INCOME TAXES

12 Months Ended

Dec. 31, 2017

NOTE 7 — INCOME TAXES

Income tax expense consisted of the following for the years ended December 31, 2017, 2016 and 2015 (dollars in thousands):

	Year Ended December 31,
(in thousands)	2017			2016			2015
Current
Federal		$	7,920		$	3,466		$	2,873
State and local			2,499			492			141
Total current			10,419			3,958			3,014
Deferred
Federal			1,045			(795)			(622)
State and local			(255)			(118)			167
Total deferred			790			(913)			(455)
Total income tax expense		$	11,209		$	3,045		$	2,559

Deferred tax assets and liabilities consist of the following (dollars in thousands):

	At December 31,
	2017			2016
Deferred tax assets:
Allowance for loan losses		$	4,583		$	4,990
Nonaccrual interest income			28			159
Off balance sheet reserves			110			68
Restricted stock			153			165
Tangible asset			23			36
Non-Qualified stock options			183			251
Unrealized loss on securities available for sale			86			118
Total gross deferred tax assets			5,166			5,787
Deferred tax liabilities:
Depreciation and amortization			574			427
Prepaid asset			159			150
Total gross deferred tax liabilities			733			577
Net deferred tax asset, included in other assets		$	4,433		$	5,210

The following is a reconciliation of the Company’s statutory federal income tax rate of 35% to its effective tax rate for the years ended December 31, 2017, 2016 and 2015 (dollars in thousands):

	For the year ended December 31,
	2017					2016					2015
	Tax expense/ (benefit)			Rate		Tax expense/ (benefit)			Rate		Tax expense/ (benefit)			Rate
Pretax income at statutory rates		$	8,252		35.00%		$	2,740		34.00%		$	2,322		34.00%
State and local taxes, net of federal income tax benefit			1,459		6.19			247		3.10			204		3.00
Nondeductible expenses			21		0.09			19		0.20			13		0.20
Stock options			(113)		(0.48)			49		0.60			16		0.20
Tax-exempt income, net			(10)		(0.04)			(10)		(0.10)			—		—
Impact of U.S. tax reform (the Tax Act)			1,581		6.71			—		—			—		—
Other			19		0.08			—		—			4		0.10
Effective income tax expense/rate		$	11,209		47.55%		$	3,045		37.80%		$	2,559		37.50%

Metropolitan Bank Holding Corporation and the Bank file consolidated Federal, New York State and New York City tax returns in 2017, 2016 and 2015.

On December 22, 2017, the U.S. government enacted the Tax Act, which includes significant changes to the U.S. corporate income tax system including a federal corporate rate reduction from 35% to 21% and limitations on the deductibility of interest expense and executive compensation. The Tax Act resulted in a one-time U.S. tax expense of $1.6 million. A majority of the provisions in the Tax Act are effective January 1, 2018.

As of December 31, 2017 and 2016 there are no unrecognized tax benefits, and the Company does not expect this to significantly change in the next twelve months.

The Company and its subsidiary are subject to U.S. federal income tax as well as income tax of the State and City of New York. The Company is no longer subject to examination by the U.S. federal and state or local tax authorities for years prior to 2014.