NOTE 16 – INCOME TAXES
The components of income tax expense (benefit) are summarized as follows:
|
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
137 |
|
|
$ |
60 |
|
|
$ |
— |
|
|
State |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total current taxes |
|
|
137 |
|
|
|
60 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
1,813 |
|
|
|
1,361 |
|
|
|
632 |
|
|
State |
|
|
397 |
|
|
|
317 |
|
|
|
136 |
|
|
Total deferred taxes |
|
|
2,210 |
|
|
|
1,678 |
|
|
|
768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance |
|
|
— |
|
|
|
(14,433 |
) |
|
|
(768 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
|
$ |
2,347 |
|
|
$ |
(12,695 |
) |
|
$ |
— |
|
A reconciliation of actual income tax expense (benefit) in the financial statements to the expected tax benefit (computed by applying the statutory Federal income tax rate of 34% to income (loss) before income taxes) is as follows:
|
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
Federal statutory rate times financial statement income (loss) before income taxes |
|
$ |
2,155 |
|
|
$ |
1,602 |
|
|
$ |
820 |
|
|
Effect of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank owned life insurance |
|
|
(87 |
) |
|
|
(91 |
) |
|
|
(89 |
) |
|
Tax-exempt income |
|
|
(7 |
) |
|
|
(16 |
) |
|
|
(26 |
) |
|
State income taxes, net of federal income effect |
|
|
262 |
|
|
|
209 |
|
|
|
90 |
|
|
Expenses not deductible for U.S. income taxes |
|
|
8 |
|
|
|
6 |
|
|
|
6 |
|
|
Compensation expense related to incentive stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
General business tax credit |
|
|
— |
|
|
|
— |
|
|
|
(30 |
) |
|
Change in valuation allowance |
|
|
— |
|
|
|
(14,433 |
) |
|
|
(768 |
) |
|
Other expense (benefit), net |
|
|
16 |
|
|
|
28 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense |
|
$ |
2,347 |
|
|
$ |
(12,695 |
) |
|
$ |
— |
|
The major components of the temporary differences that give rise to deferred tax assets and liabilities at December 31, 2016 and 2015 were as follows:
|
|
|
2016 |
|
|
2015 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
1,438 |
|
|
$ |
1,637 |
|
|
Net operating loss carryforward |
|
|
8,126 |
|
|
|
10,313 |
|
|
Deferred compensation |
|
|
584 |
|
|
|
495 |
|
|
Tax credit carryforwards |
|
|
944 |
|
|
|
823 |
|
|
Unrealized (loss)/gain on securities |
|
|
(781 |
) |
|
|
160 |
|
|
Other |
|
|
648 |
|
|
|
801 |
|
|
|
|
|
10,959 |
|
|
|
14,229 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Prepaids |
|
$ |
(89 |
) |
|
$ |
(85 |
) |
|
Depreciation |
|
|
(630 |
) |
|
|
(700 |
) |
|
Restricted equity securities dividends |
|
|
(79 |
) |
|
|
(79 |
) |
|
Core deposit intangible |
|
|
(307 |
) |
|
|
(360 |
) |
|
Unrealized gain on securities |
|
|
— |
|
|
|
— |
|
|
|
|
|
(1,105 |
) |
|
|
(1,224 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
9,854 |
|
|
$ |
13,005 |
|
Due to economic conditions and losses recognized between 2008 and 2015, the Company established a valuation allowance against materially all of its deferred tax assets. Due to improvements in the Company’s performance and overall condition, management determined during the fourth quarter of 2015 that it is more likely than not that the Company’s deferred tax asset can be realized through current and future taxable income. The Company has approximately $45,950 in net operating losses for state tax purposes that begin to expire in 2023 and $18,101 for federal tax purposes that begin to expire in 2031 to be utilized by future earnings.
During 2016 and per ASC 740-20-45-7, the Company’s income tax expense related to changes in the unrealized gains and losses on investment securities available-for-sale totaled $621. The expense was recorded through accumulated other comprehensive income and increased our deferred tax assets.
The Company currently has no unrecognized tax benefits that, if recognized, would favorably affect the income tax rate in future periods. The Company does not expect any unrecognized tax benefits to significantly increase or decrease in the next twelve months. It is the Company’s policy to recognize any interest accrued related to unrecognized tax benefits in interest expense, with any penalties recognized as operating expenses.
The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of the state of Tennessee. The Company is no longer subject to examination by taxing authorities for tax years prior to 2009.