MBT FINANCIAL CORP - 10-K filing on 2017-03-10

Note 12 - Federal Income Taxes

12 Months Ended

Dec. 31, 2016

(12)	Federal Income Taxes

Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be reversed. The Corporation and the Bank file a consolidated federal income tax return.

The current and deferred components of the provision for Federal income taxes were as follows

(000s

omitted):

	2016		2015			2014
Current	$	2,725	$	(660	)	$	69
Deferred		3,512		5,680			2,503
Tax expense (benefit)	$	6,237	$	5,020		$	2,572

The effective tax rate differs from the statutory rate applicable to corporations as a result of permanent differences between accounting and taxable income as follows:

	2016			2015			2014
Statutory rate		34.0	%		34.0	%		34.0
Municipal interest income		(2.0	)		(2.1	)		(3.9	)
Other, net		(1.9	)		(2.5	)		(4.1	)
Valuation allowance		-			-			-
Effective tax rate		30.1	%		29.4	%		26.0

In accordance with ASC

740,

the Company is required to establish a valuation allowance for deferred tax assets when it is “more likely than not” that a portion or the entire deferred tax asset will not be realized. The evaluation requires significant judgment and extensive analysis of all available positive and negative evidence, the forecast of future income, applicable tax planning strategies, and assessments of current and future economic and business conditions. The Company did

not

maintain a valuation allowance on its deferred tax assets during the years ended

December

31,

2016,

2015,

and

2014.

In the ordinary course of business, the Company enters into certain transactions that have tax consequences. From time to time, the Internal Revenue Service (IRS) questions and/or challenges the tax positions taken by the Company with respect to those transactions. The Company believes that its tax returns were filed based upon applicable statutes, regulations, and case law in effect at the time of the transactions. The IRS, an administrative authority of a court, if presented with the transactions could disagree with the Company’s interpretation of the tax law.

In the

fourth

quarter of

2015

the Company agreed to a settlement with the IRS for an audit of its tax returns filed for the

2004,

2005,

2007,

2008,

2009

and

2010

tax years. That settlement was approved by Congress’ Joint Committee on Taxation in

2016.

The Company remitted the taxes and interest required by the settlement and the audit is closed.

The components of the net deferred federal income tax asset (included in Interest Receivable and Other Assets on the accompanying consolidated balance sheets) at

December

are as follows

(000s

omitted):

	2016			2015
Deferred federal income tax assets:
Allowance for loan losses	$	2,990		$	3,818
Net deferred loan origination fees		655			649
Tax versus book depreciation differences		331			482
Net unrealized losses on securities available for sale		3,449			795
Accrued postretirement benefits		3,406			3,176
Postretirement benefits in other comprehensive income		427			417
Alternative minimum tax		3,493			632
Non-accrual loan interest		281			438
Other real estate owned		546			606
Net operating loss		-			5,425
Other, net		766			783
Total deferred federal tax asset	$	16,344		$	17,221

Deferred federal income tax liabilities:
Accretion of bond discount	$	(186	)	$	(346	)
Other		(691	)		(560	)
Total deferred federal tax liabilities	$	(877	)	$	(906	)
Net deferred federal income tax asset	$	15,467		$	16,315