Note 12 - Federal and State Income Taxes

12 Months Ended

Dec. 31, 2011

Income Tax Disclosure [Text Block]

Note 12.                 Federal and State Income Taxes

Federal and state income tax expense was comprised of the following components for the years ended December 31, 2011, 2010, and 2009:

	2011		2010		2009
Current	$	2,639,670	$	1,193,245	$	(2,511,516	)
Deferred		1,228,529		1,256,004		2,758,856
	$	3,868,199	$	2,449,249	$	247,340

A reconciliation of the expected federal income tax expense to the income tax expense included in the consolidated statements of income was as follows for the years ended December 31, 2011, 2010, and 2009:

	Years Ended December 31,
	2011						2010						2009
				% of						% of						% of
				Pretax						Pretax						Pretax
	Amount			Income			Amount			Income			Amount			Income
Computed "expected" tax expense	$	4,899,324			35.0	%	$	3,239,941			35.0	%	$	803,660			35.0	%
Effect of graduated tax rates interest		(139,981	)		(1.0	)		(92,570	)		(1.0	)		(22,962	)		(1.0	)
Tax exempt income, net		(692,742	)		(4.9	)		(556,682	)		(6.0	)		(589,224	)		(25.7	)
Bank-owned life insurance		(490,491	)		(3.5	)		(451,457	)		(4.9	)		(421,618	)		(18.4	)
State income taxes, net of federal benefit, current year		533,250			3.8			330,917			3.6			229,531			10.0
Change in unrecognized tax benefits		2,074			-			71,671			0.8			290,454			12.7
Noncontrolling interests		(148,995	)		(1.1	)		(75,156	)		(0.8	)		(94,154	)		(4.1	)
Other		(94,240	)		(0.7	)		(17,415	)		(0.2	)		51,653			2.3
	$	3,868,199			27.6	%	$	2,449,249			26.5	%	$	247,340			10.8	%

Changes in the unrecognized tax benefits included in other liabilities are as follows for the years ended December 31, 2011 and 2010:

	2011			2010
Balance, beginning	$	1,034,025		$	1,220,481
Impact of tax positions taken during current year		245,441			228,650
Gross decrease related to tax positions of prior years		-			(298,470	)
Gross increase related to tax positions of prior years		89,310			37,982
Reduction as a result of a lapse of the applicable statute of limitations		(220,227	)		(154,618	)
Balance, ending	$	1,148,549		$	1,034,025

Included in the unrecognized tax benefits liability at December 31, 2011 are potential benefits of approximately $805,000 that, if recognized, would affect the effective tax rate.

The liability for unrecognized tax benefits includes accrued interest for tax positions, which either do not meet the more-likely-than-not recognition threshold or where the tax benefit is measured at an amount less than the tax benefit claimed or expected to be claimed on an income tax return.  At December 31, 2011 and 2010, accrued interest on uncertain tax positions was approximately $343,500 and $265,700, respectively.  Estimated interest related to the underpayment of income taxes is classified as a component of “income taxes” in the statements of income and totaled $98,500 and $48,600 for the years ended December 31, 2011 and 2010, respectively.

The Company’s federal income tax returns are open and subject to examination from the 2008 tax return year and forward. Various state franchise and income tax returns are generally open from the 2007 and later tax return years based on individual state statute of limitations.

The net deferred tax assets (liabilities) included with other assets on the consolidated balance sheets consisted of the following as of December 31, 2011 and 2010:

	2011			2010
Deferred tax assets:
Alternative minimum tax credits	$	1,941,088		$	1,325,806
Compensation		4,934,312			4,388,156
Loan/lease losses		5,130,551			6,505,382
Deferred loan origination fees, net		240,063			230,788
Other		285,590			214,181
		12,531,604			12,664,313
Deferred tax liabilities:
Net unrealized gains on securities available for sale		2,940,792			430,786
Premises and equipment		1,580,272			885,228
Equipment financing leases		10,596,280			10,365,302
Investment accretion		43,648			43,516
Other		417,996			248,330
		15,578,988			11,973,162
Net deferred tax asset (liability)	$	(3,047,384	)	$	691,151

The change in deferred income taxes was reflected in the consolidated financial statements as follows for the years ended December 31, 2011, 2010, and 2009:

	2011		2010		2009
Provision for income taxes	$	1,228,529	$	1,256,004	$	2,758,856
Statement of stockholders' equity- accumulated other comprehensive income, unrealized gains (losses) on securities available for sale, net		2,510,006		348,376		(1,742,457	)
	$	3,738,535	$	1,604,380	$	1,016,399