Note 12 - Income taxes

The Company files income tax returns in the U.S. federal jurisdiction and 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 2010.

Income tax expense attributable to income before income tax expense is summarized as follows:


	December 31,
	2013	2012
Current federal income tax expense	$ 954	$ 1,045
Deferred federal income tax expense (benefit)	278	(312)
Tax credits	(190)	(190)
Income tax expense	$ 1,042	$ 543

Income tax expense differed from amounts computed by applying the U.S. Federal income tax rate of 34% to income before income tax expense as a result of the following:

	2013	2012
Computed “expected” income tax provision	$ 1,395	$ 910
Increase (reduction) in income tax resulting from:
Non-taxable income	(180)	(186)
Non-deductible expenses	17	9
Tax credits	(190)	(190)
Income tax expense	$ 1,042	$ 543

Note 12 - Income taxes (continued)

The tax effects of temporary differences result in deferred tax assets and liabilities as presented below:


	2013	2012
Deferred tax assets
Allowance for loan losses	$ 977	$ 1,121
Unrealized loss on available-for-sale securities	1,246	-
OREO	197	218
Non-accrual interest	399	293
Carryover of tax credits	109	243
Gross deferred tax assets	2,928	1,875

Deferred tax liabilities
Depreciation	246	179
Unrealized gain on available-for-sale securities	-	293
Other	38	20
Prepaid expenses	16	16
Gross deferred tax liabilities	300	508
Net deferred tax asset	$ 2,628	$ 1,367