NOTE 16 – Income Taxes

The components of income tax expense were as follows:


	For the years ended December 31,
(dollars in thousands)		2017		2016	2015
Current income taxes:
Federal		$	7,139	6,429	6,184
State			573	548	441
Total current tax expense			7,712	6,977	6,625
Deferred income tax expense (benefit)			2,904	356	(1,256	)
Income tax expense		$	10,616	7,333	5,369

The following is a summary of the items that caused recorded income taxes to differ from taxes computed using the statutory tax rate:


	For the years ended December 31,
(dollars in thousands)		2017			2016		2015
Tax expense at statutory rate		$	8,281		7,129		5,438
Effect of state income taxes, net of federal benefit			372		356		287
Exempt income			(146	)	(162	)	(151	)
Effect of change in federal tax rate			2,441		-		-
Other			(332	)	10		(205	)
Income tax expense		$	10,616		7,333		5,369

Income tax expense for the year ended December 31, 2017 was impacted by the adjustment of our deferred tax assets and liabilities related to the reduction in the U.S. federal statutory income tax rate to 21% under the Tax Act, which was enacted on December 22, 2017. As a result of the new law, we recognized a provisional net tax expense totaling $2.4 million, as noted in the table above.

As a result of the Tax Act, deferred taxes as of December 31, 2017 are based on the newly enacted U.S. statutory federal income tax rate of 21%, while deferred taxes as of December 31, 2016 are based on the previous federal income tax rate of 35%. The components of the deferred tax assets and liabilities are as follows:


	December 31,
(dollars in thousands)		2017		2016
Deferred tax assets:
Allowance for loan losses		$	3,260	5,199
Unrealized loss on securities available for sale			121	260
Net deferred loan fees			480	691
Deferred compensation			1,124	1,597
Sale of real estate owned			104	262
Accrued expenses			16	401
Other			136	250
			5,241	8,660
Deferred tax liabilities:
Property and equipment			1,208	1,467
Hedging transactions			88	-
Other			163	368
			1,459	1,835
Net deferred tax asset		$	3,782	6,825

The Company has analyzed the tax positions taken or expected to be taken in its tax returns and concluded it has no liability related to uncertain tax positions.