Federal Income Taxes (Tables)

12 Months Ended

Dec. 31, 2017

Composition of income tax expense (benefit)

With the passage of the Tax Cuts and Jobs Act (“Tax Act”), tax law for corporations has several material changes effective beginning in 2018. The most significant change is the reduction in the corporate tax rate from 34% to 21%. Because this reduced rate was signed into law in December 2017, generally accepted accounting principles require recognition of the lower rate on the Company’s deferred tax position as of December 31, 2017. As the Company is in a net deferred tax asset position, the reduction of this benefit resulted in a $1.2 million additional charge to Federal Income Tax expense in the Company’s 2017 Consolidated Statements of Income.

The composition of income tax expense is as follows:

	(Amounts in thousands)
	Years Ended December 31,
	2017			2016			2015
Current	$	1,199		$	1,256		$	916
Deferred		(28	)		(129	)		303
Change in corporate tax rate		1,246			—			—
Total	$	2,417		$	1,127		$	1,219

Summary of net deferred taxes included in other assets

The following is a summary of net deferred taxes included in other assets:

	(Amounts in thousands)
	December 31,
	2017			2016
Gross deferred tax assets:
Allowance for loan and other real estate losses	$	961		$	1,655
Deferred loan origination cost - net		234			303
Impairment loss on securities		29			48
Deferred compensation		668			1,006
AMT credit carryforward		904			904
Unrealized loss on available-for-sale securities		475			1,499
Other items		333			540
Total gross deferred tax assets		3,604			5,955
Gross deferred tax liabilities:
Premises and equipment		(362	)		(566	)
Other items		(325	)		(524	)
Total net deferred tax liabilities		(687	)		(1,090	)
Net deferred tax asset	$	2,917		$	4,865

Reconciliation of the valuation allowance for net deferred tax assets

The following is a reconciliation of the valuation allowance for net deferred tax assets:

	December 31,
	2017		2016
Valuation allowance at beginning of year	$	—	$	94,000
Utilization of capital loss carryover		—		(94,000	)
Valuation allowance at end of year	$	—	$	—

Reconciliation between tax expense using the statutory tax rate of 34% and the income tax provision

The following is a reconciliation between tax expense using the statutory tax rate of 34% and the income tax provision:

	(Amounts in thousands)
	Years Ended December 31,
	2017			2016			2015
Statutory tax expense	$	2,301		$	2,039		$	1,903
Tax effect of non-taxable interest income		(663	)		(628	)		(600	)
Tax effect of earnings on bank-owned life insurance-net		(414	)		(112	)		(115	)
Tax effect of deferred tax valuation reversal		—			(94	)		—
Change in corporate tax rate		1,246			—			—
Tax effect of low income housing credit		(149	)		(142	)		(54	)
Tax effect of non-deductible expenses		96			64			85
Federal income tax expense	$	2,417		$	1,127		$	1,219