INCOME TAXES:

Income tax expense is summarized as follows:



(Dollar amounts in thousands)	2018		2017		2016
Federal:
Currently payable	$	7,018	$	8,303	$	15,514
Deferred	1,793		3,756		1,326
Expense due to enactment of federal tax reform	—		6,282		—
	8,811		18,341		16,840
State:
Currently payable	1,699		1,818		2,857
Deferred	635		463		186
	2,334		2,281		3,043
TOTAL	$	11,145	$	20,622	$	19,883

The reconciliation of income tax expense with the amount computed by applying the statutory federal income tax rate of 21% for 2018 (35% for 2017 and 2016) to income before income taxes is summarized as follows:



(Dollar amounts in thousands)	2018			2017			2016
Federal income taxes computed at the statutory rate	$	12,122		$	17,414		$	20,403
Add (deduct) tax effect of:
Tax exempt income	(2,495		)	(4,102		)	(3,992		)
Non-deductible insurance brokerage goodwill	—			—			1,797
ESOP dividend deduction	(103		)	(102		)	(47		)
State tax, net of federal benefit	1,846			1,483			1,978
Affordable housing credits	(148		)	(148		)	(148		)
Expense due to enactment of federal tax reform	—			6,282			—
Other, net	(77		)	(205		)	(108		)
TOTAL	$	11,145		$	20,622		$	19,883

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. The primary change for the Corporation was to lower the corporate income tax rate from 35% to 21%, effective January 1, 2018. The Corporation's deferred tax assets and liabilities were re-measured based on the income tax rates at which they are expected to reverse in the future, which is generally 21%. The amount recorded related to the re-measurement of the Corporation's deferred tax balance was $6.3 million, an increase to income tax expense for the year ended December 31, 2017.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2018 and 2017, are as follows:



(Dollar amounts in thousands)	2018			2017
Deferred tax assets:
Other than temporary impairment	$	761		$	1,829
Net unrealized losses on retirement plans	5,783			6,609
Net unrealized losses on securities available for sale	2,063			—
Loan loss provisions	5,463			5,195
Deferred compensation	2,883			3,661
Compensated absences	576			563
Post-retirement benefits	1,338			1,359
Deferred loss on acquisition	577			663
Other	2,140			2,123
GROSS DEFERRED ASSETS	21,584			22,002
Deferred tax liabilities:
Net unrealized gains on securities available-for-sale	—			(804		)
Depreciation	(2,004		)	(1,989		)
Mortgage servicing rights	(319		)	(308		)
Pensions	(335		)	(201		)
Intangibles	(2,852		)	(2,446		)
Other	(2,614		)	(2,408		)
GROSS DEFERRED LIABILITIES	(8,124		)	(8,156		)
NET DEFERRED TAX ASSETS	$	13,460		$	13,846

Unrecognized Tax Benefits — A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



(Dollar amounts in thousands)	2018			2017			2016
Balance at January 1	$	825		$	698		$	513
Additions based on tax positions related to the current year	174			257			288
Additions based on tax positions related to prior years	—			—			—
Reductions due to the statute of limitations	(77		)	(130		)	(103		)
Balance at December 31	$	922		$	825		$	698

Of this total, $922 thousand represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. The Corporation does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next 12 months.

The total amount of interest and penalties recorded in the income statement for the years ended December 31, 2018, 2017 and 2016 was an expense increase of $23 thousand, an increase of $4 thousand, and an increase of $4 thousand, respectively. The amount accrued for interest and penalties at December 31, 2018, 2017 and 2016 was $52 thousand, $40 thousand and $31 thousand, respectively.

The Corporation and its subsidiaries are subject to U.S. federal income tax as well as income tax of the states of Indiana and Illinois. The Corporation is no longer subject to examination by taxing authorities for years before 2015.