Federal Income Taxes

Components of the consolidated provision for federal income taxes are as follows for the years ended December 31:



	2019		2018		2017
Currently payable	$	972	$	1,088	$	180
Deferred expense	408		275		2,836
Income tax expense	$	1,380	$	1,363	$	3,016

In 2017, we implemented tax strategies which resulted in changes to our federal income tax components, as illustrated above. These strategies, which were primarily related to premises and equipment, significantly decreased our taxes currently payable and led to an increase in our level of alternative minimum tax. Changes in these deferred tax components are displayed in the deferred tax assets and liabilities table on the following page.

On December 22, 2017, the Tax Act was enacted. The law established a flat corporate federal statutory income tax rate of 21%, effective January 1, 2018, and eliminated the corporate alternative minimum tax. The new tax law provided for a wide array of changes with only some having a direct impact on our federal income tax expense. Some of these changes included, but were not limited to, the following items: limits to the deduction for net interest expense; immediate expense (for tax purposes) for certain qualified depreciable assets; elimination or reduction of certain deductions related to meals and entertainment expenses; and limits to the deductibility of deposit insurance premiums.

In accordance with ASC 740, Income Taxes, the effect of income tax law changes on deferred taxes are recognized as a component of income tax expense related to continuing operations in the period in which the law was enacted. As such, federal income tax expense for the year ended December 31, 2017 reflects the effect of the tax rate change on net deferred tax assets and liabilities. This requirement also applies to items initially recognized in other comprehensive income. In January 2018, FASB issued ASU 2018-02 which allowed for the "stranded" tax effects in AOCI to be reclassified to retained earnings rather than income tax expense. We early adopted this guidance and applied this accounting alternative in our consolidated statements of changes in shareholders equity as of December 31, 2017.

The reconciliation of the provision for federal income taxes and the amount computed at the federal statutory tax rate of income before federal income tax expense is as follows for the year ended December 31:



	2019			2018			2017
Income taxes at statutory rate	$	3,025		$	3,231		$	5,526
Effect of nontaxable income
Interest income on tax exempt municipal securities	(990		)	(1,106		)	(1,889		)
Earnings on corporate owned life insurance policies	(160		)	(148		)	(247		)
Deferred tax adjustment resulting from the statutory rate reduction pursuant to the Tax Act	—			—			319
Other	283			231			34
Total effect of nontaxable income	(867		)	(1,023		)	(1,783		)
Effect of nondeductible expenses	108			113			149
Effect of tax credits	(984		)	(958		)	(876		)
Unrecognized deferred tax benefit on joint venture investment	98			—			—
Federal income tax expense	$	1,380		$	1,363		$	3,016

The loss recognized during the fourth quarter of 2019 related to our joint venture investment in CSS is unlikely to reverse in the foreseeable future. As such, we did not record a deferred tax asset related to our investment in CSS as of December 31, 2019.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for federal income tax purposes. Significant components of our deferred tax assets and liabilities, measured at the 21% statutory rate, included in other assets and other liabilities in the accompanying consolidated balance sheets, are as follows as of December 31:



	2019		2018
Deferred tax assets
Allowance for loan losses	$	1,255	$	1,304
Deferred directors’ fees	1,615		1,667
Employee benefit plans	77		81
Core deposit premium and acquisition expenses	742		752
Net unrecognized actuarial losses on pension plan	717		729
Net unrealized losses on available-for-sale securities	—		1,211
Life insurance death benefit payable	497		497
Alternative minimum tax	—		710
Other	771		716
Total deferred tax assets	5,674		7,667
Deferred tax liabilities
Prepaid pension cost	327		383
Premises and equipment	1,859		1,548
Accretion on securities	37		41
Core deposit premium and acquisition expenses	872		946
Net unrealized gains on available-for-sale securities	1,247		—
Net unrealized gains on derivative instruments	14		68
Other	1,157		1,696
Total deferred tax liabilities	5,513		4,682
Net deferred tax assets (liabilities)	$	161	$	2,985

We are subject to U.S. federal income tax; however, we are no longer subject to examination by taxing authorities for years before 2016. There are no material uncertain tax positions requiring recognition in our consolidated financial statements. We do not expect the total amount of unrecognized tax benefits to significantly increase in the next twelve months.

We recognize interest and/or penalties related to income tax matters in income tax expense. We do not have any amounts accrued for interest and penalties at December 31, 2019 and 2018 and we are not aware of any claims for such amounts by federal income tax authorities.