Note 15 - Income Taxes

The income tax provision consists of the following for the years ended December 31:

	2012		2011		2010
			(restated)		(restated)
	(dollars in thousands)
Current
Federal	$	240	$	28	$	(900	)
State		212		23		(88	)
		452		51		(988	)
Deferred
Federal		1,803		842		1,741
State		403		317		419
		2,206		1,159		2,160

Total income tax provision	$	2,658	$	1,210	$	1,172

The amount computed by applying the statutory federal income tax rate to income before taxes is less than the tax provision for the following reasons for the years ended December 31:

	2012						2011					2010
							(restated)					(restated)
	Amount			Percent of Pretax Income			Amount		Percent of Pretax Income			Amount		Percent of Pretax (Loss)
	(dollar in thousands)
Statutory Federal
income tax rate	$	2,171			34.0	%	$	939		34.0	%	$	861		34.0	%
State tax net of
Federal income
tax benefit		527			8.3	%		228		8.3	%		230		9.1	%
Other adjustments		(40	)		(0.7	)%		43		1.5	%		81		3.2	%
	$	2,658			41.6	%	$	1,210		43.8	%	$	1,172		46.3	%

Bancorp does not have any unrecognized tax benefits at December 31, 2012 or 2011.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2012 and 2011 are presented below:

	2012			2011
				(restated)
	(dollars in thousands)
Deferred Tax Assets:
Allowance for loan losses	$	7,054		$	10,468
Loan charge-offs		1,902			-
Reserve on foreclosed real estate		1,151			1,420
Reserve for uncollected interest		641			540
Federal net operating loss carryforwards		-			390
State net operating loss carryforwards		278			249
Charitable contribution carryforwards		157			-
Other		12			102
Total deferred tax assets		11,195			13,169
Valuation allowance		(269	)		(216	)
Total deferred tax assets, net of valuation allowance		10,926			12,953

Deferred Tax Liabilities:
Federal Home Loan Bank stock dividends		(84	)		(83	)
Loan origination costs		(400	)		(321	)
Accelerated depreciation		(1,552	)		(1,437	)
Prepaid expenses		(182	)		(199	)
Total deferred tax liabilities		(2,218	)		(2,040	)

Net deferred tax assets	$	8,708		$	10,913

The valuation allowance relates to state net operating loss carryforwards of $5,017,000 at December 31, 2012 for which realizability is uncertain. At December 31, 2012 and 2011, Bancorp had state net operating loss carryforwards of approximately $5,144,000 and $4,599,000, respectively, which were available to offset state taxable income, and expire at various dates through 2032.

In assessing the realizability of federal or state deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and prudent, feasible and permissible as well as available tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible as well as available tax planning strategies, management believes it is more likely than not that Bancorp will realize the benefits of these deferred tax assets.

The statute of limitations for Internal Revenue Service examination of Bancorp's federal consolidated tax returns remains open for tax years 2009 through 2012.