statutory rate	$	3,235		$	2,990
State tax, net of federal effect		183			27
Tax exempt income		(940)			(806)
Bank owned life insurance		(129)			(329)
Tax credits		-			-
Other		48			59
Total income tax expense	$	2,397		$	1,941

At year-end, the components of the net deferred tax asset recorded in the consolidated balance sheets are as follows:

	(Dollars in thousands)
	2013		2012
Deferred tax assets:
Bad debts	$	2,754	$	3,318
Deferred loan fees		96		99
Deferred compensation		483		486
Unrealized depreciation on securities available-for-sale, net		1,620		-
Net operating loss		642		875
Tax credits		78		73
Nonaccrual loan interest income		87		12
Restricted stock awards		35		26
REO writedowns		25		11
Unqualified DCP		60		55
Post retirement benefit		52		55
Other-than-temporary impairment		92		92
Accrued vacation		111		125
Impairment on land		75		75
Other		19		20
Total deferred tax assets		6,229		5,322

Deferred tax liabilities:
Depreciation		(1,232)		(1,284)
Prepaids		(270)		(272)
Mortgage servicing rights		(105)		(133)
Deferred stock dividends		(112)		(115)
Unrealized appreciation on securities available-for-sale, net		-		(1,246)
Post retirement unrealized gain		(42)		(40)
Other		(83)		(16)
Total deferred tax liabilities		(1,844)		(3,106)
Valuation allowance		(288)		(474)
Net deferred tax assets	$	4,097	$	1,742

At December 31, 2013, the Bancorp has a state net operating loss carry forward of approximately $13.9 million which will begin to expire in 2022 if not used. The Bancorp also has a state tax credit carry forward of approximately $119,000 which will begin to expire in 2017 if not used. A valuation allowance of $288,000 and $474,000 was provided at December 31, 2013 and 2012, respectively, for the state net operating loss and state tax credit.

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, 2013 and 2012 includes, approximately $5,982,000 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 $2,034,000 at December 31, 2013 and 2012.

The Bancorp had no unrecognized tax benefits at any time during 2013 or 2012 and does not anticipate any significant increase or decrease in unrecognized tax benefits during 2014. 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 2013 or 2012.

The Bancorp and its subsidiaries are subject to United States Federal income tax as well as income tax of the states of Indiana and Illinois. The Bancorp is no longer subject to examination by taxing authorities for the years before 2010 for federal and 2009 for state.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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