Income Taxes

12 Months Ended

Dec. 31, 2013

Income Taxes

Income Taxes Text Block

NOTE 13: INCOME TAXES

For the years ended December 31, 2013, 2012, and 2011 the components of income tax expense from continuing operations are presented below.

				Year ended December 31
(Dollars in thousands)			2013		2012		2011
Current income tax expense:
	Federal		$	594		737		72
	State			159		58		353
		Total current income tax expense		753		795		425
Deferred income tax expense (benefit):
	Federal			1,330		472		(344)
	State			207		152		(24)
		Total deferred income tax expense (benefit)		1,537		624		(368)
	Total income tax expense		$	2,290		1,419		57

Total income tax expense differs from the amounts computed by applying the statutory federal income tax rate of 34% to earnings before income taxes. A reconciliation of the differences for the years ended December 31,2013, 2012, and 2011, is presented below.

				2013			2012			2011
					Percent of			Percent of			Percent of
					pre-tax			pre-tax			pre-tax
(Dollars in thousands)				Amount	earnings		Amount	earnings		Amount	earnings
Earnings before income taxes			$	9,408			8,182			5,595
Income taxes at statutory rate				3,199	34.0	%	2,782	34.0	%	1,902	34.0	%
	Tax-exempt interest			(884)	(9.4)		(997)	(12.2)		(1028)	(18.4)
	State income taxes, net of
		federal tax effect		242	2.6		179	2.2		183	3.3
	Low-income housing credit			—	—		—	—		(891)	(15.9)
	Bank owned life insurance			(145)	(1.5)		(151)	(1.8)		(157)	(2.8)
	Change in valuation allowance			—	—		(505)	(6.2)		—	—
	Other			(122)	(1.3)		111	1.4		48	0.9
Total income tax expense			$	2,290	24.4	%	1,419	17.4	%	57	1.1	%

The Company had net deferred tax assets of $5.4 million and $1.2 million at December 31, 2013 and 2012, respectively, included in other assets on the consolidated balance sheets. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2013 and 2012 are presented below:

				December 31
(Dollars in thousands)			2013		2012
Deferred tax assets:
	Allowance for loan losses		$	1,944		2,480
	Other-than-temporary impairment on securities			—		464
	Unrealized loss on securities			2,661		—
	Write-downs on other real estate owned			282		489
	Tax credit carry-forwards			1,137		932
	Other			531		670
		Total deferred tax assets		6,555		5,035
Deferred tax liabilities:
	Premises and equipment			90		11
	Unrealized gain on securities			—		3,025
	Originated mortgage servicing rights			867		563
	Other			205		192
		Total deferred tax liabilities		1,162		3,791
		Net deferred tax asset	$	5,393		1,244

A valuation allowance is recognized for a deferred tax asset if, based on the weight of available evidence, it is more-likely-than-not that some portion of the entire deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projection for future taxable income over the periods which the temporary differences resulting in the remaining deferred tax assets are deductible, management believes it is more-likely-than-not that the Company will realize the benefits of these deductible differences at December 31,2013. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced.

The change in the net deferred tax asset for the years ended December 31, 2013,2012, and 2011, is presented below.

		Year ended December 31
(Dollars in thousands)	2013		2012		2011
Net deferred tax asset:
Balance, beginning of year	$	1,244		2,425		5,813
Deferred tax (expense) benefit related to continuing operations		(1,537)		(624)		368
Stockholders' equity, for accumulated other comprehensive loss (income)		5,686		(557)		(3,756)
Balance, end of year	$	5,393		1,244		2,425

ASC 740 defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authority. This section also provides guidance on the de-recognition, measurement, and classification of income tax uncertainties in interim periods. As of December 31, 2013, the Company had no unrecognized tax benefits related to federal or state income tax matters. The Company does not anticipate any material increase or decrease in unrecognized tax benefits during 2014 relative to any tax positions taken prior to December 31, 2013. As of December 31, 2013, the Company has accrued no interest and no penalties related to uncertain tax positions. It is the Company’s policy to recognize interest and penalties related to income tax matters in income tax expense.

The Company and its subsidiaries file consolidated U.S. federal and State of Alabama income tax returns. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service and the State of Alabama for the years ended December 31, 2010 through 2013.