INCOME TAXES

12 Months Ended

Dec. 31, 2015

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 12 - INCOME TAXES

The Company and the Bank file consolidated federal income tax returns and Illinois state income tax returns. The Company and the Bank are no longer subject to examination by federal and state taxing authorities for years prior to 2012.

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

	Year Ended
	December 31,
	2015			2014
Federal:
Current	$	1,411,154		$	815,120
Deferred		(202,931	)		71,545
		1,208,223			886,665
State:
Current		466,980			397,280
Deferred		266			76,653
		467,246			473,933
	$	1,675,469		$	1,360,598

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

	Year Ended
	December 31,
	2015			2014
Expected income taxes	$	2,209,628		$	1,815,376
Income tax effect of:
State taxes, net of federal income tax benefit		277,177			278,391
Tax exempt interest, net		(613,220	)		(586,302	)
Income taxed at lower rates		(63,132	)		(51,868	)
Other		(134,984	)		(94,999	)
	$	1,675,469		$	1,360,598

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

	December 31,
	2015			2014
Deferred tax assets:
Allowance for loan losses	$	2,286,438		$	2,161,135
Deferred compensation		306,653			256,106
Accrued expenses		79,623			19,041
Purchase accounting adjustments for:
Loans		-			18,136
Securities		90,895			106,474
OREO writedowns and expenses		563,385			464,326
Other		107,467			367,148
		3,434,461			3,392,366
Deferred tax liabilities:
Federal Home Loan Bank stock		(177,613	)		(293,580	)
Core deposit intangible		(53,605	)		(76,164	)
Mortgage servicing rights		(431,058	)		(373,757	)
Unrealized gain on securities available for sale		(254,456	)		(115,890	)
Purchase accounting adjustments for:
Premises and equipment		(272,023	)		(278,376	)
Federal Home Loan Bank advances		(1,754	)		(4,762	)
Premises and equipment		(184,571	)		(254,555	)
		(1,375,080	)		(1,397,084	)
Net deferred taxes	$	2,059,381		$	1,995,282

Retained earnings at December 31, 2015 and 2014 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, 2015 and 2014. Management has determined that the probability of recapturing the reserve is not sufficient to record a liability.