FEDERAL INCOME TAXES (Tables)

9 Months Ended

Sep. 30, 2014

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

Difference between financial statement tax expense and amount computed by applying statutory federal tax rate to pretax income

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

Deferred tax assets and liabilities

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