Note 10 - Income Taxes

12 Months Ended

Dec. 31, 2016

. Income Taxes

The components of income tax expense from operations are as follows:

December 31, (In thousands)	2016		2015		2014
Currently payable	$	5,556	$	3,662	$	2,168
Deferred		885		1,631		3,931
Income tax expense	$	6,441	$	5,293	$	6,099

Components of income tax (benefit) expense recorded to shareholders’ equity are as follows:

December 31, (In thousands)	2016			2015			2014
Unfunded status of postretirement benefits	$	211		$	(74	)	$	(382	)
Net unrealized securities (losses) gains		(3,545	)		(1,052	)		4,737
Total income tax (benefit) expense recorded directly to shareholders’ equity	$	(3,334	)	$	(1,126	)	$	4,355

An analysis of the difference between the effective income tax rates and the statutory federal income tax rate follows.

December 31,	2016			2015			2014
Federal statutory rate		35.0	%		35.0	%		35.0	%
Changes from statutory rates resulting from:
Tax-exempt interest		(4.6	)		(5.8	)		(5.2	)
Nondeductible interest to carry tax-exempt obligations		.2			.2			.2
Premium income not subject to tax		(1.3	)		(1.5	)		(1.2	)
Company-owned life insurance		(1.5	)		(1.6	)		(1.9	)
Uncertain tax position		-			-			(.3	)
Other, net		.1			(.2	)		.4
Effective tax rate on pretax income		27.9	%		26.1	%		27.0	%

The tax effects of the significant temporary differences that comprise deferred tax assets and liabilities at

December

31,

2016

and

2015

are as follows:

December 31, (In thousands)	2016		2015
Assets
Allowance for loan losses	$	3,285	$	3,625
Deferred directors’ fees		236		242
Postretirement benefit obligations		5,825		5,665
Other real estate owned		1,303		1,968
Self-funded insurance		232		230
Paid time off		815		756
Depreciation		1,630		1,440
Intangibles		1,878		2,432
Unrealized loss on available for sale investment securities, net		1,811		-
Other		239		307
Total deferred tax assets		17,254		16,665
Liabilities
Unrealized gains on available for sale investment securities, net		-		1,734
Prepaid expenses		153		306
Federal Home Loan Bank stock dividends		1,035		1,035
Deferred loan fees		846		806
Other		52		65
Total deferred tax liabilities		2,086		3,946
Net deferred tax asset	$	15,168	$	12,719

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets 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 projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences at

December

31,

2016

The Company had

unrecognized tax benefits at year-end

2016,

2015,

and

2014

and did

not

recognize any increase in unrecognized benefits during

2016

relative to any tax position taken in

2016.

The Company’s policy is to record the accrual of interest or penalties relative to unrecognized tax benefits, if any, in its income tax expense accounts. There was

amount accrued for interest at

December

31,

2016

and

2015.

penalties were accrued or recorded during any year in the

three

years ended

December

31,

2016.

The Company files U.S. federal and various state income tax returns. The Company is no longer subject to income tax examinations by taxing authorities for the years before

2013.