11. INCOME TAX EXPENSE (BENEFIT)

12 Months Ended

Dec. 31, 2015

Income Tax Disclosure [Abstract]

11. INCOME TAX EXPENSE (BENEFIT)

NOTE 11 INCOME TAX EXPENSE (BENEFIT):

The components of income tax expense (benefit) for the years ended December 31, are as follows:

(Dollars are in thousands)	2015		2014
Current expense (benefit)	$	19	$	(5	)
Deferred tax expense (benefit)		—		—
Net income tax expense (benefit)	$	19	$	(5	)

The net deferred tax assets and liabilities resulting from temporary differences as of December 31 are summarized as follows:

(Dollars are in thousands)	2015			2014
Deferred Tax Assets
Allowance for loan losses	$	2,548		$	3,373
Deferred compensation		148			150
Accrued employee benefits		82			89
Bank owned life insurance		—			50
Nonaccrual loan interest		737			752
Other real estate owned		2,214			1,386
Amortization of core deposits		119			138
Amortization of goodwill		607			701
Capitalized interest and repair expense		43			44
Net operating loss carryforward		5,150			5,986
AMT carryforward		305			252
Unrealized loss on securities available for sale		169			36
Total Assets, gross		12,122			12,957
Valuation allowance		(5,655	)		(6,390	)
Total Assets, net		6,467			6,567
Deferred Tax Liabilities
Accelerated depreciation		959			1,070
Prepaid expenses		44			217
Deferred loan costs		343			292
Total Liabilities, gross		1,346			1,579
Net Deferred Tax Asset	$	5,121		$	4,988

The following table summarizes the differences between the actual income tax expense and the amounts computed using the federal statutory tax rate of 34%:

(Dollars are in thousands)	2015			2014
Income tax expense (benefit) at the applicable federal rate	$	912		$	80
Permanent differences resulting from:
Nondeductible expenses		7			8
Tax exempt interest income		(44	)		(42	)
State income taxes less federal tax effect		(13	)		3
Bank owned life insurance		(42	)		(37	)
Deferred tax valuation allowance change, net		(735	)		38
Other adjustments		(66	)		(55	)
Income tax expense (benefit)	$	19		$	(5	)

Management reviewed the December 31, 2015 deferred tax calculation to determine the need for a valuation allowance. Based on the trend of reduced levels of earning assets and net interest income, we modified the projections of taxable income over the next three years and determined that no additional deferred tax asset valuation allowance was required during 2015. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. In management’s opinion, based on a three year taxable income projection and the effects of off-setting deferred tax liabilities, it is more likely than not that all the deferred tax assets, net of the $5.7 million allowance, would be realizable. Management is required to consider all evidence, both positive and negative in making this determination. As of December 31, 2015, the Company had $15.1 million of net operating loss carryforwards which will expire in 2031 thru 2035. Management expects to utilize all of these carryforwards prior to expiration. Direct charge-offs contributed to a reduction of the tax asset and are permitted as tax deductions. In addition, writedowns on other real estate owned property are expensed for book purposes but are not deductible for tax purposes until disposition of the property. Goodwill expense also was realized for book purposes in 2011 but continues to only be tax deductible based on the statutory requirements; thus, creating a deferred tax asset. When, and if, taxable income increases in the future and during the net operating loss carryforward period, this valuation allowance may be reversed and used to decrease tax obligations in the future. We do not have significant nontaxable income or nondeductible expenses.

The Company’s tax filings for years ended 2013 through 2015 were at year end 2015 open to audit under statutes of limitations by the Internal Revenue Service (“IRS”) and state taxing authorities. Our tax filings for the years ended 2010, 2011, and 2012 had been under examination by the IRS. In March 2015 we received notification from the IRS that as a result of the examination no changes were made to our reported tax.