Note 11 - Federal and State Income Taxes

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Text Block]

Note 11.                 Federal and State Income Taxes

Federal and state income tax expense was comprised of the following components for the years ended December 31, 2012, 2011, and 2010:

	2012		2011		2010
Current	$	1,850,234	$	195,135	$	1,193,245
Deferred		2,684,367		3,673,064		1,256,004
	$	4,534,601	$	3,868,199	$	2,449,249

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, 2012, 2011, and 2010:

	Years Ended December 31,
	2012						2011						2010
	Amount			% of Pretax Income			Amount			% of Pretax Income			Amount			% of Pretax Income
Computed "expected" tax expense	$	6,174,295			35.0	%	$	4,899,324			35.0	%	$	3,239,941			35.0	%
Effect of graduated tax rates interest		(20,775	)		(0.1	)		(139,981	)		(1.0	)		(92,570	)		(1.0	)
Tax exempt income, net		(1,243,660	)		(7.0	)		(692,742	)		(4.9	)		(556,682	)		(6.0	)
Bank-owned life insurance		(544,292	)		(3.1	)		(490,491	)		(3.5	)		(451,457	)		(4.9	)
State income taxes, net of federal benefit, current year		730,865			4.1			533,250			3.8			330,917			3.6
Change in unrecognized tax benefits		(149,183	)		(0.8	)		2,074			-			71,671			0.8
Noncontrolling interests		(166,081	)		(0.9	)		(148,995	)		(1.1	)		(75,156	)		(0.8	)
Other		(246,568	)		(1.5	)		(94,240	)		(0.7	)		(17,415	)		(0.2	)
	$	4,534,601			25.7	%	$	3,868,199			27.6	%	$	2,449,249			26.5	%

Changes in the unrecognized tax benefits included in other liabilities are as follows for the years ended December 31, 2012 and 2011:

	2012			2011
Balance, beginning	$	1,148,549		$	1,034,025
Impact of tax positions taken during current year		202,341			245,441
Gross increase related to tax positions of prior years		21,781			89,310
Reduction as a result of a lapse of the applicable statute of limitations		(378,593	)		(220,227	)
Balance, ending	$	994,078		$	1,148,549

Included in the unrecognized tax benefits liability at December 31, 2012 are potential benefits of approximately $692,000 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, 2012 and 2011, accrued interest on uncertain tax positions was approximately $302,000 and $343,500, respectively.  Estimated interest related to the underpayment of income taxes is classified as a component of “income taxes” in the statements of income.

The Company’s federal income tax returns are open and subject to examination from the 2009 tax return year and forward. Various state franchise and income tax returns are generally open from the 2008 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, 2012 and 2011:

	2012			2011
Deferred tax assets:
Alternative minimum tax credits	$	3,075,372		$	1,955,270
New markets tax credits		1,000,000			500,000
Compensation		5,756,439			4,934,312
Loan/lease losses		5,927,442			5,130,551
Net operating loss carryforwards, federal and state		876,769			6,342,415
Deferred loan origination fees, net		285,794			240,063
Other		379,523			285,590
		17,301,339			19,388,201
Deferred tax liabilities:
Net unrealized gains on securities available for sale		2,905,784			2,940,792
Premises and equipment		1,532,602			1,580,272
Equipment financing leases		20,516,189			19,897,412
Investment accretion		43,740			43,648
Other		444,302			417,996
		25,442,617			24,880,120
Net deferred tax asset (liability)	$	(8,141,278	)	$	(5,491,919	)

The change in deferred income taxes was reflected in the consolidated financial statements as follows for the years ended December 31, 2012, 2011, and 2010:

	2012			2011		2010
Provision for income taxes	$	2,684,367		$	3,673,064	$	1,256,004
Statement of stockholders' equity- accumulated other comprehensive income,unrealized gains (losses) on securities available for sale, net		(35,008	)		2,510,006		348,376
	$	2,649,359		$	6,183,070	$	1,604,380