Income Taxes

12 Months Ended

Dec. 31, 2016

(9) Income Taxes

The composition of income tax expense for the years ended December 31, 2016, 2015, and 2014 was as follows:

(in thousands)	2016			2015			2014
Current:
Federal		$	3,578		$	3,619		$	1,105
State			489			496			137
Total current			4,067			4,115			1,242
Deferred:
Federal			(267)			391			2,353
State			(50)			74			447
Total deferred			(317)			465			2,800
Total income tax expense		$	3,750		$	4,580		$	4,042

Applicable income tax expense for financial reporting purposes differs from the amount computed by applying the statutory federal income tax rate for the reasons noted in the table for the years ended December 31, 2016, 2015, and 2014 are as follows:

(in thousands)	2016					2015					2014
	Amount			%		Amount			%		Amount			%
Income before provision for income tax expense		$	11,032				$	13,179				$	11,696
Tax at statutory federal income tax rate		$	3,751		34.00%		$	4,481		34.00%		$	3,977		34.00%
Tax-exempt income			(314)		(2.85)			(369)		(2.80)			(348)		(2.98)
State income tax, net of federal tax benefit			290		2.63			376		2.85			385		3.30
Other, net			23		0.21			92		0.70			28		0.24
Provision for income tax expense		$	3,750		33.99%		$	4,580		34.75%		$	4,042		34.56%

The components of deferred tax assets and deferred tax liabilities at December 31, 2016 and 2015 are as follows:

(in thousands)	2016			2015
Deferred tax assets:
Allowance for loan losses		$	3,756		$	3,269
Impairment of other real estate owned			1,192			1,226
Goodwill			1,088			1,437
Available-for-sale securities			1,187			363
Nonaccrual loan interest			469			640
Core deposit intangible			422			556
Pension			1,415			1,242
Deferred taxes on pension			1,143			874
Deferred compensation			148			138
Other			402			342
Total deferred tax assets		$	11,222		$	10,087
Deferred tax liabilities:
Premises and equipment		$	765		$	938
Mortgage servicing rights			968			1,064
Assets held for sale			50			49
Other			6			13
Total deferred tax liabilities			1,789			2,064
Net deferred tax assets		$	9,433		$	8,023

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the appropriate character during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, taxable income available in carryback years, and tax planning strategies in making this assessment. With the exception of certain capital losses generated during 2013 and 2014, it is management’s opinion that the Company will more likely than not realize the benefits of these temporary differences as of December 31, 2016 and, therefore, only established a valuation reserve against the Company’s capital loss carry forward. Management arrived at this conclusion based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible. As indicated above, the Company generated approximately $219,000 of capital losses during 2013 and 2014 as a result of disposing of certain limited partnership interests. The capital losses will expire between 2018 and 2019, and it is management’s opinion that the Company will not more likely than not generate the capital gain income necessary to utilize the capital loss carry forwards before the capital losses expire. As such, the Company has established an $83,000 valuation reserve against its capital loss carry forward deferred tax asset.

The Company follows ASC Topic 740, Income Taxes, which addresses the accounting for uncertain tax positions. As of December 31, 2016, 2015, and 2014 the Company did not have any uncertain tax provisions.