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Note 14: Income Taxes

12 Months Ended

Dec. 31, 2017

Notes

Note 14: Income Taxes

Note 14: Income Taxes

The Company files a consolidated federal income tax return. As of December 31, 2017 and 2016, retained earnings included approximately $17.5 million for which no deferred income tax liability had been recognized. This amount represents an allocation of income to bad debt deductions for tax purposes only for tax years prior to 1988. If the Bank were to liquidate, the entire amount would have to be recaptured and would create income for tax purposes only, which would be subject to the then-current corporate income tax rate. The unrecorded deferred income tax liability on the above amount was approximately $3.9 million and $6.5 million at December 31, 2017 and 2016, respectively.

During the years ended December 31, 2017, 2016 and 2015, the provision for income taxes included these components:

	2017		2016		2015
	(In Thousands)

Taxes currently payable	$ 9,335		$ 20,137		$ 20,234
Deferred income taxes	7,318		(3,621)		(4,670)
Adjustment of deferred tax asset or liability for enacted changes in tax laws	2,105		--		--

Income taxes	$ 18,758		$ 16,516		$ 15,564

The tax effects of temporary differences related to deferred taxes shown on the statements of financial condition were:

	December 31,
	2017		2016
	(In Thousands)

Deferred tax assets
Allowance for loan losses	$ 8,154		$ 13,576
Tax credit carryforward	5,816		--
Interest on nonperforming loans	288		364
Accrued expenses	684		1,288
Write-down of foreclosed assets	1,694		3,300
Write-down of fixed assets	207		535
Difference in basis for acquired assets and liabilities	4,725		4,533
	21,568		23,596

Deferred tax liabilities
Tax depreciation in excess of book depreciation	(4,483)		(6,425)
FHLB stock dividends	(356)		(1,805)
Partnership tax credits	(706)		(1,651)
Prepaid expenses	(775)		(728)
Unrealized gain on available-for-sale securities	(435)		(980)
Book revenue in excess of tax revenue	(12,177)		--
Other	(190)		(318)
	(19,122)		(11,907)

Net deferred tax asset (liability)	$ 2,446		$ 11,689

Reconciliations of the Company’s effective tax rates from continuing operations to the statutory corporate tax rates were as follows:

	2017		2016		2015

Tax at statutory rate	35.0%		35.0%		35.0%
Nontaxable interest and
dividends	(1.6)		(2.1)		(2.4)
Tax credits	(6.1)		(7.3)		(8.1)
State taxes	1.1		1.1		1.4
Initial impact of enactment of 2017 Tax Act	(0.4)		--		--
Other	(1.3)		--		(0.8)

	26.7%		26.7%		25.1%

The Tax Cuts and Jobs Act (“Tax Act”) was signed into law on December 22, 2017, making several changes to U. S. corporate income tax laws, including reducing the corporate Federal income tax rate from 35% to 21% effective January 1, 2018. U. S. GAAP requires that the impact of the provisions of the Tax Act be accounted for in the period of enactment and the Company recognized the income tax effects of the Tax Act in its 2017 financial statements. The Tax Act is complex and requires significant detailed analysis. During the preparation of the Company’s 2017 income tax returns in 2018, additional adjustments related to enactment of the Tax Act may be identified. We do not currently expect significant adjustments will be necessary, but any further adjustments identified will be recognized in accordance with guidance contained in Staff Accounting Bulletin No. 118 from the

U. S. Securities and Exchange Commission.

The Company and its consolidated subsidiaries have not been audited recently by the Internal Revenue Service (IRS) and, as such, tax years through December 31, 2005, have been closed without audit. The Company, through one of its subsidiaries, is a partner in two partnerships which have been under Internal Revenue Service examination for 2006 and 2007. As a result, the Company’s 2006 and subsequent tax years remain open for examination. The examinations of these partnerships advanced during 2016 and 2017. One of the partnerships has advanced to Tax Court and has entered a Motion for Entry of Decision with an agreed upon settlement. The other partnership examination was recently completed by the IRS with no change impacting the Company’s tax positions. The Company does not currently expect significant adjustments to its financial statements from the partnership matter at the Tax Court.

The Company is currently under State of Missouri income and franchise tax examinations for its 2014 through 2015 tax years. The Company does not currently expect significant adjustments to its financial statements from this state examination. During 2017, the Company settled its appeal with the Kansas Department of Revenue. The settlement did not result in any significant adjustments to the Company’s financial statements.