NOTE 16 – Income Taxes

The components of income tax expense were as follows:


	For the years ended December 31,
(dollars in thousands)	2018			2017	2016
Current income taxes:
Federal	$	5,536		7,139	6,429
State		990		573	548
Total current tax expense		6,526		7,712	6,977
Deferred income tax expense (benefit)		(125	)	2,904	356
Income tax expense	$	6,401		10,616	7,333

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)		2018		2017		2016
Tax expense at statutory rate	$	6,025		8,281		7,129
Effect of state income taxes, net of federal benefit		782		372		356
Exempt income		(34	)	(146	)	(162	)
Effect of change in federal tax rate		-		2,441		-
Effect of stock-based compensation		(248	)	(2	)	160
Other		(124	)	(330	)	(150	)
Income tax expense	$	6,401		10,616		7,333

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. During the fourth quarter of 2018, the Company completed its accounting for the income tax effects related to the Tax Act which resulted in no change to the provisional adjustment recorded in income tax expense in 2017.

As a result of the Tax Act, deferred taxes as of December 31, 2018 and 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)		2018	2017
Deferred tax assets:
Allowance for loan losses	$	3,310	3,260
Unrealized loss on securities available for sale		244	121
Net deferred loan fees		592	480
Deferred compensation		1,280	1,124
Sale of real estate owned		128	104
Accrued expenses		-	16
Other		130	136
		5,684	5,241
Deferred tax liabilities:
Property and equipment		1,433	1,208
Hedging transactions		112	88
Prepaid expenses		107	99
Other		12	64
		1,664	1,459
Net deferred tax asset	$	4,020	3,782

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.