Note 5 – Other Assets

The Company had the following other assets at March 31, 2016 and December 31, 2015.

(Dollars in thousands)	March 31, 2016		December 31, 2015
Nonmarketable investment securities	$	1,650	$	1,621
Accrued interest receivable		2,602		2,458
Deferred income taxes		10,234		12,132
Prepaid expenses		1,605		1,039
Other assets		6,297		6,670
Total	$	22,388	$	23,920

The following table provides information on significant components of the Company’s deferred tax assets and liabilities as of March 31, 2016 and December 31, 2015.

(Dollars in thousands)	March 31, 2016		December 31, 2015
Deferred tax assets:
Allowance for credit losses	$	3,318	$	3,316
Reserve for off-balance sheet commitments		121		121
Net operating loss carry forward		7,413		9,069
Write-downs of other real estate owned		303		308
Deferred income		1,220		1,155
Unrealized gains on available-for-sale securities		-		48
Accrued expenses		928		946
AMT carryover		395		-
Other		185		191
Total deferred tax assets		13,883		15,154
Deferred tax liabilities:
Depreciation		243		271
Amortization on loans FMV adjustment		192		140
Purchase accounting adjustments		2,036		1,988
Deferred capital gain on branch sale		409		411
Unrealized gains on available-for-sale securities		593		-
Other		176		212
Total deferred tax liabilities		3,649		3,022
Net deferred tax assets	$	10,234	$	12,132

The Company’s deferred tax assets consist of net operating loss carryovers that will be used to offset taxable income in future periods through their statutory period of 20 years for federal tax purposes. As of December 31, 2015 18 years of the statutory period remain available to offset future taxable income. No valuation allowance on these deferred tax assets was recorded at March 31, 2016 and December 31, 2015 as management believes it is more likely than not that all deferred tax assets will be realized based on the following positive material factors: 1) The Company was profitable for all four quarters of 2015 and the first quarter of 2016 on a GAAP basis. The net operating loss was originally created in the third quarter of 2013 and was solely attributable to Talbot Bank’s sale of loans and other real estate owned (the “Asset Sale”), which is considered non-recurring. 2) The Company had pre-tax income of $4.0 million and $11.5 million for the quarter and year ended March 31, 2016 and December 31, 2015, providing further evidence that the Asset Sale was producing positive results and confirming the expectation of utilizing the deferred tax assets. 3) As a contingent opportunity, the Company has had discussions with certain investors about entering into a sales leaseback transaction for some of its branch locations which would generate a material taxable gain. The decision to act on this has been deferred; however, it would become a very viable option as a tax planning strategy if there was a risk that the net operating loss carryovers would expire before they were fully utilized. Alternatively, the Company has reviewed negative factors which would influence the conclusion of realizing the deferred tax assets. These factors include the following: 1) The Company could be subject to Section 382 of the Internal Revenue Code (“IRC”), which could further limit the realization of the net operating loss-related deferred tax asset (“NOL-DTA”). 2) Although the local economy of the market in which the Company operates has been showing continued signs of improvement over the past three years, if this trend flattens or reverses, there is a potential that this potential negative evidence could outweigh the prevailing positive factors.

Based on the aforementioned considerations, the Company has concluded that the predominance of observable positive evidence outweighs the future potential of negative evidence and therefore it is more likely than not that the Company will be able to realize in the future all of the net deferred tax assets.