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Note 12 - Income Taxes | 12 Months Ended
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Dec. 31, 2019
Notes to Financial Statements |
Income Tax Disclosure [Text Block] |
( 12 ) |  | INCOME TAXES
The Company and its corporate subsidiaries file consolidated tax returns. The components of consolidated income tax expense for the years ended December 31, 2019, 2018 and 2017 were as follows:
(In thousands) |  | 2019 |  | 2018 |  | 2017
Current |  | $ | 1,505 |  |  | $ | 1,789 |  |  | $ | 2,755 |
Deferred |  |  | 482 |  |  |  | (395 | ) |  |  | 348 |
Totals |  | $ | 1,987 |  |  | $ | 1,394 |  |  | $ | 3,103 |
The reconciliation of income tax expense with the amount which would have been provided at the federal statutory rate of 21% for the years ended December 31, 2019 and 2018 and 34% for the year ended December 31, 2017, follows:
(In thousands) |  | 2019 |  | 2018 |  | 2017
Provision at federal statutory tax rate |  | $ | 2,588 |  |  | $ | 2,239 |  |  | $ | 3,589 |
State income tax-net of federal tax benefit |  |  | 121 |  |  |  | 100 |  |  |  | 91 |
Revaluation of net deferred tax asset due to change in federal income tax rate |  |  | - |  |  |  | - |  |  |  | 290 |
Tax-exempt interest income |  |  | (379 | ) |  |  | (328 | ) |  |  | (507 | )
Bank-owned life insurance income |  |  | (44 | ) |  |  | (67 | ) |  |  | (73 | )
Captive insurance net premiums |  |  | (209 | ) |  |  | (195 | ) |  |  | (290 | )
Investment in tax credit entities |  |  | (114 | ) |  |  | (272 | ) |  |  | - |
Other |  |  | 24 |  |  |  | (83 | ) |  |  | 3 |
Totals |  | $ | 1,987 |  |  | $ | 1,394 |  |  | $ | 3,103 |
Effective tax rate |  |  | 16.1 | % |  |  | 13.1 | % |  |  | 29.4 | %
Significant components of the deferred tax assets and liabilities as of December 31, 2019 and 2018 were as follows:
(In thousands) |  | 2019 |  | 2018
Deferred tax assets (liabilities): |  |  |  |  |  |  |  |
Deferred compensation plans |  | $ | 101 |  |  | $ | 115 |
Allowance for loan losses |  |  | 1,122 |  |  |  | 855 |
Unrealized loss on securities available for sale |  |  | - |  |  |  | 1,118 |
Unrealized loss on equity securities |  |  | 42 |  |  |  | 49 |
Restricted stock |  |  | 48 |  |  |  | 31 |
Valuation allowance on foreclosed real estate |  |  | - |  |  |  | 174 |
Interest on nonaccrual loans |  |  | 185 |  |  |  | 215 |
Other |  |  | 21 |  |  |  | 39 |
Deferred tax assets |  |  | 1,519 |  |  |  | 2,596 |
Unrealized gain on securities available for sale |  |  | (601 | ) |  |  | - |
Depreciation |  |  | (691 | ) |  |  | (491 | )
Deferred loan fees and costs |  |  | (247 | ) |  |  | (246 | )
FHLB stock dividends |  |  | (35 | ) |  |  | (36 | )
Prepaid expenses |  |  | (276 | ) |  |  | (232 | )
Acquisition purchase accounting adjustments |  |  | (419 | ) |  |  | (125 | )
Other |  |  | (8 | ) |  |  | (23 | )
Deferred tax liabilities |  |  | (2,277 | ) |  |  | (1,153 | )
Net deferred tax asset (liability) |  | $ | (758 | ) |  | $ | 1,443 |
The Tax Cuts and Jobs Act (“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 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. At December 31, 2019 and 2018, 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, 2016 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, 2019 and 2018 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 at December 31, 2019 and 2018.

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- 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. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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