Entity information:
14.
INCOME TAXES
 
The components of income tax expense for the years ended
December
31,
2016,
2015
and
2014
are as follows:
 
 
   
Years Ended December 31,
  
   
2016
    
2015
    
2014
  
                   
(As restated)
  
Current:                        
Federal
   $
131,936
     $
53,145
    $
158,837
 
State
    
112,566
     
-
     
-
 
     
244,502
      
53,145
     
158,837
 
Deferred:
                        
Federal
    
2,500,785
     
1,493,055
     
816,263
 
State
    
215,852
     
291,129
     
373,909
 
     
2,716,637
     
1,784,184
     
1,190,172
 
Total
   $
2,961,139
     $
1,837,329
    $
1,349,009
 
 
Reconciliations of the expected income tax expense at statutory tax rates with income tax expense reported in the Consolidated Statements of Operations for the years ended
December
31,
2016,
2015
and
2014
are as follows:
 
 
   
Years Ended December 31,
  
   
2016
    
2015
    
2014
  
                   
(As restated)
  
Expected income tax expense at 34%
  $
3,373,617
    $
2,216,985
    $
1,849,135
 
State income taxes, net of federal income tax
   
243,008
     
196,070
     
246,780
 
Tax exempt interest
    
(554,156
 )    
(573,939
 )    
(515,920
 )
Cash surrender value of life insurance
    
(178,762
 )    
(159,877
 )    
(168,553
 )
Other expenses and adjustments
    
77,432
      
158,090
     
(62,433
 )
Total
   $
2,961,139
     $
1,837,329
    $
1,349,009
 
 
The components of deferred income tax assets and liabilities at
December
31,
2016,
and
2015
are as follows:
 
   
December 31,
  
Deferred income tax assets:
  
2016
    
2015
  
Deferred directors' fees
   $
163,900
    $
174,370
 
Allowance for credit losses
    
2,918,535
     
2,823,230
 
Employee benefits
    
317,623
     
295,387
 
Unrealized loss on interest rate swap
    
-
     
146,940
 
Alternative minimum tax credits
    
508,774
     
347,860
 
Other
    
492,698
     
268,145
 
Net operating loss carryovers
    
2,346,457
     
4,873,610
 
Gross deferred tax asset
    
6,747,987
     
8,929,542
 
Valuation allowance
    
(78,110
 )    
(84,650
 )
Total deferred tax asset   $
6,669,877
    $
8,844,892
 
Deferred income tax liabilities:
                
Depreciation and amortization
    
608,528
     
387,564
 
Carrying value – land
    
359,800
     
366,400
 
Mortgage servicing rights
    
688,750
     
400,151
 
Deferred loan origination fees and costs
    
738,526
     
547,745
 
Unrealized gain on securities available for sale
    
805,542
     
1,651,712
 
Unrealized gain on interest rate swap
    
43,514
     
-
 
Loan mark-to-market
    
23,230
     
28,411
 
Total deferred tax liability
    
3,267,890
     
3,381,983
 
Net deferred income tax asset
   $
3,401,987
    $
5,462,909
 
 
At
December
31,
2016,
and
2015
the Bank had net operating loss carryovers for Federal income tax purposes of
$6,671,609
and
$13,601,447,
respectively. Net operating loss carryovers for State income tax purposes were
$3,944,944
and
$9,436,277
for the same period. The federal net operating losses begin to expire in
2032
and state net economic losses begin to expire in
2024.
Deferred tax assets are included in the other assets line item in the Consolidated Statements of Financial Condition. They represent the future tax benefit of deductible differences, and if it is more likely than not that a tax asset will not be realized, a valuation allowance is required to reduce the recorded deferred tax assets to net realizable value. As of
December
31,
2016
and
2015,
management has recorded a valuation allowance of
$78,110
and
$84,650,
respectively. The valuation allowance is associated with North Carolina net losses at the Holding Company. Management determined that it is more likely than not that the remaining deferred tax asset at
December
31,
2016
and
2015
will be realized and, accordingly, did not establish a valuation allowance.