Quarterly report pursuant to Section 13 or 15(d)

FEDERAL INCOME TAXES

v3.5.0.2
FEDERAL INCOME TAXES
9 Months Ended
Sep. 30, 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
September 30,
2016
   
Three Months
Ended
September 30,
2015
   
Nine Months
Ended
September 30,
2016
   
Nine Months
Ended
September 30,
2015
 
Current
 
$
1,370
   
$
1,381
   
$
4,596
   
$
2,710
 
Deferred
   
(20
)
   
19
     
(167
)
   
1,355
 
   
$
1,350
   
$
1,400
   
$
4,429
   
$
4,065
 

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
September 30,
2016
   
Three Months
Ended
September 30,
2015
   
Nine Months
Ended
September 30,
2016
   
Nine Months
Ended
September 30,
2015
 
Statutory rate
   
35
%
   
35
%
   
35
%
   
35
%
Statutory rate applied to income before taxes
 
$
2,083
   
$
1,611
   
$
5,695
   
$
4,663
 
Deduct
                               
Tax-exempt interest income
   
(154
)
   
(135
)
   
(451
)
   
(379
)
Bank-owned life insurance
   
(51
)
   
(59
)
   
(262
)
   
(176
)
Tax return credits and other adjustments
   
(512
)
   
---
     
(512
)
   
---
 
Other, net
   
(16
)
   
(17
)
   
(41
)
   
(43
)
   
$
1,350
   
$
1,400
   
$
4,429
   
$
4,065
 

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 September 30, 2016 or December 31, 2015.
 
The net deferred tax asset recorded included the following amounts of deferred tax assets and liabilities (dollars in thousands):
 
   
September 30,
2016
   
December 31,
2015
 
Deferred tax assets
           
Allowance for loan losses
 
$
5,897
   
$
5,978
 
Nonaccrual loan interest
   
746
     
850
 
Valuation allowance on other real estate owned
   
3,866
     
3,782
 
Other
   
856
     
647
 
Gross deferred tax assets
   
11,365
     
11,257
 
Valuation allowance
   
---
     
---
 
Total net deferred tax assets
   
11,365
     
11,257
 
                 
Deferred tax liabilities
               
Depreciation
   
(1,621
)
   
(1,739
)
Prepaid expenses
   
(197
)
   
(191
)
Unrealized gain on securities available for sale
   
(773
)
   
(187
)
Other
   
(374
)
   
(321
)
Gross deferred tax liabilities
   
(2,965
)
   
(2,438
)
Net deferred tax asset
 
$
8,400
   
$
8,819
 

There were no unrecognized tax benefits at September 30, 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.