Note

: Income Taxes

The Company files United States federal income tax returns, and Virginia, West Virginia and North Carolina state income tax returns. With few exceptions, the Company is

longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to

2014.

Allocation of income tax expense between current and deferred portions is as follows:

	Years ended December 31,
	20 17		20 16		20 15
Current	$	2,943	$	3,934	$	4,730
Deferred expense		1,790		18		10
Deferred tax adjustment for enacted change in tax rate		1,560		---		---
Total income tax expense	$	6,293	$	3,952	$	4,740

Income tax expense for

2017

includes a downward adjustment of net deferred tax assets in the amount of

$1,560

recorded as a result of the enactment of the Tax Cuts and Jobs Act on

December 22, 2017.

The Company’s marginal tax rate prior to the enactment of the Act is

35%.

Effective

January 1, 2018,

the Company’s tax rate will be

21%.

The following is a reconciliation of the “expected” income tax expense, computed by applying the U.S. Federal income tax rate of

35%

to income before income tax expense, with the reported income tax expense:

	Years ended December 31,
	20 17			20 16			20 15
Computed “expected” income tax expense	$	7,135		$	6,613		$	7,201
Tax impact of enacted change in tax rate		1,560			---			---
Tax-exempt interest income		(2,144	)		(2,234	)		(2,381	)
Nondeductible interest expense		89			92			101
Other, net		(347	)		(519	)		(181	)
Reported income tax expense	$	6,293		$	3,952		$	4,740

The components of net deferred tax assets, included in other assets, are as follows:

	December 31,
	20 17			20 16
Deferred tax assets:
Allowance for loan losses and unearned fee income	$	1,773		$	3,347
Valuation allowance on other real estate owned		156			237
Defined benefit plan		1,592			2,730
Deferred compensation and other liabilities		863			1,336
Discount accretion of securities		---			15
Net unrealized loss on securities available for sale		984			1,932
Total deferred tax assets	$	5,368		$	9,597

Deferred tax liabilities:
Fixed assets	$	(388	)	$	(620	)
Deposit intangibles		(1,059	)		(1,573	)
Defined benefit plan, prepaid portion		(1,579	)		(1,345	)
Discount accretion of securities		(2	)
Total deferred tax liabilities		(3,028	)		(3,538	)
Net deferred tax asset s	$	2,340		$	6,059

The Company has determined that a valuation allowance for the gross deferred tax assets is

not

necessary at

December 31, 2017

and

2016.