HVBC 2016 Annual Report

HV Bancorp, Inc. and Subsidiary Notes to the Consolidated Financial Statements Years Ended June 30, 2017 and 2016 79 Deferred income taxes result from temporary differences in recording certain revenues and expenses for financial reporting purposes. The net deferred tax asset at June 30, 2017 and June 30, 2016 consisted of the following: (Dollars in thousands) 2017 2016 Deferred tax assets: Allowance for loan losses $ 202 $ 165 Non-accrual interest 25 30 Deferred income 105 111 Accrued expenses 70 85 Capitalized expenses 6 8 Unrealized loss on securities 77 5 Minimum tax credit carryover 178 125 Federal NOL carryover — 190 Charitable contribution carryover — 10 Gross deferred tax assets $ 663 $ 729 Deferred tax liabilities: Depreciation $ 3 $ 7 Fair value adjustment of IRLC, TBA securites and forward loan sales commitments 318 415 Gain on fair value of loans 85 281 Gross deferred tax liabilities 406 703 Net deferred tax assets $ 257 $ 26 The net operating loss carryforward of $560,000 at June 30, 2016 was utilized during the year ended June 30, 2017. The Company has Alternative Minimum Tax (“AMT”) credits of $178,000 and $125,000 as of June 30, 2017 and 2016, respectively, which have an indefinite life. Retained earnings included $1.7 million at June 30, 2017 and 2016, for which no provision for federal income tax has been made. This amount represents deductions for bad debt reserves for tax purposes, which were only allowed to savings institutions that met certain criteria prescribed by the Internal Revenue Code of 1986, as amended. The Small Business Job Protection Act (the Act) eliminated the special bad debt deduction granted solely to thrifts. Under the terms of the Act, there would be no recapture of the pre-1988 (base year) reserves. However, these pre-1988 reserves would be subject to recapture under the rules of the Internal Revenue Code if the Company pays a cash dividend in excess of earnings and profits, or liquidates. 13. Fair Value of Financial Instruments The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date