Note 10. Income Taxes

The components of income tax expense for the years ended December 31, 2011, 2010, and 2009 are as follows:

	2011			2010			2009
Current:
Federal	$	720,259		$	472,423		$	268,693
State		261,679			253,573			156,773

Total current		981,938			725,996			425,466
Deferred income taxes (benefits):
Federal		(156,652	)		(231,837	)		(509,545	)
State		(57,876	)		(8,648	)		(149,174	)

Total deferred		(214,528	)		(240,485	)		(658,719	)

Income tax expense (benefit)	$	767,410		$	485,511		$	(233,253	)

A reconciliation of income tax expense computed at the statutory rate of 34% to the actual income tax expense for the years ended December 31, 2011, 2010, and 2009 is as follows:

	2011			2010			2009

Income (loss) before income tax expense (benefit)	$	3,760,503		$	2,550,296		$	1,029,209

Taxes computed at Federal income tax rate	$	1,278,569		$	867,102		$	349,925
Increase (decrease) resulting from:
Tax-exempt income		(600,429	)		(530,509	)		(502,488	)
State income taxes, net of Federal income tax benefit		134,510			161,650			(80,690	)
Other		(45,240	)		(12,732	)		-

Income tax expense (benefit)	$	767,410		$	485,511		$	(233,253	)

The components of the net deferred income tax benefits as of December 31, 2011, 2010, and 2009 are as follows:

	2011		2010		2009

Deferred income tax benefits:
Accrued deferred compensation	$	108,861	$	99,454	$	90,594
Impairment loss on investment securities		1,212,351		1,176,090		1,072,662
Allowance for credit losses		1,275,889		1,077,153		1,206,604
Nonaccrual interest		69,103		69,103		11,849
Alternative minimum tax credits		136,952		199,140		-
Net unrealized depreciation on investment securities available for sale		-		663,477		684,422
Accumulated depreciation		62,144		39,916		35,692
Other real estate owned		-		2,644		-
Reserve for unfunded commitments		78,890		78,890		78,890
Total deferred income tax benefits		2,944,190		3,405,867		3,180,713

Deferred income tax liabilities:
Accumulated securities discount accretion		44,165		56,893		51,278
Net unrealized appreciation on investment securities available for sale		1,219,126		-		-
Total deferred income tax liabilities		1,263,291		56,893		51,278

Net deferred income tax benefits	$	1,680,899	$	3,348,974	$	3,129,435

Management has determined that no valuation allowance is required as it believes it is more likely then not that all of the deferred tax assets will be fully realizable in the future. At December 31, 2011, 2010, and 2009, management believes there are no uncertain tax positions under ASC Topic 740 Income Taxes (formerly FIN 48, Accounting for Uncertainty in Income Taxes).

The Company’s federal income tax returns for 2010, 2009, and 2008 are subject to examinations by the IRS generally for three years after they were filed. In addition, the Company’s state tax returns for the same years are subject to examination by state tax authorities for similar time periods. The 2011 income tax return will be filed in 2012.