Note 8 – Income Taxes

The Company files tax returns in the U.S. federal jurisdiction. With few exceptions, the Company is no longer subject to U.S. federal tax examinations by tax authorities for years prior to 2012.

The Commonwealth of Virginia assesses a Bank Franchise Tax on banks instead of a state income tax. The Bank Franchise Tax expense is reported in noninterest expense, and the calculation of that tax is unrelated to taxable income.

Net deferred tax assets consist of the following components as of year-end:

	2015		2014
Deferred tax assets:
Allowance for loan losses	$	1,130	$	970
Non-accrual loan interest		8		5
Stock option/grant expense		240		316
Start-up expenses		56		60
Home equity closing costs		63		66
OREO valuation allowance		-		319
Deferred compensation expense		14		14
Securities available for sale unrealized loss		61		-
Depreciation		610		696
	$	2,182	$	2,446
Deferred tax liabilities:
Securities available for sale unrealized gain	$	-	$	23
Deferred loan costs		106		57
		106		80

Net deferred tax assets	$	2,076	$	2,366

The provision for income taxes charged to operations for years ended December 31, 2015 and 2014 consists of the following:

	2015		2014
Current tax expense	$	824	$	517
Deferred tax expense (benefit)		373		(61	)
Provision for income taxes	$	1,197	$	456

The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income for the years ended December 31, 2015 and 2014 due to the following:

	2015			2014
Federal statutory rate	34%			34%
Computed statutory tax expense	$	1,468		$	800
Increase (decrease) in tax resulting from:
Tax-exempt interest income		(148	)		(169	)
Tax-exempt income from Bank
Owned Life Insurance (BOLI)		(150	)		(149	)
Stock option expense		10			14
Other		17			(40	)
Provision for income taxes	$	1,197		$	456