Taxes on Income

The tax effects of significant items comprising the Company’s net deferred tax assets (liabilities) are as follows:



	December 31,
(In thousands)	2017			2016
Deferred tax assets:
Credit losses not currently deductible	$	3,055		$	4,151
Deferred compensation	1,300			1,782
Depreciation	324			51
Accrued reserves	90			200
Write-down on other real estate owned	35			534
Unrealized gain on AFS	196			415
Unrealized gain on retirement obligation	104			—
Interest on nonaccrual loans	29			36
Other	361			1,897
Total deferred tax assets	5,494			9,066
Deferred tax liabilities:
State Tax	(152		)	(1,087		)
FHLB dividend	(46		)	(65		)
Loss on limited partnership investment	(873		)	(1,222		)
Deferred gain ASC 825 – fair value option	(896		)	(1,657		)
Fair value adjustments for purchase accounting	(99		)	(139		)
Deferred loan costs	(835		)	(1,318		)
Specific reserve charge-offs	(43		)	—
Prepaid expenses	(161		)	(280		)
Total deferred tax liabilities	(3,105		)	(5,768		)
Net deferred tax assets	$	2,389		$	3,298

The Company periodically evaluates its deferred tax assets to determine whether a valuation allowance is required based upon a determination that some or all of the deferred assets may not be ultimately realized. The Company did not record a valuation allowance at December 31, 2017 or December 31, 2016.

Income tax expense for the years ended December 31, consist of the following:



(In thousands)
2017	Federal			State		Total
Current	$	4,745		$	1,388	$	6,133
Deferred	(881		)	1,787		906
	$	3,864		$	3,175	$	7,039
2016
Current	$	2,642		$	28	$	2,670
Deferred	941			1,258		2,199
	$	3,583		$	1,286	$	4,869
2015
Current	$	2,847		$	10	$	2,857
Deferred	465			1,175		1,640
	$	3,312		$	1,185	$	4,497

A reconciliation of the statutory federal income tax rate to the effective income tax rate is as follows:



	Year Ended December 31,
	2017		2016		2015
Statutory federal income tax rate	35.0	%	34.0	%	34.0	%
State franchise tax, net of federal income tax benefit	6.2		6.9		6.9
Tax Cuts and Jobs Act impact on deferred re-measurement	6.3		0.0		0.0
Other	(2.6	)	(1.2	)	(1.1	)
	44.9	%	39.7	%	39.8	%

At December 31, 2017, the Company has no remaining federal and state net operating loss carry-forwards.

The Company periodically reviews its tax positions under the accounting standards related to uncertainty in income taxes, which defines the criteria that an individual tax position would have to meet for some or all of the income tax benefit to be recognized in a taxable entity’s financial statements. Under the guidelines, an entity should recognize the financial statement benefit of a tax position if it determines that it is more likely than not that the position will be sustained on examination. The term, “more likely than not”, means a likelihood of more than 50 percent. In assessing whether the more-likely-than-not criterion is met, the entity should assume that the tax position will be reviewed by the applicable taxing authority and all available information is known to the taxing authority.

The Company's 2017 results include the impact of the enactment of the Tax Cuts and Jobs Act, which was signed into law on December 22, 2017. The law includes significant changes to the U.S. corporate tax system, including a Federal corporate rate change reduction from 34% to 21%. In 2017, the Company applies this newly enacted corporate federal income tax of 21%, resulting in approximately a $986,000 increase to tax expense. The final impact of the tax rate change may differ due to changes in assumptions made by the Company or actions the Company may take as a result of tax reform.

The Company and its subsidiary file income tax returns in the U.S federal jurisdiction, and several states within the U.S. There are no filings in foreign jurisdictions. During 2014, the Company began the process to amend its state tax returns for the years 2009 through 2012 to file a combined report on a unitary basis with the Company and USB Investment Trust . The amended return for 2009 was filed during 2014, the 2010 return was filed during 2015, and the amended returns for 2011 and 2012 were filed in 2016. The Company is no longer subject to examination for years before 2013.

During the third quarter of 2016, the IRS notified the Company it would be conducting an examination of the Company's 2014 federal return, to which the Company received notification that no changes were being recommended.. The Company's policy is to recognize interest and penalties related to taxes in income tax expense. Interest and penalties recognized during the years ended December 31, 2017 and 2016 were insignificant.