11.INCOME TAXES

Pursuant to the accounting guidelines related to income taxes, the Company has evaluated its material tax positions as of December 31, 2015 and 2014. Under the “more-likely-than-not” threshold guidelines, the Company believes no significant uncertain tax positions exist, either individually or in the aggregate, that would give rise to the non-recognition of an existing tax benefit. In periods subsequent to December 31, 2015, determinations of potentially adverse material tax positions will be evaluated to determine whether an uncertain tax position may have previously existed or has been originated. In the event an adverse tax position is determined to exist, penalty and interest will be accrued, in accordance with the Internal Revenue Service (IRS) guidelines, and will be recorded as a component of other expenses in the Company’s consolidated statements of income.

As of December 31, 2015, there were no unrecognized tax benefits that, if recognized, would significantly affect the Company’s effective tax rate. Also, there were no penalties and interest recognized in the consolidated statements of income in 2015, 2014 and 2013 as a result of management’s evaluation of whether an uncertain tax position may exist nor does the Company foresee a change in its material tax positions that would give rise to the non-recognition of an existing tax benefit during the forthcoming twelve months. Tax returns filed with the IRS are subject to review by law under a three-year statute of limitations. The Company has not received notification from the IRS regarding adverse tax issues from tax returns filed for tax years 2015, 2014 or 2013.

For federal income tax purposes, in 2013 the Company generated a net operating loss (NOL). The NOL position occurred because the Company disposed of its non-accruing and underperforming portfolio of pooled trust preferred securities in 2013. Generally, the credit impairment losses that had been incurred within the portfolio from inception and the related uncollected accrued interest were able to be deducted on the 2013 federal income tax return resulting in the NOL. The NOL was carried back to the two immediately preceding years. By carrying back the NOL, the Company was able to obtain a refund of income taxes paid in 2012 and 2011.

The following temporary differences gave rise to the net deferred tax liability, a component of other assets in the consolidated balance sheets, as of the periods indicated:


	As of December 31,
(dollars in thousands)	2015		2014
Deferred tax assets:
Allowance for loan losses	$	3,239	$	3,119
Deferred interest from non-accrual assets		376		415
Other		281		321
Total		3,896		3,855

Deferred tax liabilities:
Net unrealized gains on available-for-sale securities		(1,127)		(1,413)
Loan fees and costs		(1,434)		(1,400)
Automobile leasing		(2,019)		(463)
Depreciation		(357)		(367)
Mortgage loan servicing rights		(410)		(342)
Other		(69)		(31)
Total		(5,416)		(4,016)
Deferred tax liability, net	$	(1,520)	$	(161)

The components of the total provision for income taxes for the years indicated are as follows:


	Years ended December 31,
(dollars in thousands)	2015		2014		2013

Current	$	173	$	2,010	$	(3,531)
Deferred		1,645		156		6,166
Total provision for income taxes	$	1,818	$	2,166	$	2,635

The reconciliation between the expected statutory income tax and the actual provision for income taxes is as follows:


	Years ended December 31,

(dollars in thousands)	2015		2014		2013
Expected provision at the statutory rate	$	3,033	$	2,896	$	3,317
Tax-exempt income		(715)		(671)		(589)
Bank owned life insurance		(116)		(115)		(114)
Low income housing credits		-		-		(10)
Nondeductible interest expense		14		16		14
Nondeductible other expenses and other, net		41		40		17
Tax credits		(439)		-		-
Actual provision for income taxes	$	1,818	$	2,166	$	2,635