Note 5 – Other Assets

The Company had the following other assets at March 31, 2017 and December 31, 2016.


(Dollars in thousands)	March 31, 2017		December 31, 2016
Nonmarketable investment securities	$	3,070	$	1,650
Accrued interest receivable		2,753		2,675
Deferred income taxes		4,973		7,039
Prepaid expenses		1,215		1,149
Cash surrender value on life insurance		2,591		2,589
Other assets		3,656		3,781
Total	$	18,258	$	18,883

The following table provides information on significant components of the Company’s deferred tax assets and liabilities as of March 31, 2017 and December 31, 2016.


	March 31,		December 31,
(Dollars in thousands)	2017		2016
Deferred tax assets:
Allowance for credit losses	$	3,566	$	3,486
Reserve for off-balance sheet commitments		122		122
Net operating loss carry forward		1,260		2,232
Write-downs of other real estate owned		267		387
Deferred income		985		1,011
Unrealized losses on available-for-sale securities		189		672
Accrued expenses		-		-
AMT Credits		606		869
Other		1,013		1,192
Total deferred tax assets		8,008		9,971
Deferred tax liabilities:
Depreciation		220		239
Amortization on loans FMV adjustment		145		156
Purchase accounting adjustments		2,153		2,019
Deferred capital gain on branch sale		353		401
Other		164		116
Total deferred tax liabilities		3,035		2,931
Net deferred tax assets	$	4,973	$	7,040

The Company’s deferred tax assets consist of gross net operating loss carryovers for state tax purposes of $23.5 million that will be used to offset taxable income in future periods. The Company’s state net operating loss carryovers will begin to expire in the year ended December 31, 2026 with limited amounts available through December 31, 2034. Additionally, the Company has $606 thousand of alternative minimum tax credit carryforwards as of March 31, 2017 which may be carried forward indefinitely.

No valuation allowance on these deferred tax assets was recorded at March 31, 2017 and December 31, 2016 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 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 $15.9 million and $11.5 million for the years ended December 31, 2016 and 2015, 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 potential 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.