Quarterly report pursuant to Section 13 or 15(d)

FEDERAL INCOME TAXES

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FEDERAL INCOME TAXES
 9 Months Ended
Sep. 30, 2017
FEDERAL INCOME TAXES [Abstract]  
FEDERAL INCOME TAXES
NOTE 10 - FEDERAL INCOME TAXES

Income tax expense was as follows (dollars in thousands):
 
 
Three Months
  
Three Months
  
Nine Months
  
Nine Months
  
 
Ended
  
Ended
  
Ended
  
Ended
  
 
September 30,
  
September 30,
  
September 30,
  
September 30,
  
 
2017
  
2016
  
2017
  
2016
  
Current
  
$
2,261
    
$
1,370
    
$
4,004
    
$
4,596
  
Deferred
    
(104
)
    
(20
)
    
2,249
      
(167
)
   
$
2,157
    
$
1,350
    
$
6,253
    
$
4,429
  

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
    
Three Months
    
Nine Months
    
Nine Months
  
   
Ended
    
Ended
    
Ended
    
Ended
  
   
September 30,
    
September 30,
    
September 30,
    
September 30,
  
   
2017
    
2016
    
2017
    
2016
  
Statutory rate
    
35
%
    
35
%
    
35
%
    
35
%
Statutory rate applied to income before taxes
  
$
2,461
    
$
2,083
    
$
7,123
    
$
5,695
  
Deduct
                                
Tax-exempt interest income
    
(195
)
    
(154
)
    
(564
)
    
(451
)
Bank-owned life insurance
    
(88
)
    
(51
)
    
(256
)
    
(262
)
Tax return credits and other adjustments
    
(5
)
    
(512
)
    
(5
)
    
(512
)
Other, net
    
(16
)
    
(16
)
    
(45
)
    
(41
)
   
$
2,157
    
$
1,350
    
$
6,253
    
$
4,429
  

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, 2017 or December 31, 2016.
 
The net deferred tax asset recorded included the following amounts of deferred tax assets and liabilities (dollars in thousands):
 
   
September 30,
    
December 31,
  
   
2017
    
2016
  
Deferred tax assets
            
Allowance for loan losses
  
$
5,752
    
$
5,937
  
Nonaccrual loan interest
    
598
      
718
  
Valuation allowance on other real estate owned
    
1,292
      
3,714
  
Unrealized loss on securities available for sale
    
177
      
799
  
Other
    
539
      
176
  
Gross deferred tax assets
    
8,358
      
11,344
  
Valuation allowance
    
---
      
---
  
Total net deferred tax assets
    
8,358
      
11,344
  
 
                
Deferred tax liabilities
                
Depreciation
    
(1,608
)
    
(1,705
)
Prepaid expenses
    
(349
)
    
(399
)
Other
    
(409
)
    
(377
)
Gross deferred tax liabilities
    
(2,366
)
    
(2,481
)
Net deferred tax asset
  
$
5,992
    
$
8,863
  
 
There were no unrecognized tax benefits at September 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.