14.

INCOME TAXES

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

	June 30,		December 31,
	2017		2016
	(Dollars in thousands)
Deferred tax assets:
Loan loss reserves	$	6,881	$	6,680
Depreciation		886		748
Other real estate owned valuation		136		354
Tax credits carryforward		1,845		1,471
Unrealized loss on securities available for sale		324		1,685
Unrealized loss on securities held to maturity		396		431
Interest on nonaccrual loans		952		1,039
Net operating loss carryforward		6,593		8,574
Purchase accounting adjustment		1,000		—
Accrued bonuses		756		812
Other		79		221
Deferred tax assets		19,848		22,015
Deferred tax liabilities:
Deferred loan fees		1,622		1,275
Federal Home Loan Bank stock dividends		4,645		4,585
Mortgage servicing rights		2,155		2,124
FHLB prepayment penalty		649		786
Purchase accounting adjustment		—		371
Prepaid expenses		671		139
Deferred tax liabilities		9,742		9,280
Net deferred tax asset	$	10,106	$	12,735

As of June 30, 2017, the net deferred tax asset was $10.1 million, and as of December 31, 2016, the net deferred tax asset was $12.7 million.

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.

United Community’s net operating loss of $18.8 million at June 30, 2017 will be carried forward to use against future taxable income. The net operating loss carryforwards begin to expire in the year ending December 31, 2030. In addition, United Community is carrying forward $1.8 million of alternative minimum tax credits. The alternative minimum tax credits are carried forward indefinitely.

Effective tax rates differr from the statutory federal income tax rate of 35% due to the following:

	For the Three Months Ended June 30,
	2017						2016
	Dollars			Rate			Dollars			Rate
	(Dollars in thousands)
Tax at statutory rate:	$	4,048			35.00	%	$	2,751			35.00	%
Increase (decrease) due to:
Tax exempt income		(166	)		(1.44	)%		(124	)		(1.57	)%
Life insurance		(137	)		(1.18	)%		(128	)		(1.63	)%
Stock compensation		(138	)		(1.19	)%		—			—	%
Other		(230	)		(1.99	)%		30			0.38	%
Income tax provision	$	3,377			29.20	%	$	2,529			32.18	%

	For the Six Months Ended June 30,
	2017						2016
	Dollars			Rate			Dollars			Rate
	(Dollars in thousands)
Tax at statutory rate:	$	4,781			35.00	%	$	4,470			35.00	%
Increase (decrease) due to:
Tax exempt income		(337	)		(2.47	)%		(187	)		(1.47	)%
Life insurance		(269	)		(1.97	)%		(256	)		(2.00	)%
Stock compensation		(198	)		(1.45	)%		—			—	%
Other		(43	)		(0.31	)%		94			0.74	%
Income tax provision	$	3,934			28.80	%	$	4,121			32.27	%