Income Taxes

9 Months Ended

Sep. 30, 2011

Income Taxes [Abstract]

Income Taxes

Note 5. Income taxes

The Company accounts for income taxes in accordance with FASB ASC Topic 740, "Income Taxes", a method whereby certain items of income and expense (principally provision for loan losses, depreciation, and prepaid expenses) are included in one reporting period for financial accounting purposes and another for income tax purposes. Refer to the notes to the Company's consolidated financial statements for the year ended December 31, 2010 for more information. The accounting literature states that a deferred tax asset should be reduced by a valuation allowance if, based on the weight of all available evidence, it is more likely than not (a likelihood of more than 50%) that some portion or the entire deferred tax asset will not be realized. The determination of whether a deferred tax asset is realizable is based on weighing all available evidence, including both positive and negative evidence. In making such judgments, significant weight is given to evidence that can be objectively verified.

To date in 2011, the Company recorded no net income tax expense or benefit. The Company has chosen to effectively reserve any tax benefit that would have accrued until the economic uncertainty in our market areas has subsided or declined. During the third quarter, management evaluated the net deferred tax asset accumulated in periods before 2011 to determine if it remained more-likely-than-not that the deferred tax asset would be realized by the Company in the short term. At the time of the evaluation, management determined that risks to sustained profitability have increased for the short-term due to several factors. These factors include increased regulation, continuation of high nonperforming asset levels, and the Federal Reserve's pledge to keep interest rates low through mid-2013, as well as projections for low growth in the economy of the company's market areas. As a result, during the quarter ended September 30, 2011 management established a valuation allowance on the entire deferred tax asset totaling approximately $908,000. Management will continue to evaluate the deferred tax asset on a quarterly basis and adjust the valuation allowance if necessary.

The Company also believes that its income tax filing positions taken or expected to be taken in its tax returns will more likely than not be sustained upon audit by the taxing authorities, and does not anticipate any adjustments that will result in a material adverse impact on the Company's financial condition, results of operations, or cash flows. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740, "Income Taxes".