Note 5 – Other Assets

The Company had the following other assets at September 30, 2016 and December 31, 2015.


(Dollars in thousands)	September 30, 2016		December 31, 2015
Nonmarketable investment securities	$	1,650	$	1,621
Accrued interest receivable		2,473		2,458
Deferred income taxes		7,077		12,132
Prepaid expenses		1,647		1,039
Other assets		7,438		6,670
Total	$	20,285	$	23,920

The following table provides information on significant components of the Company’s deferred tax assets and liabilities as of September 30, 2016 and December 31, 2015.


	September 30,		December 31,
(Dollars in thousands)	2016		2015
Deferred tax assets:
Allowance for credit losses	$	3,439	$	3,316
Reserve for off-balance sheet commitments		120		121
Deferred loan fees and costs		1,173		1,155
Net operating loss carry forward		4,633		9,069
Write-downs of other real estate owned		330		308
Unrealized losses on available-for-sale securities		-		48
Accrued expenses		864		946
AMT carryover		595		-
Other		231		191
Total deferred tax assets		11,385		15,154
Deferred tax liabilities:
Depreciation		192		271
Amortization on loans FMV adjustment		162		140
Amortization on deferred gain on branch sale		31
Purchase accounting adjustments		2,140		1,988
Deferred loan fees		182
Deferred capital gain on branch sale		408		411
Unrealized gains on available-for-sale securities		1,000		-
Other		193		212
Total deferred tax liabilities		4,308		3,022
Net deferred tax assets	$	7,077	$	12,132

The Company’s deferred tax assets include net operating loss carryovers that will be used to offset taxable income in future periods through their statutory period of 20 years for federal tax purposes. As of December 31, 2015, 18 years of the statutory period remained available to offset future taxable income. No valuation allowance on these deferred tax assets was recorded at September 30, 2016 and December 31, 2015 as management believes it is more likely than not that all deferred tax assets will be realized based on the following positive material factors: 1) The Company was profitable for all four quarters of 2014, 2015 and the first nine months of 2016 on a GAAP basis. The net operating loss was originally created in the third quarter of 2013 and was solely attributable to the former Talbot Bank’s sale of loans and other real estate owned (the “Asset Sale”), which is considered non-recurring. 2) The Company had pre-tax income of $11.5 million for both the nine months ended September 30, 2016 and year ended December 31, 2015, respectively, providing further evidence that the Asset Sale was producing positive results and confirming the expectation of utilizing the deferred tax assets. Alternatively, the Company has reviewed negative factors which would influence the conclusion of realizing the deferred tax assets. These factors include the following: 1) The Company could be subject to Section 382 of the Internal Revenue Code (“IRC”), which could further limit the realization of the net operating loss-related deferred tax asset (“NOL-DTA”). 2) Although the local economy of the market in which the Company operates has been showing continued signs of improvement over the past four years, if this trend flattens or reverses, there is a possibility that this potential negative evidence could outweigh the prevailing positive factors.

Based on the aforementioned considerations, the Company has concluded that the predominance of observable positive evidence outweighs the future potential of negative evidence and therefore it is more likely than not that the Company will be able to realize in the future all of the net deferred tax assets.