Income Taxes

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Note 9. Income Taxes

Cornerstone files consolidated income tax returns with its subsidiary. Under the terms of a tax-sharing agreement, the subsidiary’s allocated portion of the consolidated tax liability is computed as if they were reporting income and expenses to the Internal Revenue Service as a separate entity.

Income tax expense in the consolidated statements of income for the years ended December 31, 2012, 2011 and 2010, consists of the following:

	2012			2011			2010
Current tax expense (benefit)	$	960,750		$	77,279		$	(522,382	)
Deferred tax expense (benefit) related to:
Allowance for loan losses		(255,287	)		509,358			(1,030,423	)
Other		(127,863	)		(398,437	)		17,508
Income tax expense (benefit)	$	577,600		$	188,200		$	(1,535,297	)

The income tax expense is different from the expected tax expense computed by multiplying income before income tax expense by the statutory federal income tax rates. These differences are reconciled as follows:

	2012			2011			2010
Expected tax at statutory rates	$	673,085		$	414,206		$	(2,122,558	)
Increase (decrease) resulting from tax effect of:
State income taxes, net of federal tax benefit		84,928			52,263			(267,817	)
New market tax credits		(180,000	)		(277,500	)		(112,500	)
Impairment of goodwill		-			-			973,131
Other		(413	)		(769	)		(5,553	)
Income tax expense (benefit)	$	577,600		$	188,200		$	(1,535,297	)

The components of the net deferred tax asset, included in other assets, are as follows:

	2012		2011
Deferred tax assets:
Deferred compensation	$	104,709	$	110,724
Deferred loan fees		107,143		38,370
Allowance for loan losses		1,471,054		1,215,767
Foreclosed assets		1,770,380		1,711,688
		3,453,286		3,076,549
Deferred tax liabilities:
Depreciation		83,150		90,269
Life insurance		204,386		204,386
Net unrealized gain on securities available for sale		907,797		704,153
Other		6,990		6,284
		1,202,323		1,005,092
Net deferred tax asset	$	2,250,963	$	2,071,457

ASC Topic 740, “Income Taxes,” clarifies the accounting for uncertainty in tax positions. ASC Topic 740 requires that Cornerstone recognize in its financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. Cornerstone recognized no interest and penalties assessed by taxing authorities on any underpayment of income tax for 2012, 2011 or 2010.