15.INCOME TAXES

The Company files income tax returns in the U.S., the Commonwealth of Virginia, and other states. With few exceptions, the Company is no longer subject to U.S. federal or state income tax examinations by tax authorities for years prior to 2010.

Net deferred tax assets and liabilities consist of the following components as of December 31, 2013 and 2012 (dollars in thousands):

In assessing the ability to realize deferred tax assets, management considers the scheduled reversal of temporary differences, projected future taxable income, and tax planning strategies.  At December 31, 2013, management believed that it is not likely that the Company would realize its deferred tax asset related to net operating losses generated at the state level and accordingly established a valuation allowance of $828,000.  The Company’s bank subsidiary is not subject to a state income tax in its primary place of business (Virginia).  The Company’s other subsidiaries are subject to state income taxes and have generated losses for state income tax purposes for which the Company is currently not able to utilize.  The primary change in management’s estimate of the recoverability of the state net operating loss is related to the recent performance of the Company’s mortgage segment.  State net operating loss carryovers will begin to expire after 2026.

The provision for income taxes charged to operations for the years ended December 31, 2013, 2012, and 2011 consists of the following (dollars in thousands):

The income tax expense 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, 2013, 2012, and 2011, due to the following (dollars in thousands):

The effective tax rates were 26.6%,  28.8%, and 27.1%, for years ended December 31, 2013, 2012, and 2011, respectively.  Tax credits totaled approximately $306,000,  $217,000, and $203,000 for the years ended December 31, 2013, 2012, and 2011, respectively.