XML 45 R24.htm IDEA: XBRL DOCUMENT

Income Taxes

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

(15) Income Taxes

On December 22, 2017, H.R.1, commonly known as the Tax Cuts and Jobs Act (the “Act”), was signed into law. Among other things, the Act reduced our corporate federal tax rate from 34% to 21% effective January 1, 2018. As a result, at December 31, 2017, we were required to re-measure, through income tax expense, our deferred tax assets and liabilities using the enacted rate at which we expect them to be recovered or settled. The re-measurement of our net deferred tax liability resulted in additional income tax benefit of $352,000. After completing our 2017 tax return, income tax expense of $85,000 was recorded in 2018 associated with the re-measurement of our net deferred tax liability.

Income tax expense (benefit) attributable to income from operations consisted of the following:

(Dollars in thousands)		Years ended December 31,
		2019				2018				2017
Current:
Federal		$	1,805			$	396			$	(1,108	)
State			(157	)			(197	)			(276	)
Total current			1,648				199				(1,384	)
Deferred:
Federal			(160	)		$	875			$	768
State			22				155				27
Total deferred			(138	)			1,030				795
Deferred tax valuation allowance			(57	)			(146	)			44
Deferred tax remeasurement			-				85				(352	)
Income tax (benefit) expense		$	1,453			$	1,168			$	(897	)

The reasons for the difference between actual income tax expense (benefit) and expected income tax expense attributable to income from operations at the statutory federal income tax rate were as follows:

(Dollars in thousands)		Years ended December 31,
		2019				2018				2017
Computed “expected” tax expense		$	2,544			$	2,435			$	1,180
(Reduction) increase in income taxes resulting from:
Tax-exempt interest income, net			(748	)			(850	)			(1,346	)
Deferred tax remeasurement			-				85				(352	)
REIT excise tax			-				-				249
Excess tax benefit from stock option exercise			-				(119	)			(107	)
Bank owned life insurance			(165	)			(140	)			(316	)
Reversal of unrecognized tax benefits, net			(558	)			(512	)			(197	)
State income taxes, net of federal benefit			407				364				61
Investment tax credits			(15	)			(24	)			(7	)
Other, net			(12	)			(71	)			(62	)
		$	1,453			$	1,168			$	(897	)

The tax effects of temporary differences that give rise to the significant portions of the deferred tax assets and liabilities at the following dates were as follows:

(Dollars in thousands)		As of December 31,
		2019				2018
Deferred tax assets:
Loans, including allowance for loan losses		$	1,590			$	1,489
Net operating loss carry forwards			326				383
State taxes			414				398
Acquisition costs			182				202
Deferred compensation arrangements			69				78
Unrealized loss on investment securities available-for-sale			-				1,295
Investments			45				33
Other, net			50				26
Total deferred tax assets			2,676				3,904
Less valuation allowance			(326	)			(383	)
Total deferred tax assets, net of valuation allowance			2,350				3,521

Deferred tax liabilities:
Unrealized gain on investment securities available-for-sale			1,700				-
Premises and equipment, net of depreciation			361				447
Mortgage servicing rights			492				464
Prepaid expenses			157				209
Intangible assets			181				92
FHLB stock dividends			6				56
Total deferred tax liabilities			2,897				1,268

Net deferred tax (liability) asset		$	(547	)		$	2,253

The Company has Kansas corporate net operating loss carry forwards totaling $5.6 million and $6.6 million as of December 31, 2019 and 2018, respectively, which expire between 2020 and 2027. The Company has recorded a valuation allowance against the Kansas corporate net operating loss carry forwards. A valuation allowance related to the remaining deferred tax assets has not been provided because management believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets at December 31, 2019.

Retained earnings at December 31, 2019 and 2018 include approximately $6.3 million for which no provision for federal income tax had been made. This amount represents allocations of income to bad debt deductions in years prior to 1988 for tax purposes only. Reduction of amounts allocated for purposes other than tax bad debt losses will create income for tax purposes only, which will be subject to the then current corporate income tax rate.

The Company has unrecognized tax benefits representing tax positions for which a liability has been established. A reconciliation of the beginning and ending amount of the liability relating to unrecognized tax benefits is as follows:

(Dollars in thousands)		Years ended December 31,
		2019				2018
Unrecognized tax benefits at beginning of year		$	1,472			$	1,505
Gross increases to current year tax positions			554				464
Gross decreases to prior year’s tax positions			(2	)			(2	)
Lapse of statute of limitations			(608	)			(495	)
Unrecognized tax benefits at end of year		$	1,416			$	1,472

Tax years that remain open and subject to audit include the years 2016 through 2019 for both federal and state tax purposes. The Company recognized $608,000 and $495,000 of previously unrecognized tax benefits during 2019 and 2018, respectively. The gross unrecognized tax benefits of $1.4 million and $1.5 million at December 31, 2019 and December 31, 2018, respectively, would favorably impact the effective tax rate by $1.1 million and $1.2 million, respectively, if recognized. During 2019 and 2018, the Company recorded an income tax benefit of $77,000 and $119,000, respectively, associated with interest and penalties. During 2017, the Company recorded $30,000 of income tax expense associated with interest and penalties. As of December 31, 2019 and 2018, the Company has accrued interest and penalties related to the unrecognized tax benefits of $254,000 and $331,000, respectively which are not included in the table above. The Company believes that it is reasonably possible that a reduction in gross unrecognized tax benefits of up to $352,000 is possible during the next 12 months as a result of the lapse of the statute of limitations.