Note 10 - Income Taxes

6 Months Ended

Jun. 30, 2012

Income Tax Disclosure [Text Block]

NOTE 10 -- INCOME TAXES

A reconciliation of income tax benefit at 34 percent of pre-tax income to the Corporation’s actual tax expense (benefit) for the three and six month periods ended June 30 is shown below:

(in thousands)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Computed "expected" tax benefit	$	(2,107	)	$	(1,870	)	$	(1,722	)	$	(1,310	)
Increase (decrease) in income taxes resulting from:
Tax-exempt income		(175	)		(300	)		(382	)		(610	)
State income tax, net of federal tax effect		(264	)		(692	)		(229	)		(627	)
Bank-owned life insurance income		(82	)		(77	)		(164	)		(155	)
Change in valuation allowance		2,577			0			2,469			0
Other, net		51			364			81			(39	)
Actual tax expense (benefit)	$	-		$	(2,575	)	$	53		$	(2,663	)

During the third quarter of 2011, management established a full valuation allowance of $27,722 against net deferred tax assets.  Further additions to the valuation allowance have been made in subsequent quarters bringing the total deferred tax valuation allowance to $31,893 as of June 30, 2012.  Under generally accepted accounting principles, a valuation allowance is required to be recognized if it is “more likely than not” that a deferred tax asset will not be realized.  The realizability of the deferred tax asset is based on management’s evaluation of both positive and negative evidence, the forecast of future income, prudent and feasible tax planning strategies and assessments of current and future economic and business conditions.  Positive evidence includes the existence of taxes paid in available carry-back years as well as taxable income projections for future periods, while negative evidence includes the cumulative losses in the current year and prior two years and general business and economic trends.  After evaluating all of the factors previously summarized and considering the weight of the positive evidence compared to the negative evidence, the Corporation has determined a full valuation adjustment was necessary as of June 30, 2012 and December 31, 2011.