10.	INCOME TAXES

An analysis of the income tax provision (benefit) is as follows: (dollars in thousands)

	Year Ended			Year Ended
	Dec 2011			Dec 2010
Current:
Federal	$	(1,456	)	$	2,202
State		(17	)		121
Deferred
Federal		(135	)		(337	)
State		(887	)		160
Income Tax Provision (Benefit)	$	(2,495	)	$	2,146

The difference between the financial statement provision and amounts computed by using the statutory rate of 34% is reconciled as follows: (dollars in thousands)

Period Ended	Dec 2011			Dec 2010
Income tax provision (benefit) at federal statutory rate	$	(1,441	)	$	2,648
State tax, net of federal tax benefit (provision)		(597	)		185
Tax exempt interest		(205	)		(266	)
Increase in cash surrender value of life insurance		(180	)		(190	)
Community development tax credit		(108	)		(108	)
Other, net		36			(123	)
Income Tax Provision (Benefit)	$	(2,495	)	$	2,146

The Company is allowed to deduct an addition to a reserve for bad debts in determining taxable income. This addition differs from the provision for loan losses for financial reporting purposes. No deferred taxes have been provided on the income tax bad debt reserves which total $6.0 million, for years prior to 1988. This tax reserve for bad debts is included in taxable income of later years only if the bad debt reserves are subsequently used for purposes other than to absorb bad debt losses. Because the Company does not intend to use the reserves for purposes other than to absorb losses, no deferred income taxes were provided at December 31, 2011 and 2010 respectively. The Company has recognized the deferred tax consequences of differences between the financial statement and income tax treatment of allowances for loan losses arising after June 30, 1987.

The Company's deferred income tax assets and liabilities, included in prepaid expenses and other assets, are as follows: (dollars in thousands)

As Of	Dec 2011		Dec 2010
Deferred tax assets:
Bad debt reserves, net	$	6,090	$	5,830
Net unrealized loss on securities available for sale and other than temporary impairment losses on debt securities		0		464
Sale leaseback gain		549		600
Foreclosed assets		506		500
Net operating loss		547		0
Other		30		0
Deferred compensation and other benefits		2,438		2,214
Total deferred tax assets		10,160		9,608

Deferred tax liabilities:
Difference in basis of fixed assets		539		627
FHLB dividend		161		185
Unrealized gain on securities available for sale		860		0
Deferred fees		344		382
Other		0		46
Total deferred tax liabilities		1,904		1,240
Net Deferred Tax Asset	$	8,256	$	8,368

The Indiana net operating loss of approximately $9.5 million may be carried forward for 15 years, (expires 2026), following the loss year and applied in any year in which there is Indiana taxable income. No valuation allowance was deemed necessary for the deferred tax asset. The Company's tax years still subject to examination by taxing authorities are years subsequent to 2007.