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.