Note 14 - Income Taxes

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Income Tax Disclosure [Text Block]

14.

INCOME TAXES

The components of income tax expense for the years ended

December

31,

2016,

2015

and

2014

are as follows:

	Years Ended December 31,
	2016		2015		2014
					(As restated)
Current:
Federal	$	131,936	$	53,145	$	158,837
State		112,566		-		-
		244,502		53,145		158,837
Deferred:
Federal		2,500,785		1,493,055		816,263
State		215,852		291,129		373,909
		2,716,637		1,784,184		1,190,172
Total	$	2,961,139	$	1,837,329	$	1,349,009

Reconciliations of the expected income tax expense at statutory tax rates with income tax expense reported in the Consolidated Statements of Operations for the years ended

December

31,

2016,

2015

and

2014

are as follows:

	Years Ended December 31,
	2016			2015			2014
							(As restated)
Expected income tax expense at 34%	$	3,373,617		$	2,216,985		$	1,849,135
State income taxes, net of federal income tax		243,008			196,070			246,780
Tax exempt interest		(554,156	)		(573,939	)		(515,920	)
Cash surrender value of life insurance		(178,762	)		(159,877	)		(168,553	)
Other expenses and adjustments		77,432			158,090			(62,433	)
Total	$	2,961,139		$	1,837,329		$	1,349,009

The components of deferred income tax assets and liabilities at

December

31,

2016,

and

2015

are as follows:

	December 31,
Deferred income tax assets:	2016			2015
Deferred directors' fees	$	163,900		$	174,370
Allowance for credit losses		2,918,535			2,823,230
Employee benefits		317,623			295,387
Unrealized loss on interest rate swap		-			146,940
Alternative minimum tax credits		508,774			347,860
Other		492,698			268,145
Net operating loss carryovers		2,346,457			4,873,610
Gross deferred tax asset		6,747,987			8,929,542
Valuation allowance		(78,110	)		(84,650	)
Total deferred tax asset	$	6,669,877		$	8,844,892
Deferred income tax liabilities:
Depreciation and amortization		608,528			387,564
Carrying value – land		359,800			366,400
Mortgage servicing rights		688,750			400,151
Deferred loan origination fees and costs		738,526			547,745
Unrealized gain on securities available for sale		805,542			1,651,712
Unrealized gain on interest rate swap		43,514			-
Loan mark-to-market		23,230			28,411
Total deferred tax liability		3,267,890			3,381,983
Net deferred income tax asset	$	3,401,987		$	5,462,909

At

December

31,

2016,

and

2015

the Bank had net operating loss carryovers for Federal income tax purposes of

$6,671,609

and

$13,601,447,

respectively. Net operating loss carryovers for State income tax purposes were

$3,944,944

and

$9,436,277

for the same period. The federal net operating losses begin to expire in

2032

and state net economic losses begin to expire in

2024.

Deferred tax assets are included in the other assets line item in the Consolidated Statements of Financial Condition. They 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,

2016

and

2015,

management has recorded a valuation allowance of

$78,110

and

$84,650,

respectively. The valuation allowance is associated with North Carolina net losses at the Holding Company. Management determined that it is more likely than not that the remaining deferred tax asset at

December

31,

2016

and

2015

will be realized and, accordingly, did not establish a valuation allowance.