INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities as of December 31, 2018 and 2017 are as follows (in thousands):



	2018			2017
Deferred tax assets:
Allowance for loan losses	$	3,660		$	5,860
Loss on transfer of loans to held-for-sale	—			1,266
Unrealized losses on securities	1,312			713
Write-down on assets held-for-sale	41			285
Core deposit intangible	283			153
Deferred compensation	310			358
Tax net operating loss carryforward	8,563			—
Other	635			667
Valuation Allowance	(11,056		)	—
Total deferred tax assets	3,748			9,302
Deferred tax liabilities:
Premises and equipment	1,315			1,589
Goodwill	1,540			1,321
FHLB stock dividends	73			57
Unrealized gains on cash flow hedges	224			226
Prepaid expenses	295			220
Purchase accounting adjustments on securities	229			392
Other	72			105
Total deferred tax liabilities	3,748			3,910
Net deferred tax asset	$	—		$	5,392

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law which reduced the federal corporate income tax rate from 35 % to 21% effective January 1, 2018. During the fourth quarter of 2017, the Company's net deferred tax assets were revalued at the new tax rate, and this adjustment resulted in a $3.6 million increase to income tax expense.

The Company early adopted ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, for the fiscal year ending December 31, 2017, which allowed a one-time reclassification of $324,000 from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act.

A valuation allowance is recognized against deferred tax assets when, based on the consideration of all available positive and negative evidence using a more likely than not criteria, it is determined that all or a portion of these tax benefits may not be realized. This assessment requires consideration of all sources of taxable income available to realize the deferred tax asset, future reversals of existing temporary differences, tax planning strategies and future taxable income exclusive of reversing temporary differences and carryforwards. The Company incurred losses on a cumulative basis for the two-year period ended December 31, 2018, which is considered to be significant negative evidence. The positive evidence considered in support was insufficient to overcome this negative evidence. As a result, the Company established a full valuation allowance for its net deferred tax asset in the amount of $11.1 million as of December 31, 2018.

The Company intends to maintain this valuation allowance until it determines it is more likely than not that the asset can be realized through current and future taxable income.

Components of income tax (benefit) expense are as follows (in thousands):



	2018			2017
Current	$	—		$	(1,719	)
Deferred benefit	(5,090		)	(4,474		)
Write-down of net deferred tax asset resulting from the Tax Cuts and Jobs Act	—			3,595
Change in valuation allowance	$	11,056		$	—
Total income tax (benefit) expense	$	5,966		$	(2,598	)

The provision for federal income taxes differs from the amount computed by applying the U.S. Federal income tax statutory rate of 21% on pre-tax income as follows (in thousands):



	December 31,
	2018			2017
Taxes calculated at statutory rate	$	(4,526	)	$	(5,026	)
Increase (decrease) resulting from:
Tax-exempt interest, net	(241		)	(524		)
Deferred compensation	(218		)	(315		)
Write-down of net deferred tax asset resulting from the Tax Cuts and Jobs Act	—			3,595
Change in valuation allowance	11,056			—
Other	(105		)	(328		)
	$	5,966		$	(2,598	)

The Company’s federal income tax returns are open and subject to examination from the 2015 tax return year and forward. The various state income and franchise tax returns are generally open from the 2015 and later tax return years based on individual state statutes of limitation. We are not currently under examination by federal or state tax authorities for the 2015, 2016, or 2017 tax years.