Note 11 - Income Taxes

6 Months Ended

Jun. 30, 2015

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

11. INCOME TAXES

The net deferred tax asset at June 30, 2015 and December 31, 2014 represents the following temporary difference components:

	June 30,	December 31,
(In Thousands)	2015	2014
Deferred tax assets:
Net realized losses on securities	$144	$144
Allowance for loan losses	2,555	2,568
Credit for alternative minimum tax paid	74	537
Other deferred tax assets	2,490	2,595
Total deferred tax assets	5,263	5,844
Deferred tax liabilities:
Unrealized holding gains on securities	2,195	2,844
Defined benefit plans - ASC 835	5	43
Bank premises and equipment	991	1,134
Core deposit intangibles	14	18
Other deferred tax liabilities	127	137
Total deferred tax liabilities	3,332	4,176
Deferred tax asset, net	$1,931	$1,668

The provision for income tax for the three-month and six-month periods ended June 30, 2015 and 2014 is based on the Corporation’s estimate of the effective tax rate expected to be applicable for the full year. The effective tax rates for the Corporation are as follows:

	Three Months Ended				Six Months Ended
(In thousands)	June 30,				June 30,
	2015		2014		2015		2014
Income before income tax provision	$5,809		$5,563		$10,853		$11,250
Income tax provision	1,452		1,400		2,681		2,799
Effective tax rate	25.00	%	25.17	%	24.70	%	24.88	%

The effective tax rate for each period presented differs from the statutory rate of 35% principally because of the effects of tax-exempt interest income.

The Corporation has investments in three limited partnerships that manage affordable housing projects that have qualified for the federal low-income housing tax credit. The Corporation’s expected return from these investments is based on the receipt of tax credits and tax benefits from deductions of operating losses. The Corporation uses the effective yield method to account for these investments, with the benefits recognized as a reduction of the provision for income taxes. For two of the three limited partnership investments, the tax credits have been received in full in prior years, and the Corporation has fully realized the benefits of the credits and amortized its initial investments in the partnerships. The most recent affordable housing project was completed in 2013, and the Corporation received tax credits in 2013 and 2014 and expects to continue to receive tax credits annually through 2022. The carrying amount of the Corporation’s investment is $862,000 at June 30, 2015 and $906,000 at December 31, 2014 (included in Other Assets in the consolidated balance sheets). For the year ending December 31, 2015, the estimated amount of tax credits and other tax benefits to be received is $158,000 and the estimated amount to be recognized as a reduction of the provision for income taxes is $80,000. For the year ended December 31, 2014, tax credits and other tax benefits totaled $159,000 and the amount recognized as a reduction of the provision for income taxes for 2014 was $83,000. The reduction in the provision for income taxes resulting from this investment totaled $20,000 in the second quarter 2014 and $40,000 for the six months ended June 30, 2015, and $20,000 in the second quarter 2014 and $41,000 for the six months ended June 30, 2014.

The Corporation has no unrecognized tax benefits, nor pending examination issues related to tax positions taken in preparation of its income tax returns. With limited exceptions, the Corporation is no longer subject to examination by the Internal Revenue Service for years prior to 2010.