NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (table dollar amounts in thousands, except share data) NOTE 11 LOAN SERVICING NOTE 12 INCOME TAX 44 2003 2002 ====================================================================================================================== Deferred tax liability at December 31: Assets: Differences in accounting for loan losses ............................. $11,305 $ 8,820 Deferred compensation ................................................. 2,514 1,949 State income tax ...................................................... 18 Other ................................................................. 135 157 ------ ------ Total assets ...................................................... 13,972 10,926 ------ ------ Liabilities: Differences in depreciation methods ................................... 3,061 1,058 Differences in accounting for loans and securities .................... 9,905 7,072 Differences in accounting for loan fees ............................... 715 383 Differences in accounting for pensions and other employee benefits ......................................... 861 86 State income tax ...................................................... 57 Net unrealized gain on securities available for sale................... 2,123 2,513 Other ................................................................. 1,102 1,040 ------ ------ Total liabilities ................................................. 17,767 12,209 ------ ------ Net deferred tax liability ........................................ $(3,795) $(1,283) ====== ====== 2003 2002 2001 =================================================================================================================================== Income tax expense for the year ended December 31: Currently payable: Federal ................................................................ $ 9,475 $ 11,869 $ 9,098 State .................................................................. 1,569 2,615 2,210 Deferred: Federal ................................................................ (597) (446) 406 State .................................................................. 270 (57) 210 -------- -------- -------- Total income tax expense ............................................ $ 10,717 $ 13,981 $ 11,924 ======== ======== ======== Reconciliation of federal statutory to actual tax expense: Federal statutory income tax at 34% .................................... $ 13,030 $ 14,085 $ 11,539 Tax-exempt interest .................................................... (2,198) (2,006) (1,319) Graduated tax rates .................................................... 289 355 312 Effect of state income taxes ........................................... 1,213 1,613 1,597 Earnings on life insurance ............................................. (512) (133) (78) Tax credits ............................................................ (317) (293) (330) Other .................................................................. (788) 360 203 -------- -------- -------- Actual tax expense ................................................. $ 10,717 $ 13,981 $ 11,924 ======== ======== ======== Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The loans are serviced primarily for the Federal Home Loan Mortgage Corporation, and the unpaid balances totaled $105,865,000, $90,346,000 and $71,640,000 at December 31, 2003, 2002 and 2001. The amount of capitalized servicing assets is considered immaterial. Tax expense (benefit) applicable to security gains and losses for the years ended December 31, 2003, 2002 and 2001, was $380,000, $296,000 and ($80,000), respectively. A cumulative net deferred tax liability is included in the consolidated balance sheets. The components of the liability are as follows: