Note K - Income Taxes

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note

K

- Income Taxes

On

December 22, 2017,

the TCJA was signed into law

, which included several provisions that will affect the Company’s federal income tax expense, including reducing the federal income tax rate to

21%

effective

January 1, 2018.

As a result of the rate reduction, the Company is required to re-measure, through income tax expense in the period of enactment, the deferred tax assets and liabilities using the enacted rate at which these items are expected to be recovered or settled. The re-measurement of the Company’s net deferred tax asset resulted in additional

2017

income tax expense of

$1.8

million

The provision for income taxes consists of the following components:

	201 7		201 6			201 5
Current tax expense	$	2,579	$	2,645		$	2,218
Deferred tax (benefit) expense		1,907		(725	)		591
Total income taxes	$	4,486	$	1,920		$	2,809

The source of deferred tax assets and deferred tax liabilities at

December 31:

	2017			2016
Items giving rise to deferred tax assets:
Allowance for loan losses	$	1,631		$	2,538
Unrealized loss on securities available for sale		279			510
Deferred compensation		1,466			2,194
Deferred loan fees/costs		130			248
Other real estate owned		377			719
Accrued bonus		234			240
Purchase accounting adjustments		56			305
Net operating loss		148			258
Other		212			275
Items giving rise to deferred tax liabilities:
Mortgage servicing rights		(78	)		(134	)
FHLB stock dividends		(676	)		(1,078	)
Prepaid expenses		(149	)		(283	)
Depreciation and amortization		(627	)		(823	)
Other		(3	)		(4	)
Net deferred tax asset	$	3,000		$	4,965

The Company determined that it was

not

required to establish a valuation allowance for deferred tax assets since management believes that the deferred tax assets are likely to be realized through the future reversals of existing taxable temporary differences, deductions against forecasted income and tax planning strategies.

At

December 31,

201

7,

the Company’s deferred tax asset related to Section

382

net operating loss carryforwards was

$705,

which will expire in

2026.

The difference between the financial statement tax provision and amounts computed by applying the statutory federal income tax rate of

34%

to income before taxes is as follows:

	201 7			201 6			201 5
Statutory tax	$	4,078		$	3,006		$	3,870
Effect of nontaxable interest		(514	)		(433	)		(437	)
Effect of nontaxable insurance premiums		(303	)		(340	)		(336	)
Income from bank owned insurance, net		(230	)		(239	)		(210	)
Effect of postretirement benefits		(78	)		(19	)		71
Effect of nontaxable life insurance death proceeds		(175	)		----			(11	)
Impact from TCJA		1,783			----			----
Effect of state income tax		70			64			66
Tax credits		(191	)		(211	)		(221	)
Milton Merger Costs		4			73			----
Other items		42			19			17
Total income taxes	$	4,486		$	1,920		$	2,809

At

December 31,

201

7

and

December 31, 2016,

the Company had

no

unrecognized tax benefits. The Company does

not

expect the amount of unrecognized tax benefits to significantly change within the next

twelve

months. As previously reported, the Internal Revenue Service (“IRS”) has proposed that Loan Central, as a tax return preparer, be assessed a penalty for allegedly negotiating or endorsing checks issued by the U.S. Treasury to taxpayers.  The penalty would amount to approximately

$1.2

million.  Loan Central appealed this matter within the IRS, and the appeals office has returned the matter to the examination office for further action.  The matter

may

still be resolved at the IRS. If the matter is

not

resolved at the IRS, the matter

may

have to be resolved through the judicial system.   Based on consultation with legal counsel, management remains confident that it is highly unlikely that the penalty recommendation will be sustained.  Therefore, the Company did

not

recognize any interest and/or penalties related to this matter for the periods presented.

The Company is subject to U.S. federal income tax as well as West Virginia state income tax.

  The Company is

no

longer subject to federal or state examination for years prior to

2014.

  The tax years

2014

-

2016

remain open to federal and state examinations.