MBT Financial Corp

(

) Federal Income Taxes

Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be reversed. The Corporation and the Bank file a consolidated

federal income tax return.

The

current and deferred components of the provision for Federal income taxes were as follows (

000s

omitted):

	201 7		201 6		201 5
Curren t	$	1,826	$	2,725	$	(660	)
Deferre d		3,797		3,512		5,680
Remeasurement of deferred taxe s		4,278		-		-
Tax expens e	$	9,901	$	6,237	$	5,020

The effective tax rate differs from the statutory rate applicable to corporations as a result of permanent differences between accounting and taxable income as follows:

	201 7			201 6			201 5
Statutory rat e		34.0	%		34.0	%		34.0	%
Municipal interest incom e		(2.1	)		(2.0	)		(2.1	)
Other, ne t		(4.5	)		(1.9	)		(2.5	)
Remeasurement of deferred taxe s		20.9			-			-
Effective tax rat e		48.3	%		30.1	%		29.4	%

In accordance with ASC

740,

the Company is required to establish a

valuation allowance for deferred tax assets when it is “more likely than

not”

that a portion or the entire deferred tax asset will

not

be realized. The evaluation requires significant judgment and extensive analysis of all available positive and negative evidence, the forecast of future income, applicable tax planning strategies, and assessments of current and future economic and business conditions. The Company did

not

maintain a valuation allowance on its deferred tax assets during the years ended

December 31, 2017,

2016,

and

2015.

In the ordinary course of business, the Company enters into certain transactions that have tax consequences. From time to time, the Internal Revenue Service (IRS) questions and/or challenges the tax positions taken by the Company with respect to those transactions. The Comp

any believes that its tax returns were filed based upon applicable statutes, regulations, and case law in effect at the time of the transactions. The IRS, an administrative authority of a court, if presented with the transactions could disagree with the Company’s interpretation of the tax law.

In the

fourth

quarter of

2015

the

Company agreed to a settlement with the IRS for an audit of its tax returns filed for the

2004,

2005,

2007,

2008,

2009

and

2010

tax years. That settlement was approved by Congress’ Joint Committee on Taxation in

2016.

The Company remitted the taxes and interest required by the settlement and the audit is closed.

The components of the net deferred

federal income tax asset (included in Interest Receivable and Other Assets on the accompanying consolidated balance sheets) at

December 31

are as follows (

000s

omitted):

	201 7			201 6
Deferred federal income tax assets :
Allowance for loan losse s	$	1,680		$	2,990
Net deferred loan origination fee s		74			655
Tax versus book depreciation difference s		59			331
Net unrealized losses on securities available for sal e		1,667			3,449
Accrued postretirement benefit s		2,242			3,406
Postretirement benefits in other comprehensive income		382			427
Alternative minimum ta x		-			3,493
Non-accrual loan interes t		158			281
Other real estate owne d		325			546
Other, ne t		512			766
Total deferred federal tax asse t	$	7,099		$	16,344

Deferred federal income tax liabilities :
Accretion of bond discoun t	$	(27	)	$	(186	)
Prepaid expense s		(157	)		-
Othe r		(83	)		(691	)
Total deferred federal tax liabilitie s	$	(267	)	$	(877	)
Net deferred federal income tax asse t	$	6,832		$	15,467

The Tax Cuts and Jobs Act of

2017

lowered the corporate tax rate to

percent, repealed the corporate Alternative Minimum Tax (AMT), and allows for a federal refund of any AMT credit carryforwards. As of

December 31, 2017,

the

Corporation reclassified

$2,343,000

from deferred tax assets to other assets.