Note

. Income Taxes

The Tax Reform Act was enacted on

December 22, 2017.

Among other things, the new law establishes a new, flat corporate federal statutory income tax rate of

21%;

eliminates the corporate alternative minimum tax and allows the use of any such carryforwards to offset regular tax liability for any taxable year; limits the deduction for net interest expense incurred by U.S. corporations; allows businesses to immediately expense the cost of new investments in certain qualified depreciable assets for tax purposes; eliminates or reduces certain deductions related to meals and entertainment expenses; modifies the limitation on excessive employee remuneration to eliminate the exception for performance-based compensation and clarifies the definition of a covered employee; and limits the deductibility of deposit insurance premiums. The Tax Reform Act also significantly changes U.S. tax law related to foreign operations, however, such changes do

not

currently impact

the Company. As a result of the Tax Reform Act, the Company recognized tax expense totaling

$6.55

million related to the revaluation of its deferred tax balances, which includes provisional estimates primarily related to certain purchase accounting, indemnification asset, intangible, and depreciation items. The Company is still analyzing certain aspects of the Tax Reform Act and refining calculations, which could potentially affect the measurement of these balances. The Company expects its analysis to be completed upon the filing of its tax returns for the year ended

December 31, 2017.

Income tax expense is comprised of current and deferred, federal and state income taxes on the Company

’s pre-tax earnings. The following table presents the components of the income tax provision for the periods indicated:

	Year Ended December 31,
(Amounts in thousands)	2017			2016			2015
Current tax expense (benefit):
Federal	$	14,509		$	13,634		$	(254	)
State		926			675			581
Total current tax expense		15,435			14,309			327

Deferred tax expense (benefit):
Federal		5,205			(1,480	)		10,034
State		(12	)		(10	)		1,020
Total deferred tax expense (benefit)		5,193			(1,490	)		11,054
Total income tax expense	$	20,628		$	12,819		$	11,381

The Company

’s effective tax rate, income tax as a percent of pre-tax income,

may

vary significantly from the statutory rate due to permanent differences and available tax credits. Permanent differences are income and expense items excluded by law in the calculation of taxable income. The Company’s most significant permanent differences generally include interest income on municipal securities and increases in the cash surrender value of life insurance policies. The following table reconciles the Company’s income tax expense to the amount computed by applying the federal statutory tax rate to pre-tax income for the periods indicated:

	Year Ended December 31,
	2017						2016						2015
	Amount			Percent			Amount			Percent			Amount			Percent
(Amounts in thousands)
Federal income tax at the statutory rate	$	14,739			35.00	%	$	13,281			35.00	%	$	12,572			35.00	%
State income tax, net of federal benefit		692			1.64	%		598			1.58	%		639			1.78	%
		15,431			36.64	%		13,879			36.58	%		13,211			36.78	%
Increase (decrease) resulting from:
Tax-exempt interest income		(1,228	)		-2.92	%		(1,336	)		-3.52	%		(1,463	)		-4.07	%
Nondeductible goodwill		-			0.00	%		340			0.89	%		-			-
Bank owned life insurance		(478	)		-1.13	%		(335	)		-0.88	%		(690	)		-1.92	%
Deferred tax revaluation		6,552			15.56	%		-			0.00	%		-			0.00	%
Other items, net		351			0.83	%		271			0.71	%		323			0.89	%
Income tax at the effective tax rate	$	20,628			48.98	%	$	12,819			33.78	%	$	11,381			31.68	%

Deferred taxes derived from continuing operations reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for tax purposes. The following table presents the significant components of the net deferred tax asset as of the dates indicated

	December 31,
(Amounts in thousands)	2017		2016
Deferred tax assets
Allowance for loan losses	$	4,511	$	6,644
Unrealized losses on available-for-sale securities		-		326
Unrealized asset losses		722		913
Purchase accounting		3,418		5,384
FDIC assisted transactions		4,131		6,540
Intangible assets		2,616		4,062
Deferred compensation assets		3,617		4,669
Deferred loan fees		1,221		1,979
Other		450		825
Total deferred tax assets		20,686		31,342

Deferred tax liabilities
FDIC indemnification asset		8,525		11,927
Fixed assets		1,282		2,042
Unrealized gains on available-for-sale securities		259		-
Odd days interest deferral		233		1,283
Other		819		347
Total deferred tax liabilities		11,118		15,599
Net deferred tax asset	$	9,568	$	15,743

he Company had

unrecognized tax benefits or accrued interest or penalties as of

December 31, 2017

2016.

The Company had

deferred tax valuation allowance recorded as of

December 31, 2017

2016,

as management believes it is more likely than

not

that all of the deferred tax assets will be realized against deferred tax liabilities and projected future taxable income. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service and various state tax departments for the years ended

December 31, 2014

through

2016.