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Income Taxes
 12 Months Ended
Dec. 31, 2012
Income Taxes [Abstract]  
Income Taxes
(9) Income Taxes

The composition of income tax expense (benefit) for the years ended December 31, 2012, 2011, and 2010 are as follows:

 

                         

(in thousands)

   2012     2011     2010  

Current:

                        

Federal

   $ 651     $ 374     $ (837 ) 

State

     156       (214 )      80  
   

 

 

    

 

 

    

 

 

  

Total current

     807       160       (757 ) 
   

 

 

    

 

 

    

 

 

  

Deferred:

                        

Federal

     (197 )      386       (2,091 ) 

State

     (64 )      45       (239 ) 
   

 

 

    

 

 

    

 

 

  

Total deferred

     (261 )      431       (2,330 ) 
   

 

 

    

 

 

    

 

 

  

Total income tax expense (benefit)

   $ 546     $ 591     $ (3,087 ) 
   

 

 

    

 

 

    

 

 

  

 

Applicable income tax (benefit) expense for financial reporting purposes differs from the amount computed by applying the statutory Federal income tax rate for the reasons noted in the table for the years ended December 31, 2012, 2011, and 2010 are as follows:

 

                                                 
     2012     2011     2010  

(in thousands)

   Amount     %     Amount     %     Amount     %  

Income (loss) before provision for income tax expense (benefit)

   $ 3,368             $ 3,448             $ (6,639 )         
   

 

 

            

 

 

            

 

 

          

Tax at statutory Federal income tax rate

   $ 1,145       34.00 %    $ 1,172       34.00 %    $ (2,257 )      34.00 % 

Tax-exempt income

     (380 )      (11.27 )      (404 )      (11.72 )      (445 )      6.70  

State income tax, net of Federal tax benefit

     61       1.81       (111 )      (3.23 )      (105 )      1.58  

Release of prior year over accrual

     (371 )      (11.01 )      0       0.00       0       0.00  

Other, net

     91       2.70       (66 )      (1.91 )      (280 )      4.22  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Provision for income tax expense (benefit)

   $ 546       16.23 %    $ 591       17.14 %    $ (3,087 )      46.50 % 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

The components of deferred tax assets and deferred tax liabilities at December 31, 2012 and 2011 are as follows:

 

                 

(in thousands)

   2012     2011  

Deferred tax assets:

                

Allowance for loan losses

   $ 5,640     $ 5,248  

Impairment of other real estate owned

     2,774       2,734  

Goodwill

     2,483       2,831  

Deferred taxes on pension

     997       1,380  

Nonaccrual loan interest

     940       1,033  

Core deposit intangible

     904       883  

Pension

     450       276  

Deferred compensation

     36       27  

Other

     449       549  
   

 

 

    

 

 

  

Total deferred tax assets

   $ 14,673     $ 14,961  
   

 

 

    

 

 

  

Deferred tax liabilities:

                

Available-for-sale securities

   $ 2,088     $ 2,177  

Premises and equipment

     958       960  

Mortgage servicing rights

     908       791  

Assets held for sale

     110       109  

FHLB stock dividend

     100       100  

Other

     1       2  
   

 

 

    

 

 

  

Total deferred tax liabilities

     4,165       4,139  
   

 

 

    

 

 

  

Net deferred tax asset

   $ 10,508     $ 10,822  
   

 

 

    

 

 

  

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. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these temporary differences at December 31, 2012 and, therefore, did not establish a valuation reserve.

 

At December 31, 2012, the accumulation of prior years’ earnings representing tax bad debt deductions of the Bank was $2,931,503. If these tax bad debt reserves were charged for losses other than bad debt losses, the Bank would be required to recognize taxable income in the amount of the charge. It is not contemplated that such tax-restricted retained earnings will be used in a manner that would create federal income tax liabilities.

The Company follows ASC Topic 740, Income Taxes, which addresses the accounting for uncertain tax positions. As a result of the lapse of the statue of limitations for the 2007 tax year, the Company recognized $340,351 of gross unrecognized tax benefits and $30,969 of accrued interest. This resulted in a decrease in the effective tax rate for the year ended December 31, 2011 compared to December 31, 2010. As of December 31, 2012 and 2011, respectively, the Company did not have any uncertain tax provisions.

A reconciliation of the beginning and ending amount of the unrecognized tax benefits is as follows:

 

                         
    2012     2011     2010  

Unrecognized tax benefits as of January 1,

   $ 0     $ 340,351     $ 562,076  

Gross amounts of the increases and decreases in unrecognized tax benefits as a result of tax positions taken during prior years

     0       0       0  

Gross amounts of the increases and decreases in unrecognized tax benefits as a result of tax positions taken during year

     0       0       0  

The amount of decreases in unrecognized tax benefits relating to settlements with taxing authorities

     0       0       0  

Reductions to unrecognized benefits as a result of a lapse of the applicable statute of limitations

     0       (340,351 )      (221,725 ) 
   

 

 

    

 

 

    

 

 

  

Unrecognized tax benefits as of December 31,

   $             0     $ 0     $ 340,351