Note 12: Income Taxes

Income tax expense for years ending December 31 were as follows:



	December 31, 2018		December 31, 2017		December 31, 2016
Current federal	$	-	$	(2,407)	$	399
Current state		84		-		-
Deferred federal		6,226		11,724		6,824
Deferred state		3,614		372		1,597
Expense due to enactment of federal tax reform		-		9,475		-
Total income tax expenses	$	9,924	$	19,164	$	8,820

The following were the components of the deferred tax assets and liabilities as of December 31:


	December 31, 2018		December 31, 2017
Allowance for loan and lease losses	$	5,803	$	5,377
Deferred compensation		665		650
Amortization of core deposit intangible		-		827
Goodwill amortization/impairment		4,698		6,087
Stock based compensation		1,377		866
Business combination adjustments		2,532		-
OREO write-downs		2,337		2,385
Federal net operating loss (“NOL”) carryforward		2,199		7,240
State net operating loss (“NOL”) carryforward		4,034		7,020
Other assets		1,401		1,017
Total deferred tax assets		25,046		31,469

Accumulated depreciation on premises and equipment		(443)		(384)
Mortgage servicing rights		(2,210)		(2,086)
Amortization of core deposit intangible		(130)		-
State tax benefits		(1,839)		(2,389)
Other liabilities		(741)		(545)
Total deferred tax liabilities		(5,363)		(5,404)
Net deferred tax asset before adjustments related to other comprehensive income		19,683		26,065
Tax effect of adjustments related to other comprehensive income (loss)		1,597		(709)
Net deferred tax asset	$	21,280	$	25,356

On December 22, 2017, H.R.1, commonly known as the Tax Cuts and Jobs Act (the “Act”), was signed into law. Among other things, the Act reduces the corporate federal tax rate from 35% to 21% effective January 1, 2018. As a result the Company was required to remeasure, through income tax expense, deferred tax assets and liabilities using the enacted rate at which these items are expected to recover or settle. The re-measurement of the Company’s net deferred tax asset resulted in additional income tax expense of approximately $9.5 million for the year ended December 31, 2017. The Company also re-measured the net deferred tax asset as a result of the Illinois income tax increase effective as of July 1, 2017. This resulted in a tax benefit of approximately $1.6 million for the year ended December 31, 2017.

At December 31, 2018, the Company had a $7.6 million federal net operating loss carryforward that is expected to expire in 2031 thru 2033. The Company had a $39.9 million state net operating loss carryforward of which $39.7 million expires in 2025, and the rest expires starting in 2026. In addition, the Company had a $2.6 million alternative minimum tax credit carryforward which does not expire and is carried as a tax receivable since, under the new federal law; the Company expects to recover the entire amount by 2022 via refund or reduction of regular tax liability.

The components of the provision for deferred income tax expense for the years ending December 31 were as follows:



	December 31, 2018		December 31, 2017		December 31, 2016
Provision for loan and lease losses	$	(426)	$	1,680	$	42
Deferred Compensation		(15)		85		(45)
Amortization of core deposit intangible		957		574		228
Stock based compensation		(511)		80		(132)
Business combination adjustments		927		-		-
OREO write-downs		48		2,725		1,807
Federal net operating loss carryforward		5,041		12,122		4,743
State net operating loss carryforward		2,986		715		1,011
Deferred tax credit		-		2,058		(309)
Depreciation		59		(297)		80
Mortgage servicing rights		124		(674)		276
Goodwill amortization/impairment		1,389		4,040		1,496
State tax benefits		(550)		(1,738)		(559)
Other, net		(189)		201		(217)
Total deferred tax expense	$	9,840	$	21,571	$	8,421

Effective tax rates differ from federal statutory rates applied to financial statement income for the years ended December 31 due to the following:


	December 31, 2018		December 31, 2017		December 31, 2016
Tax at statutory federal income tax rate	$	9,227	$	11,817	$	8,577
Nontaxable interest income, net of disallowed interest deduction		(1,600)		(1,976)		(347)
BOLI income		(422)		(501)		(449)
State income taxes, net of federal benefit		2,927		1,775		1,148
Stock based compensation		(305)		-		-
Impact of Federal tax rate change		-		9,475		-
Impact of Illinois tax rate change		-		(1,566)		-
Other, net		97		140		(109)
Total tax at effective tax rate	$	9,924	$	19,164	$	8,820

The Company evaluated positive and negative evidence in order to determine if it was more likely than not that the deferred tax asset would be recovered through future income. Significant positive evidence evaluated included recent and projected earnings, significantly improved asset quality and an improved capital position. No negative evidence was noted.