13. INCOME TAXES

The Tax Cuts and Jobs Act, enacted on December 22, 2017 lowered the federal corporate income tax rate from 35% to 21% effective January 1, 2018. As a result, the carrying value of the net deferred tax assets was reduced which increased income tax expense by $2,624,000. The expense for income taxes is summarized below:

	YEAR ENDED DECEMBER 31,
	2017		2016		2015
	(IN THOUSANDS)
Current	$	1,044	$	483	$	1,455
Deferred		1,679		414		888
Change in corporate tax rate		2,624		—		—
Income tax expense	$	5,347	$	897	$	2,343

The reconciliation between the federal statutory tax rate and the Company’s effective consolidated income tax rate is as follows:

	YEAR ENDED DECEMBER 31,
	2017						2016						2015
	AMOUNT			RATE			AMOUNT			RATE			AMOUNT			RATE
	(IN THOUSANDS, EXCEPT PERCENTAGES)
Income tax expense based on federal statutory rate	$	2,938			34.0	%	$	1,090			34.0	%	$	2,836			34.0	%
Tax exempt income		(283	)		(3.3	)		(255	)		(7.9	)		(574	)		(6.9	)
Other		68			0.8			62			1.9			81			1.0
Change in corporate tax rate		2,624			30.4			—			—			—			—
Total expense for income taxes	$	5,347			61.9	%	$	897			28.0	%	$	2,343			28.1	%

The following table highlights the major components comprising the deferred tax assets and liabilities for each of the periods presented:

	AT DECEMBER 31,
	2017			2016
	(IN THOUSANDS)
DEFERRED TAX ASSETS:
Allowance for loan losses	$	2,145		$	3,377
Unfunded commitment reserve		192			303
Unrealized investment security losses		87			87
Premises and equipment		804			1,542
Accrued pension obligation		948			2,582
Alternative minimum tax credits		1,724			2,110
Other		219			895
Total tax assets		6,119			10,896
DEFERRED TAX LIABILITIES:
Investment accretion		(33	)		(24	)
Other		(123	)		(217	)
Total tax liabilities		(156	)		(241	)
Net deferred tax asset	$	5,963		$	10,655

At December 31, 2017 and 2016, the Company had no valuation allowance established against its deferred tax assets as we believe the Company will generate sufficient future taxable income to fully utilize alternative minimum tax (AMT) credits.

The change in net deferred tax assets and liabilities consist of the following:

	YEAR ENDED DECEMBER 31,
	2017			2016
	(IN THOUSANDS)
Unrealized gains recognized in comprehensive income	$	53		$	507
Pension obligation of the defined benefit plan not yet recognized in income		(442	)		1,569
Deferred provision for income taxes		(1,679	)		(414	)
Change in corporate tax rate		(2,624	)		—
Net increase (decrease)	$	(4,692	)	$	1,662

The Company has AMT credit carryforwards of approximately $1.7 million at December 31, 2017. These credits have an indefinite carryforward period.

The Company utilizes 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 fifty 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. The Company has no tax liability for uncertain tax positions. The Company’s federal and state income tax returns for taxable years through 2014 have been closed for purposes of examination by the Internal Revenue Service and the Pennsylvania Department of Revenue.