Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes

NOTE 10: Income Taxes

Principal components of income tax expense as reflected in the consolidated statements of income are as follows:

	Year Ended December 31,
(Dollars in thousands)	2011			2010			2009
Current taxes	$	7,076		$	5,202		$	5,422
Deferred taxes		(1,341	)		(2,253	)		(3,477	)
	$	5,735		$	2,949		$	1,945

The income tax provision is less than would be obtained by application of the statutory federal corporate tax rate to pre-tax accounting income as a result of the following items:

	Year Ended December 31,
(Dollars in thousands)	2011			Percent of Pre-tax Income			2010			Percent of Pre-tax Income			2009			Percent of Pre-tax Income
Income tax computed at federal statutory rates	$	6,362			34.0	%	$	3,760			34.0	%	$	2,540			34.0	%
Tax effect of exclusion of interest income on obligations of states and political subdivisions		(1,652	)		(8.8	)		(1,516	)		(13.7	)		(1,431	)		(19.2	)
Reduction of interest expense incurred to carry tax-exempt assets		98			0.5			100			0.9			115			1.5
State income taxes, net of federal tax benefit		1,114			6.0			787			7.1			665			8.9
Tax effect of dividends-received deduction on preferred stock		-			-			(5	)		(0.1	)		(22	)		(0.2	)
Compensation in excess of deductible limits		41			.2			-			-			219			2.9
Tax credits		(180	)		(1.0	)		(135	)		(1.2	)		(118	)		(1.6	)
Other		(48	)		(0.3	)		(42	)		(0.3	)		(23	)		(0.3	)
	$	5,735			30.6	%	$	2,949			26.7	%	$	1,945			26.0	%

The Corporation's net deferred income taxes totaled $14.27 million and $14.99 million at December 31, 2011 and 2010, respectively. The tax effects of each type of significant item that gave rise to deferred taxes are:

	December 31,
(Dollars in thousands)	2011			2010
Deferred tax asset
Allowance for loan losses	$	14,128		$	10,797
Reserve for indemnification losses		647			491
OREO expenses		381			1,842
Deferred compensation		1,916			1,791
Other-than-temporary impairment of Fannie Mae and Freddie Mac preferred stock		614			614
Defined benefit plan		--			46
Share-based compensation		331			499
Interest on nonaccrual loans		119			132
Depreciation		--			27
Cash flow hedges		201			58
Other		1,240			1,140
Deferred tax asset		19,577			17,437
Deferred tax liability
Goodwill and other intangible assets		(2,509	)		(2,174	)
Defined benefit plan		(318	)		--
Depreciation		(3	)		--
Net unrealized gain on securities available for sale		(2,475	)		(270	)
Deferred tax liability		(5,305	)		(2,444	)
Net deferred tax asset	$	14,272		$	14,993

The Corporation files income tax returns in the U.S. federal jurisdiction and several states. With few exceptions, the Corporation is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to 2008.