NOTE 14, Income Taxes

On December 22, 2017, the Tax Act was signed into law. The Company applied the guidance in Staff Accounting Bulletin 118 when accounting for the enactment-date effects of the Tax Act in 2017 and throughout 2018. Among other things, the Tax Act permanently reduced the corporate income 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 income 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. During 2017, the Company recorded $1.2 million in additional tax expense based on the Company's analysis of the impact of the Tax Act. As of December 31, 2018, the Company completed our accounting for all of the enactment-date income tax effects of the Tax Act. No additional adjustments related the Tax Act were recorded in 2018.

The components of income tax expense for the current and prior year-ends are as follows:

	2018				2017
	(in thousands)
Current income tax expense		$	443		$	20
Deferred income tax benefit			(164	)		(117	)
Reported income tax expense (benefit)		$	279		$	(97	)

A reconciliation of the expected federal income tax expense on income before income taxes with the reported income tax expense for the same periods follows:

	Years Ended December 31,
	2018			2017
	(in thousands)
Expected tax (benefit) expense	$	1,092		$	(43	)
Interest expense on tax-exempt assets		18			23
Low-income housing tax credits		(496	)		(412	)
Tax-exempt interest, net		(303	)		(628	)
Bank-owned life insurance		(164	)		(263	)
Impact of Tax Act		-			1,221
Other, net		132			5
Reported income tax expense	$	279		$	(97	)

The effective tax rates for 2018 and 2017 were 5.4% and (77.0%), respectively.

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

	December 31,
	2018		2017
	(in thousands)
Deferred tax assets:
Allowance for loan losses	$	2,123	$	1,984
Nonaccrual loans		112		82
Acquistion accounting		120		-
Other real estate owned		21		-
Net operating losses		712		-
Investments in pass-through entities		113		162
Bank owned life insurance benefit		59		55
Securities available-for-sale		573		225
Stock awards		55		-
Alternative minimum tax		292		1,344
Deferred compensation		236		139
Other		63		19
	$	4,479	$	4,010

Deferred tax liabilities:
Premises and equipment	$	389	$	404
Acquistion accounting		86
Deferred loan fees and costs		181		295
		656		699
Net deferred tax assets	$	3,823	$	3,311

The Company files income tax returns in the U.S. federal jurisdiction and the Commonwealth of Virginia. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to 2015.