Quarterly report pursuant to Section 13 or 15(d)

FEDERAL INCOME TAXES

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FEDERAL INCOME TAXES
 9 Months Ended
Sep. 30, 2014
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,
2014
  
Three Months
Ended
September 30,
2013
  
Nine Months
Ended
September 30,
2014
  
Nine Months
Ended
September 30,
2013
  
Current
  
$
651
    
$
40
    
$
711
    
$
95
  
Deferred
    
555
      
935
      
2,903
      
3,218
  
   
$
1,206
    
$
975
    
$
3,614
    
$
3,313
  

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,
2014
  
Three Months
Ended
September 30,
2013
  
Nine Months
Ended
September 30,
2014
  
Nine Months
Ended
September 30,
2013
  
Statutory rate
    
35
%
    
35
%
    
35
%
    
35
%
Statutory rate applied to income before taxes
  
$
1,389
    
$
1,124
    
$
4,119
    
$
3,720
  
Add (deduct)
                                
Tax-exempt interest income
    
(104
)
    
(70
)
    
(278
)
    
(166
)
Bank-owned life insurance
    
(62
)
    
(63
)
    
(177
)
    
(188
)
Other, net
    
(17
)
    
(16
)
    
(50
)
    
(53
)
   
$
1,206
    
$
975
    
$
3,614
    
$
3,313
  

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, 2014 or December 31, 2013.

The net deferred tax asset recorded included the following amounts of deferred tax assets and liabilities (dollars in thousands):
 
   
September 30,
    
December 31,
  
   
2014
    
2013
  
Deferred tax assets
        
Allowance for loan losses
  
$
6,870
    
$
7,279
  
Nonaccrual loan interest
    
908
      
782
  
Valuation allowance on other real estate owned
    
5,000
      
5,847
  
Net operating loss carryforward
    
---
      
1,743
  
Unrealized loss on securities available for sale
    
143
      
1,053
  
Other
    
1,962
      
1,808
  
Gross deferred tax assets
    
14,883
      
18,512
  
Valuation allowance
    
---
      
---
  
Total net deferred tax assets
    
14,883
      
18,512
  
                 
Deferred tax liabilities
                
Depreciation
    
(1,903
)
    
(1,620
)
Prepaid expenses
    
(204
)
    
(308
)
Other
    
(389
)
    
(384
)
Gross deferred tax liabilities
    
(2,496
)
    
(2,312
)
Net deferred tax asset
  
$
12,387
    
$
16,200
  

At September 30, 2014, we had no U.S. federal net operating loss carry forwards remaining.

There were no unrecognized tax benefits at September 30, 2014 or December 31, 2013 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 2011.