Federal Income Taxes

12 Months Ended

Dec. 31, 2014

Federal Income Taxes [Abstract]

Federal Income Taxes

(11)  FEDERAL INCOME TAXES

Income tax expense (benefit) was comprised of the following:

	Year Ended
	December 31
(Dollars in thousands)	2014		2013
Current tax expense:
Federal	$	1,894	$	567
State		9		9
Deferred income tax (benefit) expense:
Federal		(226)		644
Income tax expense	$	1,677	$	1,220

The effective income tax rates of 25.9% for 2014 and 23.7% for 2013 were different than the applicable statutory Federal income tax rate of 34%. The reason for these differences follows:

	Year Ended
	December 31
(Dollars in thousands)	2014		2013
Federal income taxes at statutory rate	$	2,203	$	1,747
Decrease resulting from:
Tax-exempt interest and dividend preference		(467)		(465)
Bank owned life insurance		(80)		(81)
Other, net increase		21		19
Income tax expense	$	1,677	$	1,220

The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities are presented below:

	December 31
(Dollars in thousands)	2014		2013
Deferred tax assets:
Allowance for credit losses	$	1,485	$	1,572
Unrealized losses on securities		227		836
Unrealized losses on reclassified securities		8		11
Unrealized loss on pension obligation		589		375
Capital loss disallowance		1		1
State net operating losses		463		393
Unvested stock awards		131		58
Deferred compensation (SERP)		704		679
Nonqualified stock options		74		61
Non-accrued interest		547		622
Provision for unfunded loans		57		53
OREO write-downs		75		24
Core deposit intangible		16		26
Accrued expenses		51		24
Total gross deferred tax assets		4,428		4,735
Deferred tax liabilities:
Unrealized gains on securities available for sale		-		-
Depreciation		(101)		(113)
Pension expense		(50)		(43)
Bank shares tax credit		(189)		(189)
Prepaid expenses		(151)		(169)
Mortgage servicing rights		(28)		(39)
Total gross deferred tax liabilities		(519)		(553)
Valuation allowance		(463)		(394)
Net deferred tax asset	$	3,446	$	3,788

As of December 31, 2014, DNB had no material unrecognized tax benefits or accrued interest and penalties. It is DNB’s policy to account for interest and penalties accrued relative to unrecognized tax benefits as a component of income tax expense. Federal and state tax years 2011 through 2013 were open for examination as of December 31, 2014.

DNB had net state operating loss carryovers with the Commonwealth of Pennsylvania of $6.7 million and $6.0 million at December 31, 2014 and 2013, respectively for which a full valuation allowance has been established. These carryovers will begin to expire in 2021.