INCOME TAX

The reconciliation between income tax expense expected at the U.S. federal statutory tax rate and the reported income tax expense is summarized in the following table for years ended December 31, 2018, 2017, 2016:



	2018			2017			2016
Reconciliation of Federal Statutory to Actual Tax Expense:
Federal Statutory Income Tax at 21% for 2018 and 35% for 2017 and 2016	$	39,509		$	46,758		$	38,031
Tax-exempt Interest Income	(8,347		)	(11,127		)	(8,749		)
Stock Compensation	(622		)	(893		)	(61		)
Earnings on Life Insurance	(868		)	(2,302		)	(1,486		)
Tax Credits	(615		)	(811		)	(564		)
Tax Cuts and Jobs Act - Rate Reform Impact				5,120
Other	(58		)	779			438
Income Tax Expense	$	28,999		$	37,524		$	27,609

Effective Tax Rate	15.4		%	28.1		%	25.4		%

Income tax expense consists of the following components for the years ended December 31, 2018, 2017, 2016:



	2018			2017		2016
Income Tax Expense for the Year Ended December 31:
Currently Payable:
Federal	23,633			$	22,001	$	18,998
State	1,842
Deferred:
Federal	6,723			9,969		8,233
Tax Cuts and Jobs Act - Rate Reform Impact				5,120
State	(3,199		)	434		378
Income Tax Expense	$	28,999		$	37,524	$	27,609

Significant components of the net deferred tax assets (liabilities) resulting from temporary differences were as follows at December 31, 2018 and 2017:



	2018			2017
Deferred Tax Asset at December 31:
Assets:
Differences in Accounting for Loan Losses	$	19,785		$	19,526
Differences in Accounting for Loan Fees	749			1,458
Differences in Accounting for Loans and Securities	710			3,681
Deferred Compensation	2,101			4,448
Federal & State Income Tax Loss Carryforward and Credits	6,954			10,829
Net Unrealized Loss on Securities Available for Sale	1,686
Other	2,028			365
Total Assets	34,013			40,307
Liabilities:
Differences in Depreciation Methods	6,496			5,245
Difference in Accounting for Pensions and Other Employee Benefits	566			823
State Income Tax	791			58
Net Unrealized Gain on Securities Available for Sale				2,898
Gain on FDIC Modified Whole Bank Transaction	487			602
Other	4,271			3,897
Total Liabilities	12,611			13,523
Net Deferred Tax Asset Before Valuation Allowance	21,402			26,784
Valuation allowance:
Beginning Balance	(6,966		)	(9,815		)
Decrease/(Increase) During the Year	6,966			2,849
Ending Balance	—			(6,966		)
Net Deferred Tax Asset	$	21,402		$	19,818

The $1,584,000 increase in the Corporation’s net deferred tax asset was due to a combination of a decrease in deferred tax assets and liabilities offset by a decrease in the valuation allowance. The largest net deferred tax asset increase was associated with the release of the $6,966,000 valuation allowance previously recorded against state deferred tax assets. Additionally, the net change in deferred taxes associated with accounting for unrealized gains and losses on available for sale securities increased the net deferred tax asset by $4,584,000. Offsetting these increases were deferred tax asset decreases associated with federal and state net operating loss carryforwards, accounting for loans and deferred compensation of $3,875,000, $2,971,000 and $2,347,000, respectively.

As of December 31, 2018, the Corporation has approximately $31,183,000 of state NOL carryforwards available to offset future state taxable income, which will expire beginning in 2020. These NOL carryforwards along with normal timing differences between book and tax result in total state deferred tax assets of $3,767,000. Management believes it is more likely than not that the benefit of these state NOL carryforwards and other state deferred tax assets will be fully realized. Therefore, the Corporation has relieved the previously recorded valuation allowance.

The Corporation has additional paid-in capital that is considered restricted resulting from the acquisitions of CFS and Ameriana of approximately $13,393,000 and $11,883,000, respectively. CFS and Ameriana qualified as banks under provisions of the Internal Revenue Code which permitted them to deduct from taxable income an allowance for bad debts which differed from the provision for losses charged to income. No provision for income taxes had been provided. If in the future this portion of additional paid-in capital is distributed, or the Corporation no longer qualifies as a bank for income tax purposes, income taxes may be imposed at the then applicable tax rates. The unrecorded deferred tax liability at December 31, 2018, would have been approximately $5,308,000.

The Corporation or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Corporation is generally no longer subject to U.S. federal, state and local income tax examinations by tax authorities for tax years before 2015.