Note

- Income Taxes

December 22, 2017,

the TCJA was signed into law, which included several provisions that affected the Company’s federal income tax expense, which reduced the federal income tax rate to

21%

effective

January 1, 2018.

As a result of the rate reduction, the Company was 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:

	2018			2017		2016
Current tax expense	$	2,389		$	2,579	$	2,645
Deferred tax (benefit) expense		(134	)		1,907		(725	)
Total income taxes	$	2,255		$	4,486	$	1,920

The source of deferred tax assets and deferred tax liabilities at

December 31:

	2018			2017
Items giving rise to deferred tax assets:
Allowance for loan losses	$	1,463		$	1,631
Unrealized loss on securities available for sale		568			279
Deferred compensation		1,580			1,466
Deferred loan fees/costs		119			130
Other real estate owned		434			377
Accrued bonus		280			234
Purchase accounting adjustments		61			56
Net operating loss		132			148
Other		257			212
Items giving rise to deferred tax liabilities:
Mortgage servicing rights		(80	)		(78	)
FHLB stock dividends		(676	)		(676	)
Prepaid expenses		(191	)		(149	)
Depreciation and amortization		(656	)		(627	)
Other		(3	)		(3	)
Net deferred tax asset	$	3,288		$	3,000

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.

December 31, 2018,

the Company’s deferred tax asset related to Section

382

net operating loss carryforwards was

$629,

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

21%

2018

and

34%

2017

and

2016

to income before taxes is as follows:

	2018			2017			2016
Statutory tax	$	2,982		$	4,078		$	3,006
Effect of nontaxable interest		(352	)		(514	)		(433	)
Effect of nontaxable insurance premiums		(218	)		(303	)		(340	)
Income from bank owned insurance, net		(142	)		(230	)		(239	)
Effect of postretirement benefits		20			(78	)		(19	)
Effect of nontaxable life insurance death proceeds		----			(175	)		----
Impact from TCJA		----			1,783			----
Effect of state income tax		33			70			64
Tax credits		(217	)		(191	)		(211	)
Milton Merger Costs		----			4			73
Other items		149			42			19
Total income taxes	$	2,255		$	4,486		$	1,920

December 31, 2018

and

December 31, 2017,

the Company had

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”) had 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. Loan Central consequently appealed this matter within the IRS, and felt confident that it was highly unlikely that the penalty recommendation would be sustained. In the

third

quarter of

2018,

Loan Central was notified by the IRS that their penalties had been abated and that

liability exists regarding the case against them. As a result, the Company did

not

recognize any interest and/or penalties related to this matter.

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

longer subject to federal or state examination for years prior to

2015.

The tax years

2015

2017

remain open to federal and state examinations.