15.

INCOME TAXES

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

	September 30,		December 31,
	2018		2017
	(Dollars in thousands)
Deferred tax assets:
Loan loss reserves	$	4,480	$	4,452
Depreciation		671		413
Other real estate owned valuation		62		85
Tax credits carryforward		—		2,193
Unrealized loss on securities available for sale		2,153		241
Unrealized loss on securities held to maturity		192		217
Interest on nonaccrual loans		465		482
Net operating loss carryforward		—		914
Purchase accounting adjustment		137		442
Accrued bonuses		830		551
Other		38		176
Deferred tax assets		9,028		10,166
Deferred tax liabilities:
Deferred loan fees		1,482		1,145
Federal Home Loan Bank stock dividends		2,749		2,787
Mortgage servicing rights		1,547		1,401
FHLB prepayment penalty		205		307
Prepaid expenses		372		306
Deferred tax liabilities		6,355		5,946
Net deferred tax asset	$	2,673	$	4,220

The Company’s ultimate realization of the net deferred tax asset 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 historical and 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.

Effective tax rates differ from the statutory federal income tax rate of 21% for 2018 and 35% for 2017 due to the following:

	For the Three Months Ended September 30,
	2018						2017
	Dollars			Rate			Dollars			Rate
	(Dollars in thousands)
Tax at statutory rate:	$	2,467			21.00	%	$	3,718			35.00	%
Increase (decrease) due to:
Tax exempt income		(85	)		(0.73	)%		(164	)		(1.54	)%
Life insurance		(92	)		(0.78	)%		(148	)		(1.39	)%
Stock compensation		(12	)		(0.10	)%		(102	)		(0.96	)%
Other		(61	)		(0.52	)%		(237	)		(2.23	)%
Income tax provision	$	2,217			18.87	%	$	3,067			28.88	%

	For the Nine Months Ended September 30,
	2018						2017
	Dollars			Rate			Dollars			Rate
	(Dollars in thousands)
Tax at statutory rate:	$	7,108			21.00	%	$	8,499			35.00	%
Increase (decrease) due to:
Tax exempt income		(266	)		(0.79	)%		(499	)		(2.05	)%
Life insurance		(273	)		(0.81	)%		(416	)		(1.71	)%
Stock compensation		(144	)		(0.42	)%		(300	)		(1.24	)%
Other		(205	)		(0.60	)%		(283	)		(1.17	)%
Income tax provision	$	6,220			18.38	%	$	7,001			28.83	%