| INCOME TAXES |
NOTE 11: INCOME TAXES
As of December 31, 2011 and 2010, retained earnings included approximately $5,075,000 for which no deferred income tax liability has been recognized. This amount represents an allocation of income to bad debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes only, which would be subject to the then current corporate income tax rate. The unrecorded deferred income tax liability on the above amount was approximately $1,878,000 as of December 31, 2011 and 2010. The provision (credit) for income taxes consists of:
| | | Years Ended | | | | | December 31, | | | | | 2011 | | | 2010 | | | 2009 | | | | | | | | | | | | | Taxes currently payable | | $ | (246,017 | ) | | $ | 160,989 | | | $ | (2,835,762 | ) | Deferred income taxes | | | 949,122 | | | | (217,737 | ) | | | 701,199 | | | | | $ | 703,105 | | | $ | (56,748 | ) | | $ | (2,134,563 | ) |
The tax effects of temporary differences related to deferred taxes shown on the December 31, 2011 and 2010 balance sheets are:
| | | 2011 | | | 2010 | | Deferred tax assets: | | | | | | | Allowances for loan losses | | $ | 3,926,864 | | | $ | 4,840,600 | | Writedowns on foreclosed assets held for sale | | | 589,773 | | | | 482,604 | | State low income housing tax credits | | | 1,708,621 | | | | 1,476,757 | | Federal low income housing tax and other credits | | | 478,223 | | | | 710,651 | | Deferred loan fees/costs | | | 87,898 | | | | 66,086 | | Other | | | 241,658 | | | | 164,610 | | | | | | 7,033,037 | | | | 7,741,308 | | Deferred tax liabilities: | | | | | | | | | FHLB stock dividends | | | (120,632 | ) | | | (120,632 | ) | Unrealized appreciation on available-for-sale securities | | | (473,711 | ) | | | (1,082,400 | ) | Accumulated depreciation | | | (175,448 | ) | | | (175,448 | ) | Other | | | (68,310 | ) | | | (68,310 | ) | | | | | (838,101 | ) | | | (1,446,790 | ) | Deferred tax asset before valuation allowance | | | 6,194,936 | | | | 6,294,518 | | Valuation allowance: | | | | | | | | | Beginning balance | | | (1,476,757 | ) | | | (785,696 | ) | Increase for state low income housing tax credits during the period | | | (231,864 | ) | | | (691,061 | ) | Ending balance | | | (1,708,621 | ) | | | (1,476,757 | ) | Net deferred tax asset | | $ | 4,486,315 | | | $ | 4,817,761 | |
A reconciliation of income tax expense at the statutory rate to income tax expense at the Company's effective rate is shown below:
| | | Years ended | | | | | December 31, | | | | | | | | | | | | | | | | 2011 | | | 2010 | | | 2009 | | Computed at statutory rate | | | 34.0 | % | | | 34.0 | % | | | (34.0 | %) | Increase (reduction) in taxes resulting from: | | | | | | | | | | | | | State financial institution tax and credits | | | (17.8 | %) | | | (83.7 | %) | | | (30.6 | %) | ESOP | | | (5.6 | %) | | | (4.4 | %) | | | (1.9 | %) | Cash surrender value of life insurance | | | (7.1 | %) | | | (8.0 | %) | | | (0.8 | %) | Valuation allowance | | | 5.1 | % | | | 64.3 | % | | | 19.8 | % | Other | | | 6.9 | % | | | (7.5 | %) | | | 6.4 | % | Actual tax provision (credit) | | | 15.5 | % | | | (5.3 | %) | | | (41.1 | %) |
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