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Income Taxes
 12 Months Ended
Dec. 31, 2012
Income Taxes [Abstract]  
Income Taxes

Note 10. Income Taxes

The Company is subject to U.S. federal income tax as well as bank franchise tax in the state of Virginia. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to 2009.

Net deferred tax assets consisted of the following components at December 31, 2012 and 2011:

 

                 
    (in thousands)  
    2012     2011  

Deferred Tax Assets

                

Allowance for loan losses

   $ 4,446     $ 4,399  

Allowance for other real estate owned

     760       949  

Interest on non-accrual loans

     266       218  

Unfunded pension liability

     894       740  

Split dollar liability

     391       398  

Gain on other real estate owned

     990       1,085  

Other

     122       236  
   

 

 

    

 

 

  
    $ 7,869     $ 8,025  
   

 

 

    

 

 

  

Deferred Tax Liabilities

                

Depreciation

   $ 674     $ 728  

Securities available for sale

     601       1,057  

Discount accretion

     3       10  

Loan origination costs, net

     30       105  
   

 

 

    

 

 

  
    $ 1,308     $ 1,900  
   

 

 

    

 

 

  
     

Valuation allowance

     6,561       6,125  
   

 

 

    

 

 

  

Net deferred tax assets

   $ —        $ —     
   

 

 

    

 

 

  

 

As of December 31, 2012, the Company had recorded a full valuation allowance on its net deferred tax assets (DTAs). The realization of DTAs is assessed and a valuation allowance is recorded if it is “more likely than not” that all or a portion of the deferred tax asset will not be realized. “More likely than not” is defined as greater than a 50% chance. All available evidence, both positive and negative is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed. In assessing the need for a valuation allowance, the Company considered all available evidence about the realization of DTAs, both positive and negative, that could be objectively verified. The Company’s positive evidence considered in support of its use of forecasted future earnings as a source of realizing DTAs was insufficient to overcome the negative evidence associated with its pre-tax cumulative loss position. Management’s assessment is primarily dependent on historical taxable income and projections of future taxable income, which are directly related to the Company’s core earnings capacity and its prospects to generate core earnings in the future. Projections of core earnings and taxable income are inherently subject to uncertainty and estimates that may change given an uncertain economic outlook, banking industry conditions and other factors. At December 31, 2012, management concluded that it is more likely than not that its full net deferred tax assets will not be realized and maintained a valuation allowance of $6.6 million.

The provision (benefit) for income taxes for the years ended December 31, 2012, 2011 and 2010 consisted of the following:

 

                         
    (in thousands)  
    2012     2011     2010  

Current tax expense (benefit)

   $ 965     $ (2,607 )    $ 1,780  

Deferred tax expense (benefit)

     —         6,442       (3,986 ) 
   

 

 

    

 

 

    

 

 

  
    $ 965     $ 3,835     $ (2,206 ) 
   

 

 

    

 

 

    

 

 

  

The income tax provision (benefit) 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, 2012, 2011 and 2010, due to the following:

 

                         
    (in thousands)  
    2012     2011     2010  

Computed tax expense (benefit) at statutory federal rate

   $ 1,280     $ (2,423 )    $ (1,975 ) 

Increase (decrease) in income taxes from deferred tax valuation allowance

     (167 )      6,442       —    

Decrease in income taxes resulting from:

                        

Tax-exempt interest and dividend income

     (125 )      (186 )      (197 ) 

Other

     (23 )      2       (34 ) 
   

 

 

    

 

 

    

 

 

  
    $ 965     $ 3,835     $ (2,206 )