12.	INCOME TAXES

The Company files a consolidated income tax return with the federal government and the State of Alabama. ALC files a Mississippi state income tax return related to operations from its Mississippi branches. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service and the states in which it files for the years ended December 31, 2009 through 2012.

As of September 30, 2013, the Company had no unrecognized tax benefits related to federal or state income tax matters and does not anticipate any material increase or decrease in unrecognized tax benefits relative to any tax positions taken prior to September 30, 2013. As of September 30, 2013, the Company had accrued no interest and no penalties related to uncertain tax positions.

The consolidated tax expense (benefit) differed from the amount computed by applying the federal statutory income tax rate of 34.0%, as described in the following table:


	Nine Months Ended
	September 30, 2013			September 30, 2012
	(Dollars in Thousands)
Income tax expense at federal statutory rate	$	1,421		$	499
Increase (decrease) resulting from:
Tax-exempt interest		(292	)		(274	)
State income tax expense, net of federal income taxes		163			43
Other		(86	)		(111	)

Total	$	1,206		$	157

The Company’s determination of the realization of the net deferred tax asset is based on its assessment of all available positive and negative evidence. The Company is currently in a three-year cumulative loss position, which represents negative evidence. As of September 30, 2013, of the $7.1 million net deferred tax asset, $3.5 million related to the provision for loan losses, $1.8 million related to impairment of OREO and $1.6 million resulted from deferred compensation. As of December 31, 2012, of the $9.5 million net deferred tax asset, $7.3 million related to the provision for loan losses, $2.3 million related to impairment of OREO and $1.5 million resulted from deferred compensation.

At September 30, 2013, positive evidence supporting the realization of the deferred tax asset included a strong earnings history, exclusive of loan loss provisions and other real estate write-downs, which created the most significant portion of the deferred asset. The majority of these provisions and write-downs resulted from one type of loan – real estate development. The Company believes that impaired loans of this type have been identified and adequately reserved. Management has projected taxable income over the next five years resulting from reduced provisions for loan losses and reduced write-downs of OREO. Except in unusual circumstances, the Company no longer invests in these types of loans.

Along with the taxable income in 2012 and the first, second and third quarters of 2013, the Company has projected future taxable income over the next five tax years, although there can be no assurance that such income will be realized due to unanticipated changes in economic, competitive and other factors. Further positive evidence includes the Company’s strong capital position and history of significant pre-tax earnings, which the Company believes outweighs the negative evidence of recent pre-tax losses. Accordingly, a valuation allowance has not been established as of September 30, 2013.