NOTE 12.

INCOME TAXES

The Company and its subsidiaries file a consolidated federal income tax return on a fiscal year basis. Total income tax expense differs from expected tax for the three months ended December 31, 2015 and 2014 as follows:

	Income Tax Expense (Benefit) For The Three Months Ended
	December 31, 2015			December 31, 2014
	(Dollars in Thousands)

Income tax expense at federal tax rate	$	1,258		$	1,324
Increase (decrease) resulting from:
State income taxes net of federal benefit		167			119
Nontaxable buildup in cash surrender value		(131	)		(100	)
Incentive stock option expense		(18	)		-
Tax exempt income		(1,790	)		(1,068	)
Nondeductible expenses		39			12
Other, net		12			(98	)
Total income tax expense (benefit)	$	(463	)	$	189

The Company’s effective tax for the three months ended December 31, 2015 decreased as compared to the three months ended December 31, 2014 primarily due to the level of tax exempt income as compared to overall pre-tax income.