Macatawa Bank Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

FEDERAL INCOME TAXES

FEDERAL INCOME TAXES

3 Months Ended

Mar. 31, 2016

FEDERAL INCOME TAXES [Abstract]

FEDERAL INCOME TAXES

NOTE 9 - FEDERAL INCOME TAXES

Income tax expense was as follows (dollars in thousands):

	Three Months Ended March 31, 2016			Three Months Ended March 31, 2015
Current	$	1,468		$	653
Deferred		(68	)		592
	$	1,400		$	1,245

The difference between the financial statement tax expense and amount computed by applying the statutory federal tax rate to pretax income was reconciled as follows (dollars in thousands):

	Three Months Ended March 31, 2016			Three Months Ended March 31, 2015
Statutory rate		35	%		35	%
Statutory rate applied to income before taxes	$	1,713		$	1,430
Add (deduct)
Tax-exempt interest income		(148	)		(117	)
Bank-owned life insurance		(155	)		(57	)
Other, net		(10	)		(11	)
	$	1,400		$	1,245

The realization of deferred tax assets (net of a recorded valuation allowance) is largely dependent upon future taxable income, future reversals of existing taxable temporary differences and the ability to carryback losses to available tax years. In assessing the need for a valuation allowance, we consider positive and negative evidence, including taxable income in carry-back years, scheduled reversals of deferred tax liabilities, expected future taxable income and tax planning strategies. No valuation allowance was necessary at March 31, 2016 or December 31, 2015.

The net deferred tax asset recorded included the following amounts of deferred tax assets and liabilities (dollars in thousands):

	March 31, 2016			December31, 2015
Deferred tax assets
Allowance for loan losses	$	5,995		$	5,978
Nonaccrual loan interest		830			850
Valuation allowance on other real estate owned		3,739			3,782
Unrealized loss on securities available for sale		---			---
Other		704			647
Gross deferred tax assets		11,268			11,257
Valuation allowance		---			---
Total net deferred tax assets		11,268			11,257

Deferred tax liabilities
Depreciation		(1,682	)		(1,739	)
Prepaid expenses		(191	)		(191	)
Unrealized gain on securities available for sale		(528	)		(187	)
Other		(321	)		(321	)
Gross deferred tax liabilities		(2,722	)		(2,438	)
Net deferred tax asset	$	8,546		$	8,819

There were no unrecognized tax benefits at March 31, 2016 or December 31, 2015 and the Company does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months. The Company is no longer subject to examination by the Internal Revenue Service for years before 2012.