Note 14 - Income Taxes

12 Months Ended

Dec. 31, 2015

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

14. INCOME TAXES

The components of income tax expense for the years ended December 31, 2015 and 2014 are as follows:

	Years Ended December 31,
	2015		2014
			(As restated)
Current
Federal	$	53,145	$	158,837
State		-		-
		53,145		158,837
Deferred
Federal		1,493,055		816,263
State		291,129		373,909
		1,784,184		1,190,172
Total	$	1,837,329	$	1,349,009

Reconciliations of the expected income tax expense at statutory tax rates with income tax expense reported in the statements of operations for the years ended December 31, 2015 and 2014 are as follows:

	Years Ended December 31,
	2015			2014
				(As restated)
Expected income tax expense at 34%	$	2,216,985		$	1,849,135
State income taxes, net of federal income tax		196,070			246,780
Tax exempt interest		(573,939	)		(515,920	)
Cash surrender value of life insurance		(159,877	)		(168,553	)
Other expenses and adjustments		158,090			(62,433	)
Total	$	1,837,329		$	1,349,009

The components of deferred income tax assets and liabilities at December 31, 2015 and 2014 are as follows:

	December 31,
	2015			2014
				(As restated)
Deferred income tax assets
Deferred directors' fees	$	174,370		$	300,102
Allowance for credit losses		2,823,230			2,819,764
Employee benefits		295,387			184,657
Alternative minimum tax credits		347,860			299,278
Other		268,145			49,712
Net operating loss carryovers		4,873,610			6,437,406
Total deferred tax asset		8,782,602			10,090,919
Valuation allowance		(84,650	)		(85,023	)
		8,697,952			10,005,896
Deferred income tax liabilities
Depreciation and amortization		387,564			121,471
Carrying value – land		366,400			373,000
Mortgage servicing rights		400,151			391,859
Deferred loan origination fees and costs		547,745			326,422
Loan mark-to-market		28,411			41,279
		1,730,271			1,254,031
Net deferred income tax asset	$	6,967,681		$	8,751,865

At December 31, 2015, and 2014 the Bank had net operating loss carryovers for Federal income tax purposes of $13,601,447 and $17,503,889, respectively. Net operating loss carryovers for State income tax purposes were $9,436,277 and $14,729,811 for the same period. The federal net operating losses begin to expire in 2032 and state net economic losses begin to expire in 2027.

Deferred tax assets represent the future tax benefit of deductible differences, and if it is more likely than not that a tax asset will not be realized, a valuation allowance is required to reduce the recorded deferred tax assets to net realizable value. As of December 31, 2015 and 2014, management has recorded a valuation allowance of $84,650 and $85,023, respectively. The valuation allowance is associated with North Carolina net economic losses at the Holding Company. Management determined that it is more likely than not that the remaining deferred tax asset at December 31, 2015 and 2014 will be realized and, accordingly, did not establish a valuation allowance.

The Company has analyzed the tax positions taken or expected to be taken on its tax returns and concluded it has no liability related to uncertain tax positions in accordance with ASC Topic 740. Tax returns for the years ended after December 31, 2011 years are subject to examination by taxing authorities.