Quarterly report pursuant to Section 13 or 15(d)

FEDERAL INCOME TAXES

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FEDERAL INCOME TAXES
 6 Months Ended
Jun. 30, 2017
FEDERAL INCOME TAXES [Abstract]  
FEDERAL INCOME TAXES
NOTE 9 - FEDERAL INCOME TAXES

Income tax expense was as follows (dollars in thousands):
 
   
Three Months
Ended
June 30,
2017
    
Three Months
Ended
June 30,
2016
    
Six Months
Ended
June 30,
2017
    
Six Months
Ended
June 30,
2016
  
Current
  
$
(62
)
  
$
1,757
    
$
1,742
    
$
3,226
  
Deferred
    
2,191
      
(78
)
    
2,353
      
(147
)
   
$
2,129
    
$
1,679
    
$
4,095
    
$
3,079
  

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
June 30,
2017
    
Three Months
Ended
June 30,
2016
    
Six Months
Ended
June 30,
2017
    
Six Months
Ended
June 30,
2016
  
Statutory rate
    
35
%
    
35
%
    
35
%
    
35
%
Statutory rate applied to income before taxes
  
$
2,412
    
$
1,899
    
$
4,661
    
$
3,612
  
Deduct
                                
Tax-exempt interest income
    
(186
)
    
(149
)
    
(369
)
    
(297
)
Bank-owned life insurance
    
(85
)
    
(56
)
    
(168
)
    
(211
)
Other, net
    
(12
)
    
(15
)
    
(29
)
    
(25
)
   
$
2,129
    
$
1,679
    
$
4,095
    
$
3,079
  

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 June 30, 2017 or December 31, 2016.
 
The net deferred tax asset recorded included the following amounts of deferred tax assets and liabilities (dollars in thousands):

   
June 30,
2017
    
December 31,
2016
  
Deferred tax assets
            
Allowance for loan losses
  
$
5,800
    
$
5,937
  
Nonaccrual loan interest
    
620
      
718
  
Valuation allowance on other real estate owned
    
1,505
      
3,714
  
Unrealized loss on securities available for sale
    
158
      
799
  
Other
    
255
      
176
  
Gross deferred tax assets
    
8,338
      
11,344
  
Valuation allowance
    
---
      
---
  
Total net deferred tax assets
    
8,338
      
11,344
  
                 
Deferred tax liabilities
                
Depreciation
    
(1,669
)
    
(1,705
)
Prepaid expenses
    
(399
)
    
(399
)
Unrealized gain on securities available for sale
    
---
      
---
  
Other
    
(401
)
    
(377
)
Gross deferred tax liabilities
    
(2,469
)
    
(2,481
)
Net deferred tax asset
  
$
5,869
    
$
8,863
  

There were no unrecognized tax benefits at June 30, 2017 or December 31, 2016 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 2013.