NOTE 13 – INCOME TAXES

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

	2016		2016			2015
Current	$	7,809	$	6,993		$	6,282
Write-off of deferred tax asset related to 2017 Tax Cuts and Jobs Act.		145		-			-
Deferred		637		(223	)		621
Change in valuation allowance		16		-			-
Provision for income taxes	$	8,607	$	6,770		$	6,903

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

	2017			2016
Deferred tax assets
Allowance for loan losses	$	2,630		$	3,563
Purchase accounting adjustments		137			312
Net operating loss carryforward		360			513
Alternative minimum tax credit carryforward		321			517
Write-downs of other real estate owned		377			1,214
Taxable income on non-accrual loans		842			1,727
Accrued expenses		187			153
Unrealized loss on investment securities		551			1,035
Other		24			38
Total deferred tax assets		5,429			9,072

Deferred tax liabilities
Amortization of intangibles	$	(3,043	)	$	(4,780	)
Depreciation		(884	)		(1,442	)
Federal Home Loan Bank dividends		(224	)		(355	)
Deferred loan fees		(515	)		(774	)
Other		(102	)		(161	)
Total deferred tax liabilities		(4,768	)		(7,512	)

Valuation allowance on deferred tax assets		(176	)		(160	)
Net deferred taxes	$	485		$	1,400

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cut and Jobs Act (the "Tax Act"). The Tax Act makes broad and complex changes to the U.S. tax code that affects 2017, including, but not limited to, accelerated depreciation that will allow for full expensing of qualified property. The Tax Act also establishes new tax laws that will affect 2018 and after, including a reduction in the U.S. federal corporate income tax rate from 35% to 21%. As a result of the reduction of the federal corporate income tax rate, we have revalued our net deferred tax asset, excluding after tax credits, as of December 31, 2017. Based on this revaluation, we have recorded a net tax expense of $145 to reduce our net deferred tax asset balance, which was recorded as additional income tax expense for the year ended December 31, 2017.

The adjustments to deferred tax assets and liabilities are provisional amounts estimated based on information available as of December 31, 2017. These amounts are subject to change as we obtain information necessary to complete the calculations. We will recognize any changes to the provisional amounts as we refine our estimates of our cumulative temporary differences. The effects of any changes to the provisional amounts are not expected to have a material impact on our consolidated financial statements.

At December 31, 2017 the Company had federal net operating loss carryforwards of $875, a federal alternative minimum tax credit carryforward of $321, and various state net operating loss carryforwards of $2,425 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, 2017 and 2016, the Company maintains a valuation allowance of $176 and $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:

	2017					2016					2015
U.S. federal income tax rate	$	8,200		35.0	%	$	6,630		35.0	%	$	6,579		34.0	%
Changes from the statutory rate
Impact of graduated federal tax rate		-		-			-		-			169		0.9
Change in deferred taxes related to decrease in future federal tax rate		145		0.6			-		-			-		-
State income taxes, net		503		2.1			355		1.9			308		1.6
Tax-exempt interest income		(239	)	(1.0	)		(254	)	(1.4	)		(182	)	(0.9	)
Non-deductible interest expense related to carrying tax-exempt interest earning assets		13		0.1			15		0.1			11		0.1
Deductible stock compensation expense, net		(35	)	(0.2	)		26		0.1			34		0.1
Tax credits, net		(42	)	(0.2	)		(42	)	(0.2	)		(44	)	(0.2	)
Change in valuation allowance		16		0.1			-		-			-		-
Other		46		0.2			40		0.2			28		0.1
	$	8,607		36.7	%	$	6,770		35.7	%	$	6,903		35.7	%

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, 2017, 2016 and 2015 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 2014.