Note 14 - Income Taxes

12 Months Ended

Dec. 31, 2014

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

14. Income Taxes

The following table summarizes income tax expense (benefit) attributable to continuing operations for the periods indicated (in thousands).

	For the years ended December 31,
	2014		2013			2012
Current income tax expense
Federal	$	300	$	181		$	-
State		503		1,238			-
Total current expense		803		1,419			-
Deferred income tax expense (benefit)
Federal		4,666		(19,798	)		2,721
State		-		(36	)		-
Total deferred expense (benefit)		4,666		(19,834	)		2,721
Total current and deferred expense (benefit)	$	5,469	$	(18,415	)	$	2,721

For the year ended December 31, 2014, the deferred income tax expense of $4.7 million consisted primarily of a $1.2 million reduction of the net deferred tax asset attributable to allowance for loan losses and a $2.8 million reduction in the net deferred tax asset attributable to prior year federal net operating loss carryforwards resulting from the usage of such carryforwards to offset taxable income.

For the year ended December 31, 2013, the deferred income tax benefit of $19.8 million consisted primarily of a $22.4 million decrease in the valuation allowance previously required against the net deferred tax asset as of December 31, 2012. The deferred income tax benefit was partially offset by a decrease in net deferred tax assets arising during 2013.

As of December 31, 2014 and 2013, we determined that no valuation allowance was necessary due to sustained trends in profitability, projected reversals of existing taxable temporary differences and projections of future taxable income.

No excess tax benefit from equity-based awards were recorded in shareholders’ equity during the years ended December 31, 2014, 2013 and 2012.

The following table reconciles the Company’s statutory federal income tax rate to the effective income tax rate for the periods indicated.

	For the years ended December 31,
	2014			2013			2012
U.S. statutory federal income tax rate		35.0	%		35.0	%		35.0	%
Changes from statutory rates resulting from:
State income tax, net of federal benefit		2.2			8.6			-
Tax-exempt income		(1.6	)		(1.5	)		(74.1	)
Expenses not deductible for tax purposes		0.1			0.3			2.6
(Decrease) increase in deferred tax asset valuation allowance		-			(240.0	)		352.2
Other		1.2			0.1			1.9
Effective income tax rate		36.9	%		(197.5	)%		317.6	%

The following table summarizes the Company’s gross deferred tax assets, related valuation allowance and gross deferred tax liabilities at the dates indicated (in thousands).

	December 31,
	2014			2013
Deferred tax assets
Recognized built-in loss carryforward	$	7,609		$	7,689
Allowance for loan losses		4,522			5,770
Federal net operating loss carryforward		3,275			6,072
Writedowns of foreclosed real estate		1,912			2,369
Equity-based compensation		1,054			1,047
Pension Plan contributions and accrued liability		1,053			463
Alternative minimum tax credit carryforward		750			493
Unrealized losses on investment securities available for sale		501			1,829
Other		375			365
Nonaccrual loan interest		-			202
Deferred tax assets, gross		21,051			26,299
Valuation allowance		-			-
Deferred tax assets, net of valuation allowance		21,051			26,299
Deferred tax liabilities
Deferred loan fees and costs, net		(1,703	)		(1,592	)
Premises, equipment and capital leases		(1,148	)		(1,380	)
Servicing rights		(814	)		(874	)
Other		(333	)		(366	)
Deferred tax liabilities, gross		(3,998	)		(4,212	)
Deferred tax asset, net	$	17,053		$	22,087

As of December 31, 2014, the Company had federal net operating loss carryforwards of $9.4 million, which, if not utilized to offset future taxable income, will expire as follows: $200 thousand in 2031, $8.9 million in 2032 and $279 thousand in 2034. During 2014, the Company utilized $9.2 million of federal net operating loss carryforwards to offset federal taxable income. This amount was comprised of $7.3 million of federal net operating loss carryforwards that would have expired in 2031 and $1.9 million that would have expired in 2032.

As of December 31, 2014, net deferred tax assets of $17.1 million were recorded in the Company’s Consolidated Balance Sheet, a portion of which includes the after-tax impact of net operating loss carryforwards. Based on available information as of this date, the Company determined that a valuation allowance against the deferred tax asset was not necessary.

In 2010, the Company consummated a private offering pursuant to which the Company issued 9,993,995 shares of its common stock at $10.40 per share (the “Private Placement”). The Private Placement was considered a change in control under the Internal Revenue Code and Regulations. Accordingly, the Company was required to evaluate potential limitation or deferral of its ability to carryforward pre-acquisition net operating losses and to determine the amount of net unrealized pre-acquisition built-in losses which are subject to similar limitation or deferral. Under the Internal Revenue Code and Regulations, net unrealized pre-acquisition built-in losses realized within five years of the change in control on October 7, 2010 are subject to potential limitation. Through that date, the Company will continue to analyze its ability to utilize such losses to offset anticipated future taxable income as pre-acquisition built-in losses are ultimately realized. As of December 31, 2014, the Company estimates that future utilization of built-in losses of $53 million generated prior to the Private Placement will be limited to $1.1 million per year. However, this estimate will not be conclusively confirmed until the five-year limitation period expires in October 2015. The Company’s deferred tax asset does not include any recognized built-in losses that exceed the amount expected to be utilized against future taxable income.

The Company is subject to U.S. federal and South Carolina state income tax. Tax authorities in various jurisdictions may examine the Company. The Company is not currently undergoing a U.S. federal or South Carolina state examination; however, tax years dating back to 2010 are generally considered subject to examination based on federal and state regulations.