INCOME TAXES

12 Months Ended

Dec. 31, 2011

Income Taxes

INCOME TAXES

NOTE 12 - INCOME TAXES

Allocation of federal and state income taxes between current and deferred portions is as follows:

	Year Ended
	December 31,
	2011			2010
Federal:
Current	$	859,716		$	1,449,943
Deferred		(607,705	)		171,566
		252,011			1,621,509
State:
Current		301,650			345,668
Deferred		(118,579	)		4,908
		183,071			350,576
	$	435,082		$	1,972,085

The Company’s income tax expense differed from the maximum statutory federal rate of 35% as follows:

	Year Ended
	December 31,
	2011			2010
Expected income taxes	$	815,538		$	2,022,285
Income tax effect of:
State taxes, net of federal income tax benefit		113,052			227,875
Tax exempt interest, net		(265,610	)		(215,371	)
Income taxed at lower rates		(23,301	)		(57,780	)
Other		(204,597	)		(4,924	)
	$	435,082		$	1,972,085

The tax effects of principal temporary differences are shown in the following table:

	December 31,
	2011			2010
Deferred tax assets:
Allowance for loan losses	$	3,109,480		$	2,207,408
Deferred compensation		218,716			280,422
ESOP expense		—			74,774
Accrued expenses		61,219			107,502
Purchase accounting adjustments for:
Loans		60,616			74,879
Securities		195,896			209,770
Time deposits		1,198			11,257
Deferred Fees and Costs		18,388			21,988
Other		69,384			69,384
		3,734,897			3,057,384
Deferred tax liabilities:
Federal Home Loan Bank stock		(658,620	)		(640,438	)
Core deposit intangible		(325,748	)		(434,762	)
Mortgage servicing rights		(260,043	)		(233,422	)
Unrealized gain on securities available for sale		(759,011	)		(361,696	)
Purchase accounting adjustments for:
Premises and equipment		(305,223	)		(303,035	)
Federal Home Loan Bank advances		(22,355	)		(29,502	)
Subordinated debentures		—			(9,987	)
Premises and equipment		(82,631	)		(52,245	)
		(2,413,631	)		(2,065,087	)
Net deferred taxes	$	1,321,266		$	992,297

Retained earnings at December 31, 2011 and 2010 include approximately $3,044,000 of the tax bad debt reserve which accumulated prior to 1988, for which no deferred income tax liability has been recognized. This amount represents an allocation of income to bad debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes only, which would be subject to the then current corporate income tax rate. The unrecorded deferred income tax liability on the above amount was approximately $1,157,000 at December 31, 2011 and 2010. Management has determined that the probability of recapturing the reserve is not sufficient to record a liability.