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Note 13 - Income Taxes
 12 Months Ended
Dec. 31, 2017
Notes to Financial Statements  
Income Tax Disclosure [Text Block]
(
13
)        
INCOME TAXES
 
The TCJA enacted on
December 22, 2017
reduced the Company’s federal corporate tax rate from
34%
to
21%
effective for tax years beginning after
December 31, 2017.
FASB ASC
740,
Income Taxes
, requires recognition of the effect of a change in tax law or rate in the period that includes the enactment date. As such, deferred tax assets and liabilities have been adjusted for the change in the federal corporate tax rate as of
December 31, 2017.
The resulting adjustments of deferred tax assets and liabilities was recognized as a component of income tax expense in the consolidated statement of net income for the year ended
December 31, 2017,
resulting in additional income tax expense of
$290,000.
In accordance with ASU
No.
2018
-
02,
the Bank elected to reclassify the income tax effect of the change in the federal corporate tax rate from AOCI to retained earnings as of
December 31, 2017
in the amount of
$
352,000
.
 
Shortly after the enactment of the TCJA, the SEC issued Staff Accounting Bulletin (“SAB”)
118,
which provides guidance on accounting for the TCJA’s impact. In accordance with SAB
118,
the Company has reflected the income tax effects of the TCJA in the financial statements based on reasonable estimates. Any changes to the provisional amounts will be reflected as an adjustment to income tax expense in the reporting period the amounts are determined. SAB
118
permits a measurement period of up to
one
year from the date of enactment and the Company expects any adjustments to be completed in
2018.
 
The components of income tax expense for the years ended
December 31, 2017,
2016
and
2015
were as follows:
 
(In thousands)   2017   2016   2015
             
Current   $
2,755
     $
2,303
     $
1,292
  
Deferred    
348
      
220
      
672
  
                         
Totals   $
3,103
     $
2,523
     $
1,964
  
 
The reconciliation of income tax expense for the years ended
December 31, 2017,
2016
and
2015,
with the amount which would have been provided at the federal statutory rate of
34%
follows:
 
(In thousands)   2017   2016   2015
             
Provision at federal statutory tax rate   $
3,589
     $
3,196
     $
2,440
  
State income tax-net of federal tax benefit    
96
      
111
      
107
  
Change in state statutory tax rate    
(5
 )    
(4
 )    
(4
 )
Revaluation of net deferred tax asset due to change                        
in federal income tax rate    
290
      
-
      
-
  
Tax-exempt interest income    
(507
 )    
(416
 )    
(405
 )
Bank-owned life insurance income    
(73
 )    
(62
 )    
(83
 )
Captive insurance net premiums    
(290
 )    
(294
 )    
(322
 )
Nondeductible acquisition expense    
-
      
-
      
219
  
Other    
3
      
(8
 )    
12
  
                         
Totals   $
3,103
     $
2,523
     $
1,964
  
                         
Effective tax rate    
29.4
 %    
26.8
 %    
27.4
 %
 
Significant components of the deferred tax assets and liabilities as of
December 31, 2017
and
2016
were as follows:
 
(In thousands)   2017   2016
         
Deferred tax assets (liabilities):                
Deferred compensation plans   $
121
     $
200
  
Allowance for loan losses    
743
      
876
  
Accrued expenses    
-
      
45
  
Unrealized loss on securities available for sale    
647
      
1,335
  
Restricted stock    
11
      
16
  
Valuation allowance on foreclosed real estate    
87
      
119
  
Interest on nonaccrual loans    
220
      
265
  
Other    
58
      
26
  
Deferred tax assets    
1,887
      
2,882
  
                 
Depreciation    
(587
 )    
(632
 )
Deferred loan fees and costs    
(262
 )    
(261
 )
FHLB stock dividends    
(37
 )    
(56
 )
Prepaid expenses    
(201
 )    
(295
 )
Acquisition purchase accounting adjustments    
(184
 )    
(334
 )
Other    
(39
 )    
(43
 )
Deferred tax liabilities    
(1,310
 )    
(1,621
 )
                 
Net deferred tax asset   $
577
     $
1,261
  
 
Tax laws enacted in
2013
and
2014
decreased the Indiana financial institutions franchise tax rate beginning in
2014
and ending in
2023.
Deferred taxes have been adjusted to reflect the newly enacted rates and the period in which temporary differences are expected to reverse.
 
At
December 31, 2017
and
2016,
the Company had
no
liability for unrecognized income tax benefits related to uncertain tax positions and does
not
anticipate any increase in the liability for unrecognized tax benefits during the next
twelve
months. The Company believes that its income tax positions would be sustained upon examination and does
not
anticipate any adjustments that would result in a material change to its financial position or results of operations. The Company files consolidated U.S. federal income tax returns and Indiana state income tax returns. Returns filed in these jurisdictions for tax years ended on or after
December 31, 2014
are subject to examination by the relevant taxing authorities. Each entity included in the consolidated federal and Indiana state income tax returns filed by the Company are charged or given credit for the applicable tax as though separate returns were filed.
 
Retained earnings of the Bank at
December 31, 2017
and
2016
include 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 as of
December 31, 1987
for tax purposes only. Reduction of such allocated amounts for purposes other than tax bad debt losses, including redemption of bank stock, excess dividends or loss of “bank” status, would create income for tax purposes only, subject to the then-current corporate income tax rate. The unrecorded deferred liability on these amounts was approximately
$191,000
and
$309,000
at
December 31, 2017
and
2016,
respectively.