Income tax

12 Months Ended

Dec. 31, 2011

IncomeTaxDisclosureAbstract

Income Tax Disclosure Text Block

NOTE 13: INCOME TAXES

For the years ended December 31, 2011, 2010, and 2009 the components of income tax expense (benefit) from continuing operations are presented below.

				Year ended December 31
(Dollars in thousands)			2011		2010		2009
Current income taxes:
	Federal		$	72		1,290		1,563
	State			353		285		287
		Total current income taxes		425		1,575		1,850
Deferred income taxes:
	Federal			(344)		(698)		(1,930)
	State			(24)		(79)		(260)
		Total deferred income taxes		(368)		(777)		(2,190)
	Total income tax expense (benefit)		$	57		798		(340)

Total income tax expense differs from the amounts computed by applying the statutory federal income tax rate of 34% to earnings before income taxes. A reconciliation of the differences for the years ended December 31,2011, 2010, and 2009, is presented below. As discussed in Footnote 1, income tax expense for the year ended December 31, 2009 included a $281 thousand tax benefit related to the correction of an error in prior periods. The error resulted from the incorrect calculation of tax basis for certain available-for-sale securities, primarily related to periods prior to January 1, 2007.

				2011			2010			2009
					Percent of			Percent of			Percent of
					pre-tax			pre-tax			pre-tax
(Dollars in thousands)				Amount	earnings		Amount	earnings		Amount	earnings
Earnings before income taxes			$	5,595			6,144			2,064
Income taxes at statutory rate				1,902	34.0	%	2,089	34.0	%	702	34.0	%
	Tax-exempt interest			(1,028)	(18.4)		(1,042)	(17.0)		(939)	(45.5)
	State income taxes, net of
		federal tax effect		183	3.3		151	2.5		44	2.1
	Low-income housing credit			(891)	(15.9)		(220)	(3.6)		(228)	(11.0)
	Bank owned life insurance			(157)	(2.8)		(154)	(2.5)		(144)	(7.0)
	Change in valuation allowance			—	—		—	—		505	24.5
	Correction of prior period error			—	—		—	—		(281)	(13.6)
	Other			48	0.9		(26)	(0.4)		1	0.0
Total income tax expense (benefit)			$	57	1.0	%	798	13.0	%	(340)	(16.5)	%

The Company had net deferred tax assets of $2.4 million and $5.8 million at December 31,2011 and 2010, respectively. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2011 and 2010 are presented below:

At December 31, 2011, the Company had capital loss carry-forwards of approximately $0.5 million that expire in 2014. The Company's capital loss carry-forwards at December 31, 2011 and 2010, respectively, were primarily attributable to a capital loss for income tax purposes related to its investments in the common stock of Silverton Financial Services, Inc, the holding company of Silverton Bank, which failed on May 1, 2009.

A valuation allowance is recognized for a deferred tax asset if, based on the weight of available evidence, it is more-likely-than-not that some portion of the entire deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

The Company had a valuation allowance for deferred tax assets of approximately $0.5 million at December 31, 2011 and 2010, respectively, which reduced its deferred tax asset related to capital loss carry-forwards to an amount that management believes will more-likely-than-not be realized. Based upon the level of historical taxable income and projection for future taxable income over the periods which the temporary differences resulting in the remaining deferred tax assets are deductible, management believes it is more-likely-than-not that the Company will realize the benefits of its remaining deferred tax assets at December 31,2011. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced.

The change in the net deferred tax asset for the years ended December 31, 2011,2010, and 2009, is presented below.

		Year ended December 31
(Dollars in thousands)	2011		2010		2009
Net deferred tax asset:
Balance, beginning of year	$	5,813		3,683		1,205
Deferred tax benefit related to continuing operations		368		777		2,190
Stockholders' equity, for accumulated other comprehensive (income) loss		(3,756)		1,353		288
Balance, end of year	$	2,425		5,813		3,683

ASC 740 defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authority. This section also provides guidance on the de-recognition, measurement, and classification of income tax uncertainties in interim periods. As of December 31, 2011, the Company had no unrecognized tax benefits related to federal or state income tax matters. The Company does not anticipate any material increase or decrease in unrecognized tax benefits during 2012 relative to any tax positions taken prior to December 31, 2011. As of December 31, 2011, the Company has accrued no interest and no penalties related to uncertain tax positions. It is the Company's policy to recognize interest and penalties related to income tax matters in income tax expense.

The Company and its subsidiaries file consolidated U.S. federal and State of Alabama income tax returns. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service and the State of Alabama for the years ended December 31, 2008 through 2011.