Note 15: Income Tax

The provision for income taxes includes these components:



	2016		2015		2014
Income tax expense
Currently payable
Federal	$	2,849	$	2,652	$	2,779
State		-		-		-
Deferred
Federal		1,317		1,706		867
State		220		220		220
Total income tax expense	$	4,386	$	4,578	$	3,866

A reconciliation of income tax expense at the federal statutory rate to actual tax expense is shown below:



	2016			2015			2014
Federal statutory income tax at 34%	$	5,993		$	5,721		$	4,897
Other than temporary impairment		-			-			(615)
Non tax captive insurance income		(319)			-			-
State taxes		145			145			145
Low income housing credits		(96)			(96)			(107)
Tax-exempt income		(1,404)			(1,111)			(818)
Other		67			(81)			364
Actual tax expense	$	4,386		$	4,578		$	3,866
Effective tax rate		24.88	%		27.21	%		25.93	%

The components of the deferred asset included on the consolidated balance sheets were as follows:



	2016		2015
Assets
Allowance for loan losses	$	4,999	$	5,091
Deferred compensation		3,174		3,193
Business tax and AMT credit carryovers		4,100		4,776
Capital loss carryover		-		102
Net operating loss carryover		1,496		1,845
Goodwill impairment		1,780		2,188
Purchase accounting adjustments		1,010		1,060
Other-than-temporary-impairment, available for sale securities		37		37
Unrealized loss on securities available for sale		776		-
Other		857		1,275
Total assets		18,229		19,567

Liabilities
Unrealized gain on securities available for sale	$	-	$	(720)
Depreciation and amortization		(504)		(465)
FHLB stock		(385)		(358)
State income tax		(551)		(585)
Loan fees		(355)		(298)
Investments in limited partnerships		(2,072)		(2,255)
Mortgage servicing rights		(564)		(572)
Other		(972)		(1,010)
Total liabilities		(5,403)		(6,263)

Valuation Allowance
Beginning balance		(1,220)		(1,220)
Decrease during period		431		-
Ending balance		(789)		(1,220)
Net deferred tax asset	$	12,037	$	12,084

The Company has unused business income tax credits of $2,749,000 that will begin to expire in 2028 and a state net operating loss of $23,011,000 that will begin to expire in 2023. In addition, the Company has an AMT credit carryover of $1,351,000 with an unlimited carryover period. Management believes that the Company will be able to utilize the benefits recorded for the state loss carryforwards and federal credits within the allotted time periods, except for the amount represented by the valuation allowance. The valuation allowance has been recorded for the possible inability to use a portion of the state net operating loss carryover.

Retained earnings include approximately $14,743,000 for which no deferred income tax liability has been recognized. This amount represents an allocation of income to bad debt deductions as of December 31, 1987 for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes only, which income would be subject to the then-current corporate income tax rate. The unrecorded deferred income tax liability on the above amounts was approximately $5,013,000.

The Company’s federal and state income tax returns have been closed without audit by the IRS through the year ended December 31, 2012.