Federal Income Taxes

12 Months Ended

Dec. 31, 2014

Federal Income Taxes [Abstract]

Federal Income Taxes

Note 11. Federal Income Taxes

The temporary differences which give rise to significant portions of deferred tax assets and liabilities are as follows:

(Dollars in thousands)	December 31
Deferred Tax Assets	2014		2013
Allowance for loan losses	$	3,098	$	3,299
Deferred compensation		1,041		1,015
Purchase accounting		21		50
Deferred loan fees and costs, net		160		160
Capital loss carryover		1,013		887
Other than temporary impairment of investments		369		538
Accumulated other comprehensive loss		1,597		2,420
AMT Credit		192		226
Other		750		1,062
		8,241		9,657
Valuation allowance		(1,200)		(1,250)
Total gross deferred tax assets		7,041		8,407
Deferred Tax Liabilities
Core deposit intangibles		61		184
Depreciation		233		184
Joint ventures and partnerships		39		53
Pension		2,331		2,425
Mortgage servicing rights		49		63
Customer list		-		53
Total gross deferred tax liabilities		2,713		2,962
Net deferred tax asset	$	4,328	$	5,445

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 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 on 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 that the Bank will realize the benefits of these deferred tax assets.

The components of the provision for Federal income taxes attributable to income from operations were as follows:

	For the Years Ended December 31
(Dollars in thousands)	2014		2013		2012
Current tax expense	$	1,712	$	947	$	145
Deferred tax expense (benefit)		294		348		367
Income tax provision	$	2,006	$	1,295	$	512

For the years ended December 31, 2014, 2013, and 2012, the income tax provisions are different from the tax expense which would be computed by applying the Federal statutory rate to pretax operating earnings.  A reconciliation between the tax provision at the statutory rate and the tax provision at the effective tax rate is as follows:

	For the Years Ended December 31
(Dollars in thousands)	2014		2013		2012
Tax provision at statutory rate	$	3,539	$	2,559	$	1,998
Income on tax-exempt loans and securities		(1,466)		(1,212)		(1,251)
Nondeductible interest expense relating to carrying  tax-exempt obligations		28		30		43
Dividends received exclusion		(7)		(15)		(17)
Income from bank owned life insurance		(163)		(185)		(217)
Life insurance proceeds		-		111		-
Other, net		75		7		(44)
Income tax provision	$	2,006	$	1,295	$	512
Effective income tax rate		19.3%		17.2%		8.7%

At December 31, 2014, the Corporation had a capital loss carryover of $3.6million.  This loss carryover can only be offset with capital gains for federal income tax purposes.  The tax benefit of this carryover is $1.0 million and the Corporation has recorded a valuation allowance of $1.0 million against the capital loss carryover.

The Corporation recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense for all periods presented.  The Corporation is no longer subject to U.S. Federal examinations by tax authorities for the years before 2011.