NOTE 12: Income Taxes

Principal components of income tax expense as reflected in the Consolidated Statements of Income are as follows:


	Year Ended December 31,
(Dollars in thousands)	2019		2018		2017
Current taxes	$	4,728	$	3,889	$	1,989
Deferred taxes		354		632		9,405
	$	5,082	$	4,521	$	11,394

Income tax expense for the years ended December 31, 2019, 2018 and 2017 differed from the federal statutory rate applied to income before income taxes for the following reasons:


	Year Ended December 31,
		2019				2018				2017
(Dollars in thousands)	Amount		Percent		Amount		Percent		Amount		Percent
Income tax at statutory rates	$	5,026	21.0	%	$	4,734	21.0	%	$	6,288	35.0	%
State income taxes		695	2.9			575	2.6			348	1.9
Tax-exempt interest income		(476)	(2.0)			(592)	(2.6)			(1,162)	(6.5)
Carrying cost of tax-exempt assets		23	0.1			18	0.1			32	0.2
Share based compensation		(126)	(0.5)			(103)	(0.5)			(284)	(1.6)
Income from bank-owned life insurance		(149)	(0.6)			(89)	(0.4)			(151)	(0.8)
Investments in qualified housing projects		(93)	(0.4)			(85)	(0.4)			(135)	(0.8)
Merger related expenses		96	0.4			—	—			—	—
Remeasurement of net deferred tax assets		—	—			—	—			6,643	37.0
Other		86	0.3			63	0.3			(185)	(1.0)
	$	5,082	21.2	%	$	4,521	20.1	%	$	11,394	63.4	%

The Tax Cuts and Jobs Act of 2017, which was signed into law on December 22, 2017, permanently lowered the federal corporate income tax rate to 21 percent from the previous maximum rate of 35 percent, effective January 1, 2018. In the year ended December 31, 2017, as a result of the reduction in the federal corporate income tax rate, the Corporation recorded a one-time remeasurement adjustment to its net federal deferred tax asset of $6.64 million, which was recognized in income tax expense.

The Corporation’s net deferred income taxes totaled $11.2 million and $12.2 million at December 31, 2019 and 2018, respectively. The tax effects of each type of significant item that gave rise to deferred taxes are:


	December 31,
(Dollars in thousands)	2019		2018
Deferred tax asset
Allowances for loan losses and OREO losses	$	8,227	$	8,567
Nonqualified defined contribution plan		3,247		2,925
Fair value adjustments related to business combinations		1,053		1,643
Share-based compensation		863		825
Lease liabilities		667		—
Reserve for indemnification losses		645		663
Interest on nonaccrual loans		226		346
Cash flow hedges		24		—
Net unrealized loss on securities available for sale		—		365
Other		1,559		1,415
Deferred tax asset		16,511		16,749
Deferred tax liability
Goodwill and other intangible assets		(2,818)		(2,838)
Depreciation		(972)		(1,024)
Right of use assets		(664)		—
Defined benefit plan		(423)		(620)
Net unrealized gain on securities available for sale		(415)		—
Cash flow hedges		—		(74)
Deferred tax liability		(5,292)		(4,556)
Net deferred tax asset	$	11,219	$	12,193

The Corporation files income tax returns in the U.S. federal jurisdiction and several states. With few exceptions, the Corporation is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to 2016.