Income Tax Expense (Benefit)

12 Months Ended

Dec. 31, 2011

Income Tax Expense (Benefit) [Abstract]

Income Tax Expense (Benefit)

NOTE 11 INCOME TAX EXPENSE (BENEFIT):

The components of income tax expense for the years ended December 31, are as follows:

(Dollars are in thousands)		2011			2010
Current expense (benefit)	$	(1,467	)	$	(2,389	)
Deferred benefits		683			(2,704	)
Net income benefits	$	(784	)	$	(5,093	)

The deferred tax expense (benefit) resulting from temporary differences for the years ended December 31 is as follows:

(Dollar are in thousands)		2011			2010
Organization and start-up cost	$	-		$	-
Provision for loan losses		2,255			(2,287	)
Provision for loan commitments		164			(164	)
Depreciation		294			144
Deferred compensation expense		17			126
Accrued employee benefits		(10	)		155
Nonaccrual loan interest		492			(415	)
Other real estate owned		(1,038	)		(485	)
Net operating loss carryforward		(2,621	)		-
Goodwill		(1,308	)		-
Valuation allowance		2,723			-
Other tax adjustment		(285	)		222
Deferred Income Tax Expense (Benefit)	$	683		$	(2,704	)

The net deferred tax assets and liabilities resulting from temporary differences as of December 31 are summarized as follows:

(Dollars are in thousands		2011			2010
Deferred Tax Assets
Allowance for loan losses	$	6,249		$	8,504
Provision for loan commitments		-			164
Deferred compensation		120			137
Accrued employee benefits		86			76
Nonaccrual loan interest		95			587
Other real estate owned		1,523			485
Amortization of core deposits		151			135
Amortization of goodwill		981			-
Capitalized interest and repair expense		48			13
Net operating loss carryforward		2,621			-
AMT carryforward		252			-
Unrealized loss on securities available for sale		-			6
Total Assets, gross		12,126			10,107
Valuation allowance		(2,723	)		-
Total Assets, net		9,403			10,107
Deferred Tax Liabilities
Accelerated depreciation		1,798			1,504
Amortization of goodwill		-			327
Prepaid expenses		202			185
Deferred loan costs		55			54
Unrealized gain on securities available for sale		128			-
Total Liabilities, gross		2,183			2,070
Net Deferred Tax Asset	$	7,220		$	8,037

The following table summarizes the differences between the actual income tax expense and the amounts computed using the federal statutory tax rate of 34%:

(Dollars are in thousands)		2011			2010
Income tax expense at the applicable federal rate	$	(3,296	)	$	(4,814	)
Permanent differences resulting from:
Nondeductible expenses		8			8
Tax exempt interest income		(64	)		(59	)
State income taxes less federal tax effect		84			48
Bank owned life insurance		(116	)		(157	)
Deferred tax valuation allowance change, net		2,723			-
Other adjustments		(123	)		(119	)
Income Tax Expense (benefit)	$	(784	)	$	(5,093	)

Management reviewed the December 31, 2011 deferred tax calculation to determine the need for a valuation allowance. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. In management's opinion, based on a three year taxable income projection, tax strategies which would result in potential securities gains and the effects of off-setting deferred tax liabilities, it is more likely than not that all the deferred tax assets, net of the $2.7 million allowance, would be realizable. Included in deferred tax assets are the tax benefits derived from net operating loss carryforwards totaling $2.6 million. Management expects to utilize all of these carryforwards prior to expiration.