Note 9 - Federal Income Taxes

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

NOTE 9 – FEDERAL INCOME TAXES

Federal income taxes consist of the following:

(In Thousands of Dollars)	2013			2012			2011
Current expense	$	5,424		$	4,283		$	3,133
Deferred benefit		(290	)		(27	)		(1,299	)
Total	$	5,134		$	4,256		$	1,834

A reconciliation of the difference between federal income tax expense and the amount computed by applying the federal statutory tax rate of 35% in 2013, 2012 and 2011 is as follows:

(In Thousands of Dollars)	2013			2012			2011
Tax at statutory rate	$	6,079		$	5,177		$	2,610
Effect of tax-exempt interest		(669	)		(479	)		(443	)
Other		(276	)		(442	)		(333	)
Federal income taxes	$	5,134		$	4,256		$	1,834
Effective tax rate		30	%		29	%		25	%

The components of deferred tax assets and liabilities included in other assets on the Consolidated Balance Sheet consist of the following at December 31^st year end:

(In Thousands of Dollars)
	2013			2012
Deferred tax assets:
Allowance for loan losses	$	6,119		$	7,256
Deferred compensation		591			655
Losses on capital investments		1,131			1,159
Other		468			1,254
Total deferred tax assets		8,309			10,324
Deferred tax liabilities:
Fixed assets		(1,586	)		(1,821	)
Mortgage servicing rights		(1,676	)		(1,697	)
Purchase accounting adjustments		(234	)		(234	)
Unrealized gain on securities available for sale		(143	)		(1,880	)
Other		(675	)		(407	)
Total deferred tax liabilities		(4,314	)		(6,039	)
Net deferred tax assets		3,995			4,285
Deferred tax valuation allowance		(1,143	)		(1,143	)
Net deferred tax assets	$	2,852		$	3,142

A valuation allowance related to deferred tax assets is required when it is considered more likely than not that all or part of the benefits related to such assets will not be realized. In reviewing the company’s position relative to deferred tax assets associated with certain incurred capital losses, management determined that a valuation adjustment of $1,143,000 was needed at year end 2013, and $1,143,000 was necessary at year end 2012. These valuation adjustments were recorded through the income statement on the Federal income tax line item when they occurred. The establishment of a valuation allowance does not relinquish our rights to utilize the deferred asset, but rather recognizes that at the current time management does not believe the deferred asset will be able to be utilized prior to its expiration. The deferred assets for which the valuation allowance was established were related to capital losses for which we do not believe we will have capital gains to offset. These assets are: $646,000 to expire in 2015 and $485,000 for which an expiration date has yet to be established, as we have not sold the underlying stock.

Losses on capital investments have a three year carry back and five year carry forward time period for offset. The timeframe begins with the sale of the investment. Certain tax planning strategies have been established, including the possible sale and leaseback of certain of our facilities or other assets that management believes could be executed if necessary to retain the benefits listed above.

Net deferred tax assets at December 31, 2013 and 2012 are included in other assets in the accompanying consolidated balance sheets.