Income Taxes
The Company files income tax returns with the United States of America,the Commonwealth of Virginia and West Virginia. With few exceptions, the Company is no longer subject to federal, state, or local income tax examinations for years prior to 2014.
The net deferred tax asset at December 31, 2017 and 2016 consisted of the following components:
|
| | | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| | (in thousands) |
Deferred tax assets: | | | | |
Allowance for loan losses | | $ | 922 |
| | $ | 1,525 |
|
Deferred compensation | | 72 |
| | 117 |
|
Accrued postretirement benefits | | 23 |
| | 40 |
|
Home equity origination costs | | 46 |
| | 73 |
|
Nonaccrual interest | | 101 |
| | 151 |
|
Securities available for sale | | — |
| | 32 |
|
Other | | 53 |
| | 193 |
|
| | $ | 1,217 |
| | $ | 2,131 |
|
Deferred tax liabilities: | | | | |
Property and equipment | | $ | 506 |
| | $ | 814 |
|
Securities available for sale | | 71 |
| | — |
|
| | $ | 577 |
| | $ | 814 |
|
Net deferred tax asset | | $ | 640 |
| | $ | 1,317 |
|
The Company has not recorded a valuation allowance for deferred tax assets because management believes that it is more likely than not that they will be ultimately realized.
Income tax expense for the years ended December 31, 2017, 2016 and 2015 consisted of the following components:
|
| | | | | | | | | | | | |
| | December 31, |
| | 2017 | | 2016 | | 2015 |
| | (in thousands) |
Current tax expense | | $ | 3,094 |
| | $ | 2,346 |
| | $ | 2,001 |
|
Deferred tax expense | | 135 |
| | 207 |
| | 432 |
|
Deferred tax adjustment for enacted rate change | | 397 |
| | — |
| | — |
|
| | $ | 3,626 |
| | $ | 2,553 |
| | $ | 2,433 |
|
The following table reconciles income tax expense to the statutory federal corporate income tax amount, which was calculated by applying the federal corporate income tax rate to pre-tax income for the years ended December 31, 2017, 2016 and 2015.
|
| | | | | | | | | | | | |
| | December 31, |
| | 2017 | | 2016 | | 2015 |
| | (in thousands) |
Statutory federal corporate tax amount | | $ | 3,880 |
| | $ | 3,034 |
| | $ | 3,172 |
|
Tax-exempt interest (income) | | (417 | ) | | (387 | ) | | (404 | ) |
Officer insurance (income) loss | | (92 | ) | | 15 |
| | 11 |
|
Net tax credits | | (165 | ) | | (126 | ) | | (105 | ) |
Corporate tax rate change | | 397 |
| | — |
| | — |
|
Other, net | | 23 |
| | 17 |
| | (241 | ) |
| | $ | 3,626 |
| | $ | 2,553 |
| | $ | 2,433 |
|
The effective tax rates were 31.77%, 28.62%, and 26.08%, for years ended December 31, 2017, 2016, and 2015, respectively. This increase in the effective tax rate resulted mostly from the Tax Cuts and Jobs Act that was signed into law on December 22, 2017. The Company's deferred tax assets and liabilities were adjusted at December 31, 2017, for the reduction of our applicable corporate income tax rate from 34% to 21%, effective January 1, 2018. This adjustment resulted in a write-down of our net deferred tax assets and an increase in our federal income tax expense of $397 thousand.