Note 12 - Income Taxes

12 Months Ended

Dec. 31, 2014

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

NOTE 12 Income Taxes

Income tax expense (benefit) for the years ended December 31 is as follows:

(Dollars in thousands)	2014		2013			2012
Current:
Federal	$	262		227			108
State		74		64			24
Total current		336		291			132
Deferred:
Federal		3,753		3,554			1,598
State		813		1,351			280
Total deferred		4,566		4,905			1,878
Change in valuation allowance		0		(19,602	)		(1,878	)
Income tax expense (benefit)	$	4,902		(14,406	)		132

The reasons for the difference between expected income tax expense utilizing the federal corporate tax rate of 34% and the actual income tax expense (benefit) are as follows:

(Dollars in thousands)	2014			2013			2012
Expected federal income tax expense	$	4,176			4,170			1,854
Items affecting federal income tax:
State income taxes, net of federal income tax expense		698			706			327
Tax exempt interest		(45	)		(69	)		(86	)
Decrease in valuation allowance		0			(19,602	)		(1,878	)
Other, net		73			389			(85	)
Income tax expense (benefit)	$	4,902			(14,406	)		132

The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are as follows at December 31:

(Dollars in thousands)	2014		2013
Deferred tax assets:
Allowances for loan and real estate losses	$	3,984		5,486
Deferred compensation costs		205		233
Deferred ESOP loan asset		711		706
Nonaccruing loan interest		627		558
Federal net operating loss carryforward		1,730		3,983
State net operating loss carryforward		2,448		2,802
Alternative minimum tax credit carryforward		716		700
Capitalized other real estate owned expenses		851		1,284
Net unrealized loss on securities available for sale		276		291
Other		237		340
Total gross deferred tax assets		11,785		16,383
Deferred tax liabilities:
Deferred loan fees and costs		250		284
Premises and equipment basis difference		141		132
Originated mortgage servicing rights		597		677
Other		267		179
Total gross deferred tax liabilities		1,255		1,272
Net deferred tax assets	$	10,530		15,111

The Company has cumulative federal net operating loss carryforwards of $7.3 million at December 31, 2014 that expire beginning in 2029. The Company also has state net operating loss carryforwards of $25.4 million at December 31, 2014 that expire beginning in 2023.

Retained earnings at December 31, 2014 included approximately $8.8 million for which no provision for income taxes was made. This amount represents allocations of income to bad debt deductions for tax purposes. Reduction of amounts so allocated for purposes other than absorbing losses will create income for tax purposes, which will be subject to the then-current corporate income tax rate.

The Company considers the determination of the deferred tax asset amount and the need for any valuation reserve to be a critical accounting policy that requires significant judgment. The Company has, in its judgment, made reasonable assumptions and considered both positive and negative evidence relating to the ultimate realization of deferred tax assets. Positive evidence includes the cumulative net income generated over the prior three year period and the probability that taxable income will be generated in future periods. Negative evidence includes the general business and economic environment. Based upon this evaluation, the Company determined that no valuation allowance was required with respect to the net deferred tax assets at December 31, 2014 and 2013.