NOTE 12 – INCOME TAXES

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

	2015		2014		2013
Current	$	6,282	$	3,775	$	5,509
Deferred		621		3,395		1,895
Change in valuation allowance		-		-		-
Provision for income taxes	$	6,903	$	7,170	$	7,404

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

	2015			2014
Deferred tax assets
Allowance for loan losses	$	3,468		$	3,706
Purchase accounting adjustments		973			1,289
Net operating loss carryforward		545			648
Write-downs of other real estate owned		1,010			881
Taxable income on non-accrual loans		1,255			1,233
Capital loss carryforward		-			150
Accrued expenses		141			136
Other		29			19
Total deferred tax assets		7,421			8,062

Deferred tax liabilities
Amortization of intangibles	$	(4,685	)	$	(4,651	)
Depreciation		(1,000	)		(1,078	)
Federal Home Loan Bank dividends		(349	)		(349	)
Deferred loan fees		(664	)		(619	)
Unrealized gain on investment securities		(166	)		(770	)
Other		(51	)		(72	)
Total deferred tax liabilities		(6,915	)		(7,539	)

Valuation allowance on deferred tax assets		(160	)		(160	)
Net deferred taxes	$	346		$	363

At December 31, 2015 the Company had federal net operating loss carryforwards of $1,094 and various state net operating loss carryforwards of $2,613 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, 2015 and 2014, 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:

	2015					2014					2013
U.S. federal income tax rate	$	6,579		34.0	%	$	6,909		34.0	%	$	7,015		34.0	%
Changes from the statutory rate
Impact of graduated federal tax rate		169		0.9			19		0.1			72		0.4
State income taxes, net		308		1.6			335		1.6			439		2.1
Tax-exempt interest income		(182	)	(0.9	)		(175	)	(0.9	)		(149	)	(0.7	)
Non-deductible interest expense related to carrying tax-exempt interest earning assets		11		0.1			12		0.1			9		0.0
Non-deductible stock compensation expense		34		0.1			55		0.3			57		0.3
Tax credits, net		(44	)	(0.2	)		(49	)	(0.2	)		(49	)	(0.2	)
Other		28		0.1			64		0.3			10		0.0
	$	6,903		35.7	%	$	7,170		35.3	%	$	7,404		35.9	%

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, 2015, 2014 and 2013 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 2012.