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 additional tax expense totaling

$6.55

million during the

fourth

quarter of

2017

related to the revaluation of our deferred tax balances, which included provisional estimates primarily related to certain purchase accounting, indemnification asset, intangible, and depreciation items. During the

third

quarter of

2018,

the Company completed the deferred tax asset revaluation and recorded a

$1.67

million reduction in tax expense.

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)	2019			2018		2017
Current tax expense (benefit):
Federal	$	9,603		$	7,201	$	14,509
State		1,554			1,233		926
Total current tax expense		11,157			8,434		15,435

Deferred tax expense (benefit):
Federal		(152	)		296		5,205
State		(11	)		52		(12	)
Total deferred tax expense (benefit)		(163	)		348		5,193
Total income tax expense	$	10,994		$	8,782	$	20,628

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,
	2019						2018						2017
	Amount			Percent			Amount			Percent			Amount			Percent
(Amounts in thousands)
Federal income tax at the statutory rate	$	10,457			21.00	%	$	9,475			21.00	%	$	14,739			35.00	%
State income tax, net of federal benefit		1,220			3.12	%		1,016			2.25	%		692			1.64	%
		11,677			24.12	%		10,491			23.25	%		15,431			36.64	%
Increase (decrease) resulting from:
Tax-exempt interest income		(637	)		(1.28	)%		(702	)		-1.56	%		(1,228	)		-2.92	%
Nondeductible goodwill impairment and disposition		-			0.00	%		569			1.26	%		-			0.00	%
Bank owned life insurance		(249	)		(0.50	)%		(144	)		-0.32	%		(478	)		-1.13	%
Deferred tax revaluation		(98	)		(0.20	)%		(1,669	)		-3.70	%		6,552			15.56	%
Other items, net		301			0.10	%		237			0.53	%		351			0.83	%
Income tax at the effective tax rate	$	10,994			22.24	%	$	8,782			19.46	%	$	20,628			48.98	%

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)	2019		2018
Deferred tax assets
Allowance for loan losses	$	4,312	$	4,275
Unrealized losses on available-for-sale securities		-		87
Unrealized asset losses		540		730
Purchase accounting		3,689		24
FDIC assisted transactions		1,597		1,510
Intangible assets		745		2,430
Deferred compensation assets		4,079		3,468
Federal net operating loss carryforward		4,279		-
Deferred loan fees		1,247		1,201
Other		1,746		491
Total deferred tax assets		22,234		14,216

Deferred tax liabilities
FDIC indemnification asset		675		1,195
Fixed assets		1,080		1,381
Odd days interest deferral		1,912		1,614
Unrealized gains on available for sale securities		230		-
Other		399		460
Total deferred tax liabilities		4,296		4,650
Net deferred tax asset	$	17,938	$	9,566

The Company had

unrecognized tax benefits or accrued interest or penalties as of

December 31, 2019

2018.

The Company had

deferred tax valuation allowance recorded as of

December 31, 2019

2018,

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, 2016

through

2018.