14.	INCOME TAXES

The income tax expense (benefit) consists of the following components:

	For the Year Ended December 31,
	2017		2016		2015
	(Dollars in thousands)
Current	$	284	$	300	$	577
Deferred		9,466		7,843		7,316
Enactment of Federal Tax reform		1,545		—		—
Total	$	11,295	$	8,143	$	7,893

Effective tax rates differ from the statutory federal income tax rate of 35% due to the following:

	For the Year Ended December 31,
	2017						2016						2015
	Dollars			Rate			Dollars			Rate			Dollars			Rate
	(Dollars in thousands)
Tax at statutory rate	$	11,578			35.0	%	$	9,440			35.0	%	$	8,461			35.0	%
Increase (decrease) due to:
Tax exempt income		(553	)		(1.7	)%		(471	)		(1.7	)%		(45	)		(0.2	)%
Life insurance		(569	)		(1.7	)%		(523	)		(1.9	)%		(602	)		(2.5	)%
Tax exempt insurance premiums		(303	)		(0.9	)%		—			—	%		—			—	%
Equity compensation		(246	)		(0.7	)%		—			—	%		—			—	%
Enactment of federal tax reform		1,545			4.6	%		—			—	%		—			—	%
Disproportionate tax reversal		—			—	%		(511	)		(1.9	)%		—			—	%
Other		(157	)		(0.5	)%		208			0.7	%		79			0.3	%
Income tax provision	$	11,295			34.1	%	$	8,143			30.2	%	$	7,893			32.6	%

Significant components of the deferred tax assets and liabilities are as follows:

	December 31,
	2017		2016
	(Dollars in thousands)
Deferred tax assets:
Loan loss reserves	$	4,452	$	6,680
Depreciation		413		748
Other real estate owned valuation		85		354
Tax credits carryforward		2,193		1,471
Unrealized loss on securities available for sale		241		1,685
Unrealized loss on securities held to maturity		217		431
Interest on nonaccrual loans		482		1,039
Net operating loss carryforward		914		8,574
Purchase accounting adjustment		442		—
Accrued bonuses		551		812
Other		176		221
Deferred tax assets		10,166		22,015
Deferred tax liabilities:
Deferred loan fees		1,145		1,275
Federal Home Loan Bank stock dividends		2,787		4,585
Mortgage servicing rights		1,401		2,124
FHLB prepayment penalty		307		786
Purchase accounting adjustment		—		371
Prepaid expenses		306		139
Deferred tax liabilities		5,946		9,280
Net deferred tax asset	$	4,220	$	12,735

The Company’s ultimate realization of the DTA is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. Management considers the nature and amount of projected future taxable income, the scheduled reversal of deferred tax assets and liabilities, and available tax planning strategies in making this assessment. The amount of deferred taxes recognized could be impacted by changes to any of these variables.

United Community’s net operating loss of $4.4 million will be carried forward to use against future taxable income. The net operating loss carryforwards begin to expire in the year ending December 31, 2027. In addition, United Community is carrying forward $2.2 million of alternative minimum tax credits. The alternative minimum tax credits are carried forward indefinitely. Certain of these tax benefits are subject to annual limitation under Internal Revenue Code section 382; however, United Community and Home Savings expect to utilize the full amount of the benefit.

Retained earnings at December 31, 2017 included approximately $21.1 million for which no provision for federal income taxes has been made. This amount represents the tax bad debt reserve at December 31, 1987, which is the end of United Community’s base year for purposes of calculating the bad debt deduction for tax purposes. If this portion of retained earnings is used in the future for any purpose other than to absorb bad debts, the amount used will be added to future taxable income. The unrecorded deferred tax liability on the above amount at December 31, 2017 was approximately $4.4 million. At December 31, 2017, Home Savings had approximately $17.6 million deficit in tax earnings and profits. Any distribution from Home Savings to United Community, other than current period earnings, in excess of tax earnings and profits, including any distributions made by Home Savings in direct redemption of stock from United Community, could result in recapture of proportionate amounts of these bad debt reserves and, as a result, recording of the related tax liability.

As of December 31, 2017 and December 31, 2016, United Community had no unrecognized tax benefits or accrued interest and penalties recorded. United Community does not expect the total amount of unrecognized tax benefits to significantly increase within the next twelve months. United Community will record interest and penalties as a component of income tax expense.

United Community and Home Savings are subject to U.S. federal income tax. United Community and Home Savings are subject to tax in Ohio based upon its net worth. United Community and Home Savings also file state income tax returns in Pennsylvania, Indiana, West Virginia and Florida. United Community is no longer subject to examination by taxing authorities for years prior to 2014.

On December 22, 2017, H.R. 1, commonly known as the Tax Cuts and Jobs Act (the “Act”), was signed into law. The Act includes 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 $1.5 million.