Income Taxes

12 Months Ended

Dec. 31, 2015

NOTE 13: INCOME TAXES

For the years ended December 31, 2015 and 2014 the components of income tax expense from continuing operations are presented below.

				Year ended December 31
(Dollars in thousands)			2015		2014
Current income tax expense:
	Federal		$	1,805		1,601
	State			395		397
		Total current income tax expense		2,200		1,998
Deferred income tax expense:
	Federal			586		731
	State			34		55
		Total deferred income tax expense		620		786

	Total income tax expense		$	2,820		2,784

Total income tax expense differs from the amounts computed by applying the statutory federal income tax rate of 34% to earnings before income taxes. A reconciliation of the differences for the years ended December 31, 2015 and 2014, is presented below.

				2015			2014
					Percent of			Percent of
					pre-tax			pre-tax
(Dollars in thousands)				Amount	earnings		Amount	earnings
Earnings before income taxes			$	10,678			10,232

Income taxes at statutory rate				3,631	34.0	%	3,479	34.0	%
	Tax-exempt interest			(873)	(8.1)		(803)	(7.8)
	State income taxes, net of
		federal tax effect		280	2.6		295	2.9
	Bank-owned life insurance			(254)	(2.4)		(170)	(1.7)
	Other			36	0.3		(17)	(0.2)

Total income tax expense			$	2,820	26.4	%	2,784	27.2	%

The Company had net deferred tax assets of $0.2 million and $0.5 million at December 31, 2015 and 2014, respectively, included in other assets on the consolidated balance sheets. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2015 and 2014 are presented below:

				December 31
(Dollars in thousands)			2015		2014
Deferred tax assets:
	Allowance for loan losses		$	1,583		1,784
	Write-downs on other real estate owned			20		20
	Tax credit carry-forwards			484		816
	Other			519		480
		Total deferred tax assets		2,606		3,100

Deferred tax liabilities:
	Premises and equipment			219		69
	Unrealized gain on securities			1,132		1,427
	Originated mortgage servicing rights			855		881
	Other			205		204
		Total deferred tax liabilities		2,411		2,581

		Net deferred tax asset	$	195		519

A valuation allowance is recognized for a deferred tax asset if, based on the weight of available evidence, it is more-likely-than-not that some portion of the entire deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projection for future taxable income over the periods which the temporary differences resulting in the remaining deferred tax assets are deductible, management believes it is more-likely-than-not that the Company will realize the benefits of these deductible differences at December 31, 2015. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced.

The change in the net deferred tax asset for the years ended December 31, 2015 and 2014, is presented below.

		Year ended December 31
(Dollars in thousands)	2015		2014
Net deferred tax asset:
Balance, beginning of year	$	519		5,393
Deferred tax expense related to continuing operations		(620)		(786)
Stockholders' equity, for accumulated other comprehensive loss (income)		296		(4,088)
Balance, end of year	$	195		519

ASC 740, Income Taxes, defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authority. This section also provides guidance on the de-recognition, measurement, and classification of income tax uncertainties in interim periods. As of December 31, 2015, the Company had no unrecognized tax benefits related to federal or state income tax matters. The Company does not anticipate any material increase or decrease in unrecognized tax benefits during 2016 relative to any tax positions taken prior to December 31, 2015. As of December 31, 2015, the Company has accrued no interest and no penalties related to uncertain tax positions. It is the Company’s policy to recognize interest and penalties related to income tax matters in income tax expense.

The Company and its subsidiaries file consolidated U.S. federal and State of Alabama income tax returns. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service and the State of Alabama for the years ended December 31, 2012 through 2015.