7. INCOME TAXES

The components of income tax expense consist of:

	2012			2011			2010

Current tax expense (benefit)	$	(86,388	)	$	675,212		$	(227,637	)
Deferred tax expense (benefit)		(814,682	)		(1,757,769	)		(675,112	)

Total income tax expense (benefit)	$	(901,070	)	$	(1,082,557	)	$	(902,749	)

Income tax expense for the years ended December 31, 2012, 2011, and 2010 differed from the amounts computed by applying the statutory federal income tax rate of 34% to earnings before income taxes as follows:

	2012			2011			2010

Income tax expense at statutory rate	$	(44,963	)	$	(276,737	)	$	(93,008	)
Tax-exempt interest income—net of disallowed interest expense		(593,130	)		(593,502	)		(600,841	)
Nondeductible expenses		—			—			14,165
Cash surrender value of life insurance income		(205,634	)		(125,420	)		(130,151	)
Other—net		(57,343	)		(86,898	)		(92,914	)

Income tax expense (benefit)	$	(901,070	)	$	(1,082,557	)	$	(902,749	)

In 2012, the valuation allowance decreased by $2,349.

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

	2012			2011

Deferred tax assets:
Net operating losses and credits	$	1,114,223		$	1,199,939
Loans, principally due to difference in allowance for loan losses and deferred loan fees		1,207,696			1,377,136
Nonaccrual loan interest		1,096,904			1,009,721
Postretirement benefit accrual, deferred compensation		1,073,002			1,032,690
Other real estate owned		808,479			734,217
Other		1,213,850			468,851

Gross deferred tax asset		6,514,154			5,822,554
Valuation allowance		(128,474	)		(130,823	)

Total deferred tax assets		6,385,680			5,691,731

Deferred tax liabilities:
Net unrealized gain on securities available for sale		1,399,858			1,351,989
Purchased loan discount		68,417			102,625
Premises and equipment		364,990			310,796
Other		73,050			213,764

Total deferred tax liabilities		1,906,315			1,979,174

Net deferred tax assets	$	4,479,365		$	3,712,557

The Company has, at December 31, 2012, net operating loss carryforwards of approximately $2,899,261 for federal purposes and $3,244,289 for state income tax purposes, which begin to expire in the year 2016. The Company also has certain state income tax credits of $390,724 at December 31, 2012 which begins to expire in the year 2013. Due to the uncertainty relating to the realizability of all the carryforwards and credits, management currently considers it more likely than not that all related deferred tax assets will not be realized; thus, a $128,474 valuation allowance has been provided against state tax carry forwards totaling $3,244,289.

Tax returns for 2009 and subsequent years are subject to examination by taxing authorities.

The Company believes that its income tax filing positions taken or expected to be taken in its tax returns will more likely than not be sustained upon audit by the taxing authorities and does not anticipate any adjustments that will result in a material adverse impact on the Company's financial condition, results of operations, or cash flow. Therefore, no reserves for uncertain income tax positions have been recorded.