12. Income Taxes

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Income Taxes

The consolidated provision for income taxes includes Federal and state income taxes and is based on pretax net income reported in the consolidated financial statements, adjusted for transactions that may never enter into the computation of income taxes payable.  Deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.  Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.  Valuation allowances are established when deemed necessary to reduce deferred tax assets to the amount expected to be realized.

ASC Topic 740 Income Taxes clarifies the accounting and disclosure for uncertain tax positions, as defined.  ASC Topic 740 requires that a tax position meet a "probable recognition threshold" for the benefit of the uncertain tax position to be recognized in the financial statements. A tax position that fails to meet the probable recognition threshold will result in either reduction of a current or deferred tax asset or receivable, or recording a current or deferred tax liability.  ASC Topic 740 also provides guidance on measurement, derecognition of tax benefits, classification, interim period accounting disclosure, and transition requirements in accounting for uncertain tax positions.

The components of applicable income tax expense (benefit) for the years ended December 31, 2013, 2012 and 2011, are as follows:

Dollars in thousands	2013		2012			2011
Current
Federal	$	861	$	1,716		$	4,397
State		41		5			21
		902		1,721			4,418
Deferred
Federal		1,587		(610	)		(3,533)
State		199		108			150
		1,786		(502	)		(3,383)
Total	$	2,688	$	1,219		$	1,035

Reconciliation between the amount of reported income tax expense and the amount computed by multiplying the statutory income tax rates by book pretax income for the years ended December 31, 2013, 2012 and 2011 is as follows:

	2013					2012					2011
Dollars in thousands	Amount			Percent		Amount			Percent		Amount			Percent
Computed tax at applicable
statutory rate	$	3,765		35		$	2,426		35		$	1,788		35
Increase (decrease) in taxes
resulting from:
Tax-exempt interest
and dividends, net		(932	)	(9	)		(1,019	)	(15	)		(1,032	)	(20)
State income taxes, net
of Federal income tax
benefit		156		1			74		1			112		2
Other, net		(301	)	(3	)		(262	)	(4	)		167		3
Applicable income taxes	$	2,688		24		$	1,219		17		$	1,035		20

Deferred income taxes reflect the impact of "temporary differences" between amounts of assets and liabilities for financial reporting purposes and such amounts as measured for tax purposes.  Deferred tax assets and liabilities represent the future tax return consequences of temporary differences, which will either be taxable or deductible when the related assets and liabilities are recovered or settled.  Valuation allowances are established when deemed necessary to reduce deferred tax assets to the amount expected to be realized.  Our WV net operating loss carryforward expires in 2028.

The tax effects of temporary differences, which give rise to our deferred tax assets and liabilities as of December 31, 2013 and 2012, are as follows:

Dollars in thousands	2013		2012
Deferred tax assets
Allowance for loan losses	$	4,681	$	6,635
Depreciation		135		14
Foreclosed properties		4,928		5,063
Deferred compensation		2,006		1,646
Other deferred costs and accrued expenses		371		446
Other-than-temporarily impaired securities		931		1,331
Net unrealized loss on securities available for sale		308		-
NOL and tax credit carryforwards		404		178
Total		13,764		15,313
Deferred tax liabilities
Accretion on tax-exempt securities		6		5
Net unrealized gain on securities available for sale		-		2,985
Net unrealized gain on interest rate swaps		297		-
Purchase accounting adjustments and goodwill		869		932
Total		1,172		3,922
Net deferred tax assets	$	12,592	$	11,391

In accordance with ASC Topic 740, we concluded that there were no significant uncertain tax positions requiring recognition in the consolidated financial statements.  The evaluation was performed for the years ended 2010 through 2013, the tax years which remain subject to examination by major tax jurisdictions.

We may from time to time be assessed interest or penalties associated with tax liabilities by major tax jurisdictions, although any such assessments are estimated to be minimal and immaterial.  To the extent we have received an assessment for interest and/or penalties; it has been classified in the consolidated statements of income as a component of other noninterest expense.

We are currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended December 31, 2010 through 2012.  Tax years 2009 through 2012 remain subject to West Virginia State examination.