NOTE 13 – INCOME TAXES

The components of income tax (benefit) expense are as follows:

For the year ended December 31,	2011				2010			2009
Current		$	4,563			$	2,914		$	394
Deferred			(2,728	)			1,817			(394	)
		$	1,835			$	4,731		$	-

Effective tax rates differ from the federal statutory rate of 35% applied to income (loss) before income tax expense (benefit) due to the following:


	2011						2010						2009
	Amount			% of pretax income			Amount			% of pretax income			Amount			% of pretax income
Federal income tax at statutory rate	$	2,054			35.00	%	$	9,552			34.00	%	$	(4,500	)		(34.00	) %
State income tax		64			1.09	%		209			0.74	%		-			-	%
Tax exempt interest		(14	)		(0.23	) %		(74	)		(0.27	) %		(104			(0.79	) %
Interest disallowance		3			0.05	%		4			0.02	%		12			0.09	%
Bank owned life insurance		(490	)		(8.35	) %		(67	)		(0.24	) %		(69	)		(0.53	) %
(Reversal) recordation of valuation allowance		-			0.00	%		(6,605	)		(23.51	) %		4,652			35.15	%
Other		218			3.71	%		1,712			6.09	%		9			0.08	%
Effective income tax rate	$	1,835			31.27	%	$	4,731			16.83	%	$	-			-	%

Deferred income taxes reflect temporary differences in the recognition of revenue and expenses for tax reporting and financial statement purposes, principally because certain items, such as the allowance for loan and lease losses and loan fees are recognized in different periods for financial reporting and tax return purposes. A valuation allowance has not been established for deferred tax assets. Realization of the deferred tax assets is dependent on generating sufficient future taxable income. Although realization is not assured, management believes it is more likely than not that all of the deferred tax asset will be realized. Deferred tax assets are recorded in other assets.

The components of the net deferred tax asset (liability) at December 31, 2011 and 2010 are as follows:
	2011			2010
Deferred tax assets:
Allowance for loan and lease losses	$	5,261		$	5,240
Net unrealized losses on securities		132			977
Bank premises and equipment		-			168
Impairment charge on securities		175			304
OREO expenses		191			66
Non-accrual interest		2,711			576
Net operating losses		3,235			1,142
Deferred compensation		980			869
Fair value adjustments on acquisitions		981			-
Other		437			185
Total deferred tax assets		14,103			9,527
Valuation allowance		-			-
Total deferred tax assets, net of valuation allowance		14,103			9,527
Deferred tax liabilities:
Tax basis discount on acquisitions		(7,733	)		(9,369	)
Deferred loan costs		(441	)		(259	)
Bank premises and equipment		(223	)		-
Other		(337	)		(482	)
Total deferred tax liabilities		(8,734	)		(10,110	)
Net deferred tax asset (liability)	$	5,369		$	(583	)

The Bancorp had approximately $9.2 million of federal net operating loss carryovers at December 31, 2011, that expire beginning in 2029 through 2031.

The Bank and its subsidiary are subject to U.S. federal income tax as well as income tax of various states primarily in the mid-Atlantic region of the U.S. Years that remain open for potential review by the Internal Revenue Service and the state taxing authorities are 2008 through 2010. Total amount of interest and penalties for 2011 amounted to $30.