Note 13 - Federal and State Income Taxes

12 Months Ended

Dec. 31, 2014

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Note 13.          Federal and State Income Taxes

Federal and state income tax expense was comprised of the following components for the years ended December 31, 2014, 2013, and 2012:

	2014			2013			2012
Current	$	4,203,979		$	5,639,933		$	2,232,183
Deferred		(1,165,009	)		(1,021,991	)		2,302,418
	$	3,038,970		$	4,617,942		$	4,534,601

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, 2014, 2013, and 2012:

	Years Ended December 31,
	2014						2013						2012
				% of						% of						% of
				Pretax						Pretax						Pretax
	Amount			Income			Amount			Income			Amount			Income
Computed "expected" tax expense	$	6,297,027			35.0	%	$	6,844,665			35.0	%	$	6,174,295			35.0	%
Effect of graduated tax rates		(79,529	)		(0.4	)		(123,868	)		(0.6	)		(20,775	)		(0.1	)
Tax exempt income, net		(2,646,275	)		(14.7	)		(1,790,049	)		(9.2	)		(1,243,660	)		(7.0	)
Bank-owned life insurance		(585,312	)		(3.3	)		(624,847	)		(3.2	)		(544,292	)		(3.1	)
State income taxes, net of federal benefit, current year		497,068			2.8			758,695			3.9			730,865			4.1
Change in unrecognized tax benefits		(6,395	)		-			37,180			0.2			(149,183	)		(0.8	)
Acquisition costs		-			-			248,952			1.3			-			-
Noncontrolling interests		-			-			-			-			(166,081	)		(0.9	)
Other		(437,614	)		(2.4	)		(732,786	)		(3.8	)		(246,568	)		(1.5	)
	$	3,038,970			17.0	%	$	4,617,942			23.6	%	$	4,534,601			25.7	%

Changes in the unrecognized tax benefits included in other liabilities are as follows for the years ended December 31, 2014 and 2013:

	2014			2013
Balance, beginning	$	1,058,019		$	994,078
Impact of tax positions taken during current year		234,475			288,016
Gross increase related to tax positions of prior years		16,915			16,939
Reduction as a result of a lapse of the applicable statute of limitations		(307,118	)		(241,014	)
Balance, ending	$	1,002,291		$	1,058,019

Included in the unrecognized tax benefits liability at December 31, 2014 are potential benefits of approximately $742,000 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, 2014 and 2013, accrued interest on uncertain tax positions was approximately $260,000 and $316,000, 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 2011 tax return year and later. Various state franchise and income tax returns are generally open from the 2010 and later tax return years based on individual state statute of limitations.

The net deferred tax assets (liabilities) consisted of the following as of December 31, 2014 and 2013:

	2014			2013
Deferred tax assets:
Alternative minimum tax credits	$	5,018,008		$	3,936,226
New markets tax credits		2,100,000			1,500,000
Net unrealized losses on securities available for sale and derivative instruments		1,186,544			8,468,118
Compensation		8,266,896			7,056,579
Loan/lease losses		7,393,437			6,890,532
Net operating loss carryforwards, federal and state		2,415,284			2,914,140
Deferred loan origination fees, net		13,536			143,949
Other		482,908			410,640
		26,876,613			31,320,184
Deferred tax liabilities:
Premises and equipment		1,216,080			1,575,582
Equipment financing leases		24,701,676			23,191,514
Acquisition fair value adjustments		1,774,157			1,319,981
Investment accretion		45,580			45,463
Other		619,121			551,080
		28,356,614			26,683,620
Net deferred tax asset (liability)	$	(1,480,001	)	$	4,636,564

At December 31, 2014, the Company had $6,424,739 of federal tax net operating loss carryforwards which are set to expire in varying amounts between 2029 and 2033. At December 31, 2014, the Company had $4,759,745 of state tax net operating loss carryforwards which are set to expire in varying amounts between 2017 and 2029. All of the federal tax net operating loss carryforwards and the majority of the state tax net operating loss carryforwards were acquired from Community National and CNB.    

The change in deferred income taxes was reflected in the consolidated financial statements as follows for the years ended December 31, 2014, 2013, and 2012:

	2014			2013			2012
Provision for income taxes	$	(1,165,009	)	$	(1,021,991	)	$	2,302,418
Statement of stockholders' equity- accumulated other comprehensive income (loss), unrealized gains (losses) on securities available for sale, net, and unrealized losses on derivative instruments		7,281,574			(11,373,902	)		(35,008	)
	$	6,116,565		$	(12,395,893	)	$	2,267,410