Entity information:

Note 9 – Income Taxes

The Company files tax returns in the U.S. federal jurisdiction. With few exceptions, the Company is no longer subject to U.S. federal tax examinations by tax authorities for years prior to 2014.

The Commonwealth of Virginia assesses a Bank Franchise Tax on banks instead of a state income tax. The Bank Franchise Tax expense is reported in noninterest expense, and the calculation of that tax is unrelated to taxable income.

Net deferred tax assets consist of the following components as of year-end:

      2017       2016
Deferred tax assets:
Allowance for loan losses $      849 $      1,207
Non-accrual loan interest 9 11
Stock option/grant expense 54 122
Start-up expenses 29 51
Home equity closing costs 32 58
Deferred compensation expense 9 16
Goodwill and other intangible assets 9 6
Securities available for sale unrealized loss 235 401
Depreciation 366 584
$ 1,592 $ 2,456
Deferred tax liabilities:
Deferred loan costs 42 117
42 117
 
Net deferred tax assets $ 1,550 $ 2,339

The provision for income taxes charged to operations for years ended December 31, 2017 and 2016 consists of the following:

      2017       2016
Current tax expense $      3,635 $      2,525
Deferred tax expense (benefit) before adjustment for enacted change in tax rate (195 ) 77
Deferred tax asset adjustment for enacted change in tax rate 963 -
Provision for income taxes $ 4,403 $ 2,602

Income tax expense for 2017 includes a downward adjustment of net deferred tax assets in the amount of $963,000, recorded as a result of the enactment of the Tax Cuts and Jobs Act on December 22, 2017. The Act reduced the corporate Federal tax rate from 34% to 21% effective January 1, 2018.

The income tax provision 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, 2017 and 2016 due to the following:

      2017       2016
Federal statutory rate 34% 34%
Computed statutory tax expense $      3,727 $      2,839
Increase (decrease) in tax resulting from:
Tax-exempt interest income (104 ) (113 )
Tax-exempt income from Bank Owned Life Insurance (BOLI) (145 ) (150 )
Stock option expense 4 9
Stock option exercise benefit (59 ) -
Deferred tax asset adjustment for enacted change in tax rate 963 -
Other expenses 17 17
Provision for income taxes $ 4,403 $ 2,602