NOTE J - INCOME TAXES

The significant components of the provision for income taxes for the years ended December 31, 2014, 2013 and 2012 are as follows:

	2014		2013		2012
	(dollars in thousands)
Current tax provision:
Federal	$	1,067	$	823	$	38
State		240		227		-
Total current tax provision		1,307		1,050		38

Deferred tax provision:
Federal		123		526		2,217
State		7		227		567
Total deferred tax provision		130		753		2,784

Net income tax provision	$	1,437	$	1,803	$	2,822

The difference between the provision for income taxes and the amounts computed by applying the statutory federal income tax rate of 34% to income before income taxes is summarized below:

	2014		2013		2012
	(dollars in thousands)

Income tax at federal statutory rate	$	1,290	$	1,613	$	2,536
Increase (decrease) resulting from:
State income taxes, net of federal tax effect		164		300		374
Tax-exempt interest income		(116)		(66)		(68)
Income from life insurance		(92)		(80)		(84)
Incentive stock option expense		18		9		13
Merger expenses		151		-		-
Other permanent differences		22		27		51

Provision for income taxes	$	1,437	$	1,803	$	2,822

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred taxes at December 31, 2014 and 2013 are as follows:

	2014		2013
	(dollars in thousands)
Deferred tax assets relating to:
Allowance for loan losses	$	2,553	$	2,631
Deferred compensation		281		327
Supplemental executive retirement plan		59		59
Acquisition accounting		2,710		-
Unrealized losses on available-for-sale securities		-		65
Write-downs on foreclosed real estate		170		77
AMT tax credit		-		25
Other		98		164
Total deferred tax assets		5,871		3,348
Deferred tax liabilities relating to:
Premises and equipment		(1,207)		(694)
Deferred loan fees/costs		(35)		(29)
Unrealized gains on available-for-sale securities		(481)		-
Core deposit intangible		(91)		(68)
Other		(80)		(77)
Total deferred tax liabilities		(1,894)		(868)

Net recorded deferred tax asset, included in other assets	$	3,977	$	2,480

The Company’s policy is to report interest and penalties, if any, related to uncertain tax positions in income tax expense in the Consolidated Statements of Operations. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2011. As of December 31, 2014 and 2013, the Company has no uncertain tax provisions.

Deferred Tax Asset

The Company’s net deferred tax asset was $4.0 million and $2.5 million at December 31, 2014 and 2013. In evaluating whether we will realize the full benefit of our net deferred tax asset, we consider both positive and negative evidence, including among other things recent earnings trends, projected earnings, and asset quality. As of December 31, 2014, management concluded that the Company’s net deferred tax assets were fully realizable. The Company will continue to monitor deferred tax assets closely to evaluate whether we will be able to realize the full benefit of our net deferred tax asset or whether there is any need for a valuation allowance. Significant negative trends in credit quality, losses from operations or other factors could impact the realization of the deferred tax asset in the future.