Note 13 -Federal and State Income Taxes

12 Months Ended

Dec. 31, 2015

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, 2015, 2014, and 2013:

	2015			2014			2013
Current	$	5,673,774		$	4,203,979		$	5,639,933
Deferred		(2,004,532	)		(1,165,009	)		(1,021,991	)
	$	3,669,242		$	3,038,970		$	4,617,942

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, 2015, 2014, and 2013:

	Years Ended December 31,
	2015						2014						2013
	Amount			% of Pretax Income			Amount			% of Pretax Income			Amount			% of Pretax Income
Computed "expected" tax expense	$	7,208,993			35.0	%	$	6,297,027			35.0	%	$	6,844,665			35.0	%
Effect of graduated tax rates		(76,973	)		(0.4	)		(79,529	)		(0.4	)		(123,868	)		(0.6	)
Tax exempt income, net		(3,461,438	)		(16.8	)		(2,646,275	)		(14.7	)		(1,790,049	)		(9.2	)
Bank-owned life insurance		(616,737	)		(3.0	)		(585,312	)		(3.3	)		(624,847	)		(3.2	)
State income taxes, net of federal benefit, current year		767,557			3.7			497,068			2.8			758,695			3.9
Change in unrecognized tax benefits		223,668			1.1			(55,728	)		(0.3	)		63,941			0.3
Acquisition costs		-			-			-			-			248,952			1.3
Other		(375,828	)		(1.8	)		(388,281	)		(2.1	)		(759,547	)		(3.9	)
	$	3,669,242			17.8	%	$	3,038,970			17.0	%	$	4,617,942			23.6	%

Changes in the unrecognized tax benefits included in other liabilities are as follows for the years ended December 31, 2015 and 2014:

	2015			2014
Balance, beginning	$	1,002,291		$	1,058,019
Impact of tax positions taken during current year		468,055			234,475
Gross increase related to tax positions of prior years		16,965			16,915
Reduction as a result of a lapse of the applicable statute of limitations		(261,352	)		(307,118	)
Balance, ending	$	1,225,959		$	1,002,291

Included in the unrecognized tax benefits liability at December 31, 2015 are potential benefits of approximately $1,005,000 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, 2015 and 2014, accrued interest on uncertain tax positions was approximately $221,000 and $260,000, 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 2012 tax return year and later. Various state franchise and income tax returns are generally open from the 2011 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, 2015 and 2014:

	2015		2014
Deferred tax assets:
Alternative minimum tax credits	$	5,475,062	$	5,018,008
New markets tax credits		2,700,000		2,100,000
Net unrealized losses on securities available for sale and derivative instruments		1,268,068		1,186,544
Compensation		8,687,856		8,266,896
Loan/lease losses		8,802,271		7,393,437
Net operating loss carryforwards, federal and state		2,069,093		2,415,284
Other		452,854		496,444
		29,455,204		26,876,613
Deferred tax liabilities:
Premises and equipment		1,173,966		1,216,080
Equipment financing leases		25,059,159		24,701,676
Acquisition fair value adjustments		1,755,874		1,774,157
Investment accretion		44,462		45,580
Deferred loan origination fees, net		137,461		-
Other		678,227		619,121
		28,849,149		28,356,614
Net deferred tax asset (liability)	$	606,055	$	(1,480,001	)

At December 31, 2015, the Company had $5.6 million of federal tax net operating loss carryforwards which are set to expire in varying amounts between 2029 and 2033. At December 31, 2015, the Company had $3.8 million of state tax net operating loss carryforwards which are set to expire in varying amounts between 2023 and 2028. 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, 2015, 2014, and 2013:

	2015			2014			2013
Provision for income taxes	$	(2,004,532	)	$	(1,165,009	)	$	(1,021,991	)
Statement of stockholders' equity- Accumulated other comprehensive income (loss)		(81,524	)		7,281,574			(11,373,902	)
	$	(2,086,056	)	$	6,116,565		$	(12,395,893	)