Income Taxes

12 Months Ended

Dec. 31, 2016

NOTE 13: INCOME TAXES

For the years ended December 31, 2016 and 2015 the components of income tax expense from continuing operations are presented below.

				Year ended December 31
(Dollars in thousands)			2016		2015
Current income tax expense:
	Federal		$	2,143		1,805
	State			498		395
		Total current income tax expense		2,641		2,200
Deferred income tax expense (benefit):
	Federal			464		586
	State			(3)		34
		Total deferred income tax expense		461		620

	Total income tax expense		$	3,102		2,820

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, 2016 and 2015, is presented below.

				2016			2015
					Percent of			Percent of
					pre-tax			pre-tax
(Dollars in thousands)				Amount	earnings		Amount	earnings
Earnings before income taxes			$	11,252			10,678

Income taxes at statutory rate				3,826	34.0	%	3,631	34.0	%
	Tax-exempt interest			(857)	(7.6)		(873)	(8.1)
	State income taxes, net of
		federal tax effect		325	2.9		280	2.6
	Bank-owned life insurance			(155)	(1.4)		(254)	(2.4)
	Other			(37)	(0.3)		36	0.3

Total income tax expense			$	3,102	27.6	%	2,820	26.4	%

The Company had net deferred tax assets of $1.3 million and $0.2 million at December 31, 2016 and 2015, 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, 2016 and 2015 are presented below:

				December 31
(Dollars in thousands)			2016		2015
Deferred tax assets:
	Allowance for loan losses		$	1,713		1,583
	Unrealized loss on securities			414		—
	Write-downs on other real estate owned			—		20
	Tax credit carry-forwards			—		484
	Other			316		519
		Total deferred tax assets		2,443		2,606

Deferred tax liabilities:
	Premises and equipment			205		219
	Unrealized gain on securities			—		1,132
	Originated mortgage servicing rights			721		855
	Other			237		205
		Total deferred tax liabilities		1,163		2,411

		Net deferred tax asset	$	1,280		195

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, 2016. 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, 2016 and 2015, is presented below.

		Year ended December 31
(Dollars in thousands)	2016		2015
Net deferred tax asset:
Balance, beginning of year	$	195		519
Deferred tax expense related to continuing operations		(461)		(620)
Stockholders' equity, for accumulated other comprehensive loss		1,546		296
Balance, end of year	$	1,280		195

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, 2016, 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 2017 relative to any tax positions taken prior to December 31, 2016. As of December 31, 2016, 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, 2013 through 2016.