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Note 11 - Federal Income Taxes

12 Months Ended

Dec. 31, 2015

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

NOTE 11 - FEDERAL INCOME TAXES

The consolidated income tax expense is as follows:

		2015				2014				2013

Current expense		$	7,399,000			$	3,359,000			$	0
Deferred expense			4,592,000				4,506,000				8,092,000
Change in valuation allowance			(180,000	)			0				0
Tax expense		$	11,811,000			$	7,865,000			$	8,092,000

A reconciliation of the differences between the federal income tax expense recorded and the amount computed by applying the federal statutory rate to income before income taxes is as follows:

		2015				2014				2013

Tax at statutory rate (35%)		$	13,591,000			$	8,819,000			$	8,794,000
Increase (decrease) from
Tax-exempt interest			(781,000	)			(621,000	)			(347,000	)
Bank owned life insurance			(384,000	)			(415,000	)			(465,000	)
Change in valuation allowance			(180,000	)			0				0
Other			(435,000	)			82,000				110,000
Tax expense		$	11,811,000			$	7,865,000			$	8,092,000

Significant components of deferred tax assets and liabilities as of December 31, 2015 and 2014 are as follows:

		2015				2014
Deferred income tax assets
Allowance for loan losses		$	5,488,000			$	7,014,000
Deferred compensation			1,367,000				1,304,000
Stock compensation			767,000				521,000
Nonaccrual loan interest income			602,000				471,000
Deferred loan fees			504,000				445,000
Losses on capital investments			270,000				450,000
Fair value write-downs on foreclosed properties			115,000				212,000
Fair value of interest rate swap			89,000				89,000
Tax credit carryforwards			0				3,395,000
Business combination adjustments			0				315,000
Other			283,000				410,000
Deferred tax asset before valuation allowance			9,485,000				14,626,000
Valuation allowance			(270,000	)			(450,000	)
Deferred tax asset after valuation allowance			9,215,000				14,176,000

Deferred income tax liabilities
Depreciation			1,128,000				1,217,000
Prepaid expenses			378,000				425,000
Core deposit intangible			4,349,000				5,386,000
Mortgage loan servicing rights			2,142,000				2,349,000
Unrealized gain on securities			768,000				112,000
Business combination adjustments			1,091,000				0
Other			188,000				476,000
Deferred tax liability			10,044,000				9,965,000

Total net deferred tax asset (liability)		$	(829,000	)		$	4,211,000

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. At December 31, 2014, we carried a valuation allowance against the $0.5 million deferred tax asset associated with certain capital investments acquired in our merger with Firstbank. During 2015, we disposed of these investments entirely, partially offsetting the capital loss incurred for tax purposes with capital gains resulting from the FHLBI initiated repurchase of its excess shares. We reversed $0.2 million of the valuation allowance due to the capital gain, and continue to carry a valuation allowance on the $0.3 million deferred tax asset associated with $0.8 million of capital loss carry forward that will expire at December 31, 2020. We believe the remainder of our deferred tax assets are more likely than not to be realized.

We had no unrecognized tax benefits at any time during 2015 or 2014 and do not anticipate any significant increase in unrecognized tax benefits during 2016. Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is our policy to record such accruals in our income tax accounts; no such accruals existed at any time during 2015 or 2014. Our U.S. federal income tax returns are no longer subject to examination for all years before 2012.