12. INCOME TAXES

The provision for income taxes consists of the following (in thousands):

	Year Ended December 31,
	2018			2017			2016
Currently payable	$	3,838		$	4,583		$	2,672
Change in corporate tax rate		-			1,531			-
Deferred		(435	)		(83	)		362
Provision for income taxes	$	3,403		$	6,031		$	3,034

The following temporary differences gave rise to the net deferred tax asset and liabilities at December 31, 2018 and 2017, respectively (in thousands):

	2018			2017
Deferred tax assets:
Allowance for loan losses	$	3,323		$	3,058
Deferred compensation		479			464
Merger & acquisition costs		5			7
Allowance for losses on available-for-sale securities		5			6
Pension and other retirement obligation		301			297
Interest on non-accrual loans		1,126			917
Incentive plan accruals		361			324
Other real estate owned		1			108
Unrealized losses on available-for-sale securities		259			71
Low income housing tax credits		139			64
NOL carry forward		212			339
Other		134			125
Total	$	6,345		$	5,780

Deferred tax liabilities:
Premises and equipment	$	(612	)	$	(623	)
Investment securities accretion		(53	)		(66	)
Loan fees and costs		(253	)		(257	)
Goodwill and core deposit intangibles		(2,229	)		(2,200	)
Mortgage servicing rights		(139	)		(146	)
Other		(4	)		(7	)
Total		(3,290	)		(3,299	)
Deferred tax asset, net	$	3,055		$	2,481

No valuation allowance was established at December 31, 2018 and 2017, due to the Company’s ability to carryback to taxes paid in previous years and certain tax strategies, coupled with the anticipated future taxable income as evidenced by the Company’s earnings potential.

The total provision for income taxes is different from that computed at the statutory rates due to the following items (dollars in thousands):

	Year Ended December 31,
	2018			2017			2016
Provision at statutory rates on
pre-tax income	$	4,502		$	6,505		$	5,328
Effect of tax-exempt income		(955	)		(1,710	)		(1,943	)
Low income housing tax credits		(141	)		(141	)		(198	)
Bank owned life insurance		(131	)		(225	)		(234	)
Nondeductible interest		41			54			55
Nondeductible merger and acquisition expenses		-			-			-
Change in tax rate		-			1,531			-
Other items		87			17			26
Provision for income taxes	$	3,403		$	6,031		$	3,034
Statutory tax rates		21	%		35	%		35	%
Effective tax rates		15.9	%		31.6	%		19.4	%

The Company prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. With limited exception, the Company’s federal and state income tax returns for taxable years through 2014 have been closed for purposes of examination by the federal and state taxing authorities.

Investments in Qualified Affordable Housing Projects

As of December 31, 2018 and 2017, the Company was invested in four partnerships that provide affordable housing. The balance of the investments, which is included within other assets in the Consolidated Balance Sheet, was $433,000 and $541,000 as of December 31, 2018 and 2017, respectively. Investments purchased prior to January 1, 2015, are accounted for utilizing the effective yield method. As of December 31, 2018, the Company has $564,000 of tax credits remaining that will be recognized over four years. Tax credits of $141,000, $141,000 and $198,000 were recognized as a reduction of tax expense during 2018, 2017 and 2016, respectively. Included within other expenses on the Consolidated Statement of Income was $108,000, $159,000 and $259,000 of amortization of the investments in qualified affordable housing projects for 2018, 2017 and 2016, respectively.