The Company files income tax returns in the U.S. federal jurisdiction and the Commonwealth of Virginia.
On December 22, 2017, the Tax Act was signed into law. Among other things, the Tax Act permanently reduced the corporate tax rate to 21% from the prior maximum rate of 35%, effective for tax years including or commencing January 1, 2018. As a result of the reduction of the corporate tax rate to 21%, companies were required to revalue their deferred tax assets and liabilities as of the date of enactment, with resulting tax effects accounted for in the fourth quarter of 2017. The Company continues to evaluate the impact on its 2017 tax expense of the revaluation required by the lower corporate tax rate implemented by the Tax Act, which management has estimated to be $1.7 million. During the fourth quarter of 2017, the Company recorded $1.7 million in additional tax expense based on the Company's preliminary analysis of the impact of the Tax Act. The Company's preliminary estimate of the impact of the Tax Act is based on currently available information and interpretation of its provisions. The actual results may differ from the current estimate due to, among other things, further guidance that may be issued by U.S. tax authorities or regulatory bodies and/or changes in interpretations and assumptions that the Company has preliminarily made. The Company's evaluation of the impact of the Tax Act is subject to refinement for up to one year after enactment per the guidance under Accounting Standards Codification ("ASC") 740, Income Taxes, and Staff Accounting Bulletin No. 118.
The components of the net deferred tax assets included in other assets at December 31, 2017 and 2016 are as follows:
(In thousands) | | 2017 | | | 2016 | |
Deferred tax assets: | | | | | | |
Allowance for loan losses | | $ | 1,070 | | | $ | 1,539 | |
Securities available for sale | | | 9 | | | | 393 | |
Impairment on securities | | | 317 | | | | 513 | |
Interest on nonaccrual loans | | | 166 | | | | 276 | |
Accrued vacation | | | 75 | | | | 121 | |
SERP obligation | | | 542 | | | | 892 | |
OREO | | | 219 | | | | 355 | |
Accumulated depreciation | | | 53 | | | | — | |
Restricted stock | | | 58 | | | | 93 | |
Other | | | 201 | | | | 282 | |
| | | 2,710 | | | | 4,464 | |
Deferred tax liabilities: | | | | | | | | |
Accumulated depreciation | | | — | | | | 5 | |
Other | | | 14 | | | | 8 | |
| | | 14 | | | | 13 | |
Net deferred tax assets | | $ | 2,696 | | | $ | 4,451 | |
The Company has not recorded a valuation allowance for deferred tax assets as management feels it is more likely than not, that they will be ultimately realized.
Allocation of federal income taxes between current and deferred portions is as follows:
| | Year Ended December 31, | |
(In thousands) | | 2017 | | | 2016 | | | 2015 | |
Current tax expense | | $ | 1,523 | | | $ | 708 | | | $ | (232 | ) |
Deferred taxes | | | 1,356 | | | | 229 | | | | (1,192 | ) |
| | $ | 2,879 | | | $ | 937 | | | $ | (1,424 | ) |
The reasons for the difference between the statutory federal income tax rate and the effective tax rates for the years ended December 31, 2017, 2016 and 2015 are summarized as follows:
(In thousands) | | 2017 | | | 2016 | | | 2015 | |
Computed “expected” tax expense (benefit) | | $ | 1,828 | | | $ | 1,568 | | | $ | (692 | ) |
Impact of the Tax Act | | | 1,687 | | | | — | | | | — | |
Decrease in income taxes resulting from: | | | | | | | | | | | | |
Tax-exempt interest income | | | (254 | ) | | | (242 | ) | | | (407 | ) |
Tax credits | | | (422 | ) | | | (402 | ) | | | (338 | ) |
Other | | | 40 | | | | 13 | | | | 13 | |
| | $ | 2,879 | | | $ | 937 | | | $ | (1,424 | ) |