Note 11 - Federal Income Taxes

12 Months Ended

Dec. 31, 2014

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

NOTE 11 - FEDERAL INCOME TAXES

The consolidated income tax expense is as follows:

	2014		2013		2012
Current expense	$	3,359,000	$	0	$	0
Deferred expense		4,506,000		8,092,000		5,636,000
Tax expense	$	7,865,000	$	8,092,000	$	5,636,000

A reconciliation of the differences between the federal income tax expense recorded and the amount computed by applying the federal statutory rate to income before income taxes is as follows:

	2014			2013			2012
Tax at statutory rate (35%)	$	8,819,000		$	8,794,000		$	6,360,000
Increase (decrease) from
Tax-exempt interest		(621,000	)		(347,000	)		(486,000	)
Bank owned life insurance		(415,000	)		(465,000	)		(535,000	)
Other		82,000			110,000			297,000
Tax expense	$	7,865,000		$	8,092,000		$	5,636,000

Significant components of deferred tax assets and liabilities as of December 31, 2014 and 2013 are as follows:

	2014			2013
Deferred income tax assets
Allowance for loan losses	$	7,014,000		$	7,987,000
Tax credit carryforwards		3,395,000			1,397,000
Nonaccrual loan interest income		471,000			605,000
Deferred compensation		1,304,000			567,000
Deferred loan fees		445,000			273,000
Fair value write-downs on foreclosed properties		212,000			241,000
Fair value of interest rate swap		89,000			92,000
Losses on capital investments		450,000			0
Stock compensation		521,000			207,000
Net operating loss carryforward		0			4,050,000
Unrealized loss on securities		0			2,908,000
Other		725,000			136,000
		14,626,000			18,463,000
Deferred income tax liabilities
Depreciation		1,217,000			419,000
Prepaid expenses		425,000			192,000
Core deposit intangible		5,386,000			0
Mortgage loan servicing rights		2,349,000			0
Unrealized gain on securities		112,000			0
Other		476,000			98,000
		9,965,000			709,000
Net deferred tax asset before valuation allowance		4,661,000			17,754,000
Valuation allowance		(450,000	)		0
Total net deferred tax asset	$	4,211,000		$	17,754,000

A valuation allowance related to deferred tax assets is required when it is considered more likely than not that all or part of the benefits related to such assets will not be realized. We do not believe the deferred tax asset related to losses on certain capital investments acquired in our merger with Firstbank is more likely than not to be realized. Therefore, we established a valuation allowance of $0.5 million in connection with the acquisition accounting at the time of the merger.

At December 31, 2014, we had carryforwards of the following tax attributes: general business tax credits of $0.6 million that expire in the years 2028 through 2034; and $2.8 million of federal alternative minimum tax credits with an indefinite life.

We had no unrecognized tax benefits at any time during 2014 or 2013 and do not anticipate any significant increase in unrecognized tax benefits during 2015. Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is our policy to record such accruals in our income tax accounts; no such accruals existed at any time during 2014 or 2013. Our U.S. federal income tax returns are no longer subject to examination for all years before 2011.