NOTE 11 — INCOME TAXES

 

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

 

(Dollars in thousands)
		2017			2016			2015
Federal
Current		$	1,309		$	2,135		$	1,688
Deferred			146			(290)			283
Income tax expense		$	1,455		$	1,845		$	1,971

 

 

(Dollars in thousands)		2017						2016						2015
		Amount			Rate			Amount			Rate			Amount			Rate
Federal income tax at statutory rate		$	3,435			34.0	%	$	3,848			34.0	%	$	3,789			34.0	%
Tax-exempt income			(1,897)			(18.8)			(1,555)			(13.7)			(1,374)			(12.3)
Low-income housing credits			(323)			(3.2)			(230)			(2.0)			(230)			(2.1)
Bank owned life insurance income			(216)			(2.1)			(377)			(3.3)			(226)			(2.0)
Effect of tax rate change			379			3.8			—			—			—			—
Other			77			0.7			159			1.3			12			0.1
Income tax expense and rate		$	1,455			14.4	%	$	1,845			16.3	%	$	1,971			17.7	%

 

The components of the net deferred tax asset at December 31, 2017 and 2016 are as follows:

 

(Dollars in thousands)
		2017			2016
Deferred Tax Assets:
Allowance for loan losses		$	1,572		$	2,501
Provision for unfunded commitments			24			69
Deferred compensation			316			515
Contributions			8			16
Leases			66			168
Limited partnership investments			57			70
Alternative minimum tax credits			379			163
Net unrealized investment securities losses			—			648
Impairment loss on investment securities			4			6
Writedowns on OREO properties			5			—
Capital and net operating loss carry forwards			25			20
Total			2,456			4,176
Deferred Tax Liabilities:
Net unrealized investment securities gains			670			—
Loan fees and costs			162			236
Accumulated depreciation			332			689
Accretion			77			121
Mortgage servicing rights			38			58
Intangibles			241			312
Total			1,520			1,416
Net Deferred Tax Asset		$	936		$	2,760

 

 

In 2017, the Corporation recognized a reduction in the carrying value of the net deferred tax asset of $379,000 as a result of the December 2017 enactment of a reduction in the federal corporate income tax rate to 21% effective January 1, 2018, from the 34% marginal tax rate in effect throughout 2017 and 2016. In 2017, the Corporation recognized a reduction in the carrying value of the net deferred tax asset of $379,000 as a result of the December 2017 enactment of a reduction in the federal corporate income tax rate to 21% effective January 1, 2018, from the 34% marginal tax rate in effect throughout 2017 and 2016. On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) which provides guidance on accounting for the tax effects of the Tax Cuts and Job Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Cuts and Jobs Act’s enactment date for companies to complete the accounting under ASC 740, Income Taxes. The Corporation’s financial results reflect the income tax effects of the Tax Cuts and Jobs Act for which the accounting under ASC Topic 740 is complete.

 

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, 2017.

 

The Corporation did not have any uncertain tax positions at December 31, 2017 and 2016.

 

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 2014.