INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2012

Statutory Federal Income Tax Rate Reconciliation

The difference between the applicable income tax expense and the amount computed by applying the statutory federal income tax rate of 34% in 2012, and 35% in 2011, and 2010 is as follows:

	For the years ended December 31,
(In thousands)	2012			2011			2010
Computed tax benefit at statutory rate	$	(5,313	)	$	(2,997	)	$	(8,432	)
Tax-exempt income		(42	)		(2	)		(28	)
Penalties		680			-			-
Nondeductible expense		29			29			29
Bank owned life insurance		(188	)		(137	)		(133	)
Increase in valuation allowance		4,834			3,107			8,564
Applicable income tax expense	$	-		$	-		$	-

Deferred Tax Assets and Liabilities

Deferred tax assets and liabilities consist of the following:

	As of December 31,
(In thousands)	2012			2011
Deferred tax assets
Allowance for loan and lease losses	$	5,863		$	5,998
Tax net loss carryforward		20,791			10,046
Asset valuation reserves		79			431
Security writedowns		1,429			1,929
OREO writedowns		4,475			7,462
Investment in partnerships		34			3,761
Accrued pension liability		5,745			5,453
Accrued stock-based compensation		804			812
Net operating loss carryovers from Knoblauch State Bank		1,197			1,232
Non-accrual interest		277			678
Capital loss carryover		1,561			1,589
Other		139			8
Deferred tax assets before valuation allowance		42,394			39,399
Less valuation allowance		(39,597	)		(36,233	)
Less valuation allowance for equity securities		-			(134	)
Total deferred tax assets		2,797			3,032
Deferred tax liabilities
Penalties on delinquent tax certificates		224			398
Unrealized gains on investment securities available for sale		1,810			1,337
Accretion on investments		64			650
Prepaid deductions		285			270
Other		-			(37	)
Total deferred tax liabilities		2,383			2,618
Net deferred tax assets, included in other assets	$	414		$	414