NOTE 11 — INCOME TAXES

The current and deferred components of the income tax expense consisted of the following:

(Dollars in thousands)
	2016		2015		2014
Federal
Current	$	2,135	$	1,688	$	2,571
Deferred		(290)		283		46
Income tax expense	$	1,845	$	1,971	$	2,617

The following is a reconciliation between the income tax expense and the amount of income taxes which would have been provided at the statutory rate of 34%:

(Dollars in thousands)	2016					2015					2014
	Amount		Rate			Amount		Rate			Amount		Rate
Federal income tax at statutory rate	$	3,848		34.0	%	$	3,789		34.0	%	$	4,362		34.0	%
Tax-exempt income		(1,555)		(13.7)			(1,374)		(12.3)			(1,162)		(9.1)
Low-income housing credits		(230)		(2.0)			(230)		(2.1)			(230)		(1.8)
Bank owned life insurance income		(377)		(3.3)			(226)		(2.0)			(231)		(1.8)
Other		159		1.3			12		0.1			(122)		(0.9)
Income tax expense and rate	$	1,845		16.3	%	$	1,971		17.7	%	$	2,617		20.4	%

The components of the net deferred tax asset at December 31, 2016 and 2015 are as follows:

(Dollars in thousands)
	2016		2015
Deferred Tax Assets:
Allowance for loan losses	$	2,501	$	2,291
Provision for unfunded commitments		69		63
Deferred compensation		515		519
Contributions		16		32
Non-accrual interest		—		34
Leases		168		227
Limited partnership investments		70		71
Alternative minimum tax credits		163		6
Net unrealized investment securities losses		648		—
Impairment loss on investment securities		6		6
Capital and net operating loss carry forwards		20		35
Total		4,176		3,284
Deferred Tax Liabilities:
Net unrealized investment securities gains		—		1,130
Loan fees and costs		236		215
Accumulated depreciation		689		814
Accretion		121		72
Mortgage servicing rights		58		49
Intangibles		312		312
Total		1,416		2,592
Net Deferred Tax Asset	$	2,760	$	692

A valuation allowance for deferred tax assets was recorded at December 31, 2016 and 2015 in the amount of $16,000 and $20,000, respectively. The valuation allowance relates to state net operating loss carryforwards for which realizability is uncertain. At December 31, 2016 and 2015, the Corporation had state net operating loss carryforwards of $297,000 and $538,000, respectively, which are available to offset future state taxable income, and expire at various dates through 2036.

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 and tax planning strategies, management believes it is more likely than not that the Corporation will realize the benefits of these deferred tax assets, net of any valuation allowance at December 31, 2016.

The Corporation did not have any uncertain tax positions at December 31, 2016 and 2015.

The Corporation and its subsidiary file a consolidated federal income tax return. The Corporation is no longer subject to examination by Federal or State taxing authorities for the years before 2013.