NOTE 8. INCOME TAXES

The amount reflected as income taxes represents federal and state income taxes on financial statement income. Certain items of income and expense, primarily the provision for possible loan losses, allowance for losses on foreclosed assets held for resale, depreciation, and accretion of discounts on investment securities are reported in different accounting periods for income tax purposes.

The provisions for income taxes for the years ended December 31, were as follows:


(in thousands)	2014		2013
Current:
Federal	$	862	$	216
State		124		273
	$	986	$	489

Deferred expense (benefit)
Federal	$	(1,017)	$	464
State		(65)		30
		(1,082)		494
Income tax expense (benefit)	$	(96)	$	983

Following is a reconciliation of income taxes at federal statutory rates to recorded income taxes for the year ended December 31:


	2014				2013
(Dollars in thousands)	Amount		%		Amount		%

Tax at Federal tax rate	$	674	34	%	$	1,701	34	%
Tax effect of:
State income tax		50	2.5	%		125	2.5	%
Tax exempt earnings		(820)	(41.3)	%		(839)	(16.8)	%
Other		—	0	%		(4)	0	%
	$	(96)	(4.8)	%	$	983	19.7	%

Deferred tax assets and liabilities are the result of timing differences in recognition of revenue and expense for income tax and financial statement purposes.

Deferred income tax assets and (liabilities) were comprised of the following at December 31 (in thousands):


	2014		2013

Allowance for loan losses	$	2,292	$	1,263
Minimum pension liability		1,491		990
Unrealized gain on securities available-for-sale		271		984
Gross deferred tax assets		4,054		3,237

Depreciation		(705)		(747)
Pension		(10)		(22)
Goodwill		(446)		(446)
Gross deferred tax liabilities		(1,161)		(1,215)

Net deferred tax asset	$	2,893	$	2,022

No deferred income tax valuation allowance is provided since it is more likely than not that realization of the deferred income tax asset will occur in future years.

The Company prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. With limited exception, the Company’s federal and state income tax returns for taxable years through 2009 have been closed for purposes of examination by the federal and state taxing jurisdictions.