Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes

Income Taxes

Note 11 – Income Taxes

The components of the provision for income taxes are as follows:

Year ended December 31,	2011			2010
Current Federal income taxes	$	2,674		$	2,701
Deferred Federal income taxes		(198	)		(867	)
Net provision	$	2,476		$	1,834

At December 31, 2011 and 2010, the tax effects of temporary differences that represent the significant portion of deferred tax assets and liabilities are as follows:

December 31,	2011		2010
Deferred tax assets
Allowance for loan losses	$	3,142	$	3,045
Impaired securities		621		623
Capital loss carryover		80		93
Non-credit OTTI on investment securities available-for-sale		394		416
Deferred compensation		9		17
Deposit premium		10		21
Non-accrual interest income		167		19
OREO expenses and writedowns		31		-
Deferred rent		35		-
Other		15		9
Total deferred tax assets		4,504		4,243
Deferred tax liabilities
Depreciation		203		137
Mortgage servicing rights		167		171
Net unrealized holding gains on investment securities available-for-sale		2,797		1,209
Prepaid expenses		175		152
Other		2		2
Total deferred tax liabilities		3,344		1,671
Net deferred tax asset	$	1,160	$	2,572

The realizability of deferred tax assets is dependent upon a variety of factors, including the generation of future taxable income, the existence of taxes paid and recoverable, the reversal of deferred tax liabilities and tax planning strategies. Based upon these and other factors, management believes it is more likely than not that QNB will realize the benefits of the above deferred tax assets. The net deferred tax asset is included in other assets on the consolidated balance sheet. As of December 31, 2011, QNB has capital loss carryovers of $148,000 and $88,000 that will expire on December 31, 2014 and 2015, respectively, if not utilized.

A reconciliation of the tax provision on income before taxes computed at the statutory rate of 34% and the actual tax provision was as follows:

Year ended December 31,	2011						2010
	Amount			%			Amount			%
Provision at statutory rate	$	3,861			34.0	%	$	3,077			34.0	%
Tax-exempt interest and dividend income		(1,313	)		(11.6	)		(1,178	)		(13.0	)
Bank-owned life insurance		(116	)		(1.0	)		(107	)		(1.2	)
Life insurance proceeds		(11	)		(0.1	)		-			-
Stock-based compensation expense		20			0.2			17			0.2
Other		35			0.3			25			0.3
Total provision	$	2,476			21.8	%	$	1,834			20.3	%