Income Taxes

12 Months Ended

Dec. 31, 2017

NOTE 13: INCOME TAXES

For the years ended December 31, 2017 and 2016 the components of income tax expense from continuing operations are presented below.

				Year ended December 31
(Dollars in thousands)			2017		2016
Current income tax expense:
	Federal		$	2,782		2,143
	State			499		498
		Total current income tax expense		3,281		2,641
Deferred income tax expense (benefit):
	Federal			384		464
	State			(28)		(3)
		Total deferred income tax expense		356		461

	Total income tax expense		$	3,637		3,102

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, 2017 and 2016, is presented below.

				2017			2016
					Percent of			Percent of
					pre-tax			pre-tax
(Dollars in thousands)				Amount	earnings		Amount	earnings
Earnings before income taxes			$	11,483			11,252

Income taxes at statutory rate				3,904	34.0	%	3,826	34.0	%
	Tax-exempt interest			(813)	(7.0)		(857)	(7.6)
	State income taxes, net of
		federal tax effect		325	2.8		325	2.9
	Bank-owned life insurance			(150)	(1.3)		(155)	(1.4)
	Federal tax reform impact			370	3.2		—	—
	Other			1	—		(37)	(0.3)

Total income tax expense			$	3,637	31.7	%	3,102	27.6	%

The Tax Cuts and Jobs Act was signed into law on December 22, 2017. The net tax expense recognized as a result of the remeasurement of deferred taxes is presented as Federal tax reform impact in the above table.

The Company had net deferred tax assets of $0.8 million and $1.3 million at December 31, 2017 and 2016, 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, 2017 and 2016 are presented below:

				December 31
(Dollars in thousands)			2017		2016
Deferred tax assets:
	Allowance for loan losses		$	1,195		1,713
	Unrealized loss on securities			190		414
	Other			216		316
		Total deferred tax assets		1,601		2,443

Deferred tax liabilities:
	Premises and equipment			241		205
	Originated mortgage servicing rights			413		721
	Other			158		237
		Total deferred tax liabilities		812		1,163

		Net deferred tax asset	$	789		1,280

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, 2017. 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, 2017 and 2016, is presented below.

		Year ended December 31
(Dollars in thousands)	2017		2016
Net deferred tax asset:
Balance, beginning of year	$	1,280		195
Deferred tax expense related to continuing operations		(356)		(461)
Stockholders' equity, for accumulated other comprehensive (income) loss		(135)		1,546
Balance, end of year	$	789		1,280

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, 2017, 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 2018 relative to any tax positions taken prior to December 31, 2017. As of December 31, 2017, 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, 2014 through 2017.