Income Taxes

12 Months Ended

Dec. 31, 2014

Income Taxes

Income Taxes Text Block

NOTE 13: INCOME TAXES

For the years ended December 31, 2014, 2013, and 2012 the components of income tax expense from continuing operations are presented below.

				Year ended December 31
(Dollars in thousands)			2014		2013		2012
Current income tax expense:
	Federal		$	1,601		594		737
	State			397		159		58
		Total current income tax expense		1,998		753		795
Deferred income tax expense:
	Federal			731		1,330		472
	State			55		207		152
		Total deferred income tax expense		786		1,537		624
	Total income tax expense		$	2,784		2,290		1,419

Total income tax expense differs from the amounts computed by applying the statutory federal income tax rate of 34% to earnings before income taxes. A reconciliation of the differences for the years ended December 31,2014, 2013, and 2012, is presented below.

				2014			2013			2012
					Percent of			Percent of			Percent of
					pre-tax			pre-tax			pre-tax
(Dollars in thousands)				Amount	earnings		Amount	earnings		Amount	earnings
Earnings before income taxes			$	10,232			9,408			8,182
Income taxes at statutory rate				3,479	34.0	%	3,199	34.0	%	2,782	34.0	%
	Tax-exempt interest			(803)	(7.8)		(884)	(9.4)		(997)	(12.2)
	State income taxes, net of
		federal tax effect		295	2.9		242	2.6		179	2.2
	Bank owned life insurance			(170)	(1.7)		(145)	(1.5)		(151)	(1.8)
	Change in valuation allowance			—	—		—	—		(505)	(6.2)
	Other			(17)	(0.2)		(122)	(1.3)		111	1.4
Total income tax expense			$	2,784	27.2	%	2,290	24.4	%	1,419	17.4	%

The Company had net deferred tax assets of $0.5 million and $5.4 million at December 31, 2014 and 2013, respectively, included in other assets on the consolidated balance sheets. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2014 and 2013 are presented below:

				December 31
(Dollars in thousands)			2014		2013
Deferred tax assets:
	Allowance for loan losses		$	1,784		1,944
	Unrealized loss on securities			—		2,661
	Write-downs on other real estate owned			20		282
	Tax credit carry-forwards			816		1,137
	Other			480		531
		Total deferred tax assets		3,100		6,555
Deferred tax liabilities:
	Premises and equipment			69		90
	Unrealized gain on securities			1,427		—
	Originated mortgage servicing rights			881		867
	Other			204		205
		Total deferred tax liabilities		2,581		1,162
		Net deferred tax asset	$	519		5,393

A valuation allowance is recognized for a deferred tax asset if, based on the weight of available evidence, it is more-likely-than-not that some portion of the entire deferred tax asset 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 projection for future taxable income over the periods which the temporary differences resulting in the remaining deferred tax assets are deductible, management believes it is more-likely-than-not that the Company will realize the benefits of these deductible differences at December 31,2014. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced.

The change in the net deferred tax asset for the years ended December 31, 2014,2013, and 2012, is presented below.

		Year ended December 31
(Dollars in thousands)	2014		2013		2012
Net deferred tax asset:
Balance, beginning of year	$	5,393		1,244		2,425
Deferred tax expense related to continuing operations		(786)		(1,537)		(624)
Stockholders' equity, for accumulated other comprehensive (income) loss		(4,088)		5,686		(557)
Balance, end of year	$	519		5,393		1,244

ASC 740 defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authority. This section also provides guidance on the de-recognition, measurement, and classification of income tax uncertainties in interim periods. As of December 31, 2014, the Company had no unrecognized tax benefits related to federal or state income tax matters. The Company does not anticipate any material increase or decrease in unrecognized tax benefits during 2015 relative to any tax positions taken prior to December 31, 2014. As of December 31, 2014, the Company has accrued no interest and no penalties related to uncertain tax positions. It is the Company’s policy to recognize interest and penalties related to income tax matters in income tax expense.

The Company and its subsidiaries file consolidated U.S. federal and State of Alabama income tax returns. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service and the State of Alabama for the years ended December 31, 2011 through 2014.