INCOME TAXES

Income tax expense for the three and six months ended June 30, 2018 and 2017 was as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017

	(Dollars in thousands)
Income tax expense for the period	$	4,283		$	6,985		$	6,605		$	10,927
Effective Tax Rate	20.7		%	35.1		%	20.4		%	35.2		%

Effective January 1, 2018, the federal statutory corporate income tax rates was reduced from 35% to 21% pursuant to the Tax Cuts and Jobs Act described below.

The effective tax rates differ from the statutory federal tax rates of 21% and 35% for the three and six months ended June 30, 2018 and 2017, respectively, largely due to the nontaxable earnings on bank owned life insurance, tax exempt interest income earned on certain investment securities and loans and excess tax benefits on exercised stock options and vested restricted stock units, less state tax expense, net of federal effect, and other non-deductible expenses.

Net deferred tax assets totaled $12.5 million and $8.8 million at June 30, 2018 and December 31, 2017, respectively. No valuation allowance was recorded against deferred tax assets as of those dates, as management believes it is more likely than not that all of the deferred tax assets will be realized because they were supported by recoverable taxes paid in prior years.

Tax Cuts and Jobs Act - The Tax Cuts and Jobs Act was enacted on December 22, 2017. Among other things, the new law (i) establishes a new, flat, federal statutory corporate income tax rate of 21%, (ii) eliminates the corporate alternative minimum tax and allows the use of any such carryforwards to offset regular tax liability for any taxable year, (iii) limits the deduction for net interest expense incurred by U.S. corporations, (iv) allows businesses to immediately expense, for tax purposes, the cost of new investments in certain qualified depreciable assets, (v) eliminates or reduces certain deductions related to meals and entertainment expenses, (vi) modifies the limitation on excessive employee compensation to eliminate the exception for performance-based compensation and clarifies the definition of a covered employee and (vii) limits the deductibility of deposit insurance premiums for banks in excess of $5 billion in assets.

The Company completed its accounting under ASU 740, Income Taxes, for all material deferred tax assets and liabilities during the quarter ended December 31, 2017. Provisional amounts were recorded for certain immaterial items including Schedules K-1 from CRA related partnership investments. As a result of the revaluation, we recorded $5.8 million in income tax expense for 2017. Material adjustment to provisional amounts are not expected.

During the three months ended March 31, 2018, the Company elected early adoption of the provisions of ASU 2018-02, which allowed the Company to reclassify the effects of the statutory tax rate change on items within accumulated other comprehensive income to retained earnings. This reclassification, which reduced other comprehensive income and increased retained earnings by $1.4 million, related entirely to unrealized gains and losses on available-for-sale securities.