NOTE 12 – INCOME TAXES

The components of the provision (benefit) for income taxes are as follows:

	2014		2013		2012
Current	$	3,775	$	5,509	$	5,105
Deferred		3,395		1,895		568
Change in valuation allowance		-		-		-
Provision for income taxes	$	7,170	$	7,404	$	5,673

The Company’s deferred tax assets and liabilities at December 31 are shown below.

	2014			2013
Deferred tax assets
Allowance for loan losses	$	3,706		$	4,016
Purchase accounting adjustments		1,289			2,611
Net operating loss carryforward		648			1,048
Write-downs of other real estate owned		881			893
Taxable income on non-accrual loans		1,233			2,053
Capital loss carryforward		150			196
Accrued expenses		136			172
Unrealized loss on investment securities		-			322
Other		19			19
Total deferred tax assets		8,062			11,330

Deferred tax liabilities
Amortization of intangibles	$	(4,651	)	$	(4,615	)
Depreciation		(1,078	)		(1,101	)
Federal Home Loan Bank dividends		(349	)		(377	)
Deferred loan fees		(619	)		(567	)
Unrealized gain on investment securities		(770	)		-
Other		(72	)		(71	)
Total deferred tax liabilities		(7,539	)		(6,731	)

Valuation allowance on deferred tax assets		(160	)		(160	)
Net deferred taxes	$	363		$	4,439

At December 31, 2014 the Company had federal net operating loss carryforwards of $1,203 and various state net operating loss carryforwards of $4,016 which begin to expire in 2022. The deductibility of these net operating losses is limited under IRC Sec. 382.

A valuation allowance for deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability of the Company to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.

At both December 31, 2014 and 2013, the Company maintains a valuation allowance of $160 against the portion of its District of Columbia net operating loss carryforward that is not expected to be utilized before expiration due to separate company limitations. All other deferred tax assets are more likely than not to be utilized; therefore no additional valuation allowance is needed.

An analysis of the differences between the effective tax rates and the statutory U.S. federal income tax rate is as follows:

	2014					2013					2012
U.S. federal income tax rate	$	6,909		34.0	%	$	7,015		34.0	%	$	5,439		34.0	%
Changes from the statutory rate
Impact of graduated federal tax rate		19		0.1			72		0.4			26		0.2
State income taxes, net		335		1.6			439		2.1			376		2.4
Tax-exempt interest income		(175	)	(0.9	)		(149	)	(0.7	)		(173	)	(1.1	)
Non-deductible interest expense related to carrying tax-exempt interest earning assets		12		0.1			9		0.0			12		0.1
Non-deductible stock compensation expense		55		0.3			57		0.3			62		0.4
Tax credits, net		(49	)	(0.2	)		(49	)	(0.2	)		(49	)	(0.3	)
Other		64		0.3			10		0.0			(20	)	(0.2	)
	$	7,170		35.3	%	$	7,404		35.9	%	$	5,673		35.5	%

Unrecognized Tax Benefits: The Company does not have any beginning or ending unrecognized tax benefits. The Company does not expect the total amount of unrecognized tax benefits to significantly increase in the next twelve months. There were no interest and penalties recorded in the income statement or accrued for the years ended December 31, 2014, 2013 and 2012 related to unrecognized tax benefits.

The Company and its subsidiaries file a consolidated U.S. Corporation income tax return and a combined return in the state of West Virginia and the District of Columbia. The Company also files a corporate income tax return in the state of Kentucky and Maryland. The Company is no longer subject to examination by taxing authorities for years before 2011.