INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2017

Components of Income Tax Expense Attributable to Income from Operations

For the years ended December 31, 2017, 2016 and 2015, income tax expense attributable to income from operations consisted of the following (in thousands):



	2017		2016			2015
Current expense:
Federal	$	2,594	$	6,330		$	3,668
State	417		638			216
Total current	3,011		6,968			3,884
Deferred expense/(benefit):
Federal	942		(2,177		)	595
State	382		(387		)	179
Remeasurement of deferred tax assets	2,927		—			—
Total deferred	4,251		(2,564		)	774
Income tax expense	$	7,262	$	4,404		$	4,658

Reconciliation of Income Tax Expense

Income tax expense differed from the amounts computed by applying the U.S. Federal statutory income tax rate to income before income tax expense as follows (in thousands):



	2017			2016			2015
Statutory federal tax rate	34		%	34		%	34		%
Tax computed at statutory rate	$	5,006		$	4,907		$	4,791
Increase (reduction) resulting from:
Tax-exempt income	(663		)	(511		)	(441		)
831(b) premium adjustment	(269		)	(368		)	—
Dividend exclusion	(8		)	(5		)	(41		)
State taxes, net of Federal impact	201			165			238
Nondeductible interest expense	8			9			8
Remeasurement of deferred tax assets	2,927			—			—
Other items, net	60			207			103
Income tax expense	$	7,262		$	4,404		$	4,658
Effective tax rate	49.4		%	30.5		%	33.1		%

Deferred Tax Assets and Deferred Tax Liabilities

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2017 and 2016, are presented below (in thousands):



	2017		2016
Deferred tax assets:
Allowance for loan losses	$	5,396	$	5,405
Accrual for employee benefit plans	186		337
Depreciation	86		2,119
Deferred compensation and directors' fees	872		1,195
Purchase accounting adjustment – deposits	7		21
Purchase accounting adjustment – loans	35		44
Purchase accounting adjustment – fixed assets	149		221
Gain on deemed sale of securities	567		798
Net unrealized losses on securities available for sale	1,169		2,643
Accounting for defined benefit pension and other benefit plans	2,370		4,091
Nonaccrued interest	544		944
Accrued expense	868		854
Other items, net	160		286
Total gross deferred tax assets	12,409		18,958

Deferred tax liabilities:
Deferred loan fees and costs	676		940
Prepaid pension	3,023		3,956
Discount accretion	239		342
Core deposit intangible	1,026		1,460
REIT dividend	844		—
Other	101		152
Total gross deferred tax liabilities	5,909		6,850
Net deferred tax asset	$	6,500	$	12,108