Note L - Income Taxes

The provision for income taxes is as follows:

	For the Year Ended December 31
	2017		2016		2015
		(In thousands)
Current
Federal	$	667	$	653	$	578
State		2		30		61

Deferred
Federal		32,791		12,163		10,818
State		2,876		2,043		2,070
	$	36,336	$	14,889	$	13,527

The difference between the total expected tax benefit (computed by applying the U.S. Federal tax rate of 35% to pretax income in 2017, 2016 and 2015) and the reported income tax provision relating to income before income taxes is as follows:

	For the Year Ended December 31
	2017		2016		2015
	(In thousands)
Tax rate applied to income before income taxes	$	27,720	$	15,431	$	12,484
Increase (decrease) resulting from the effects of:
Tax law change		8,552		0		0
Nondeductible acquisition costs		657		217		441
Tax exempt interest on loans, obligations of states and political subdivisions and bank owned life insurance		(1,445)		(1,215)		(761)
State income taxes		(1,007)		(726)		(746)
Nontaxable bargain purchase gain		0		0		(146)
Tax credit investments		(165)		(55)		0
Stock compensation		(1,027)		(731)		127
Other		173		(105)		(3)
Federal tax provision		33,458		12,816		11,396
State tax provision		2,878		2,073		2,131
Total income tax provision	$	36,336	$	14,889	$	13,527

The net deferred tax assets (liabilities) are comprised of the following as of:

	December 31,
	2017		2016
	(In thousands)
Allowance for loan losses	$	7,187	$	9,477
Premises and equipment		1,390		2,334
Other real estate owned		207		841
Accrued stock compensation		1,569		1,561
Federal tax loss carryforward		4,755		28,089
State tax loss carryforward		5,578		6,123
Alternative minimum tax credit carryforward		2,209		4,261
Net unrealized securities losses		1,429		4,616
Deferred compensation		2,125		3,279
Accrued interest and fee income		2,411		3,267
Other		2,248		3,748
Gross deferred tax assets		31,108		67,596
Less: Valuation allowance		0		0
Deferred tax assets net of valuation allowance		31,108		67,596

Core deposit base intangible		(3,964)		(3,953)
Other		(1,727)		(2,825)
Gross deferred tax liabilities		(5,691)		(6,778)
Net deferred tax assets	$	25,417	$	60,818

Included in the table above is the effect of certain temporary differences for which no deferred tax expense or benefit was recognized. The effect of these items is instead recorded as Accumulated Other Comprehensive Income in the shareholders' equity section of the consolidated balance sheet. In 2017 and 2016 such items consisted primarily of $5.6 million and $12.1 million, respectively of unrealized losses on certain investments in debt and equity securities accounted for under ASC 320.

At December 31, 2017, the Company's deferred tax assets ("DTAs") of $25.4 million consists of approximately $15.4 million of net U.S. federal DTAs and $10.0 million of net state DTAs.

Management assesses the necessity of a valuation allowance recorded against DTAs at each reporting period. The determination of whether a valuation allowance for net DTAs is appropriate is subject to considerable judgment and requires an evaluation of all positive and negative evidence. Based on an assessment of all of the evidence, including favorable trending in asset quality and certainty regarding the amount of future taxable income that the Company forecasts, management concluded that it was more likely than not that its net DTAs will be realized based upon future taxable income. Management's confidence in the realization of projected future taxable income is based upon analysis of the Company's risk profile and its trending financial performance, including credit quality. The Company believes it can confidently and reasonably predict future results of operations that result in taxable income at sufficient levels over the future period of time that the Company has available to realize its net DTA.

Management expects to realize the $25.4 million in net DTAs well in advance of the statutory carryforward period. At December 31, 2017, approximately $4.8 million of DTAs relate to federal net operating losses which will expire in annual installments beginning in 2029 through 2032. Additionally, $5.6 million of the DTAs relate to state net operating losses which will expire in annual installments beginning in 2029 through 2034. Tax credit carryforwards at December 31, 2017 represent federal alternative minimum tax credits totaling $2.2 million. Remaining DTAs are not related to net operating losses or credits and therefore, have no expiration date.

A valuation allowance could be required in future periods based on the assessment of positive and negative evidence. Management's conclusion at December 31, 2017 that it is more likely than not that the net DTAs of $25.4 million will be realized is based upon estimates of future taxable income that are supported by internal projections which consider historical performance, various internal estimates and assumptions, as well as certain external data, all of which management believes to be reasonable although inherently subject to judgment. If actual results differ significantly from the current estimates of future taxable income, even if caused by adverse macro-economic conditions, a valuation allowance may need to be recorded for some or all of the Company's DTAs. The establishment of a DTA valuation allowance could have a material adverse effect on the Company's financial condition and results of operations.

The Company recognizes interest and penalties, as appropriate, as part of the provisioning for income taxes. No interest or penalties were accrued at December 31, 2017.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, Compensation – Stock Compensation (Topic 718). ASU 2016-09 changes several aspects of the accounting for share-based payment award transactions, including: (1) accounting and cash flow classification for excess tax benefits and deficiencies, (2) forfeitures, and (3) tax withholding requirements and cash flow classification. The standard is effective for public business entities in annual and interim periods in fiscal years beginning after December 15, 2016. Early adoption is permitted if the entire standard is adopted. If an entity early adopts the standard in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company adopted ASU 2016-09 in the third quarter of 2016 and recognized a $0.8 million tax benefit in the Consolidated Statements of Operations over the third and fourth quarters of 2016. During 2017, the Company recognized $1.1 million of tax benefit under this standard. In addition, the Company presented excess tax benefits as an operating activity in the Consolidated Statement of Cash Flows using a retrospective transition method.

As a result of the adoption of ASU No. 2014-01, “Investments-Equity Method and Joint Ventures: Accounting for Investments in Qualified Affordable Housing Projects,” the amortization of our low-income housing credit investment has been reflected as income tax expense. Accordingly, $713,000 and $39,000 of such amortization has been reflected as income tax expense for the years ended December 31, 2017 and 2016, respectively. The amount of affordable housing tax credits, amortization and tax benefits recorded as income tax expense for the year ended December 31, 2017 were $622,000, $713,000 and $256,000, respectively. The amount of affordable housing tax credits, amortization and tax benefits recorded as income tax expense for the year ended December 31, 2016 were $32,000, $39,000 and $67,000, respectively. The carrying value of the investment in affordable housing credits is $9.3 million and $10.0 million at December 31, 2017 and 2016, respectively, of which $5.2 million and $8.3 million is unfunded, respectively.

The Company has no unrecognized income tax benefits or provisions due to uncertain income tax positions. The following are the major tax jurisdictions in which the Company operates and the earliest tax year, exclusive of the impact of the net operating loss carryforwards, subject to examination:

Jurisdiction			Tax Year
United States of America			2014
Florida			2014

On December 22, 2017 H.R. 1, also known as the Tax Cut and Jobs Act (Act), was enacted. As a result, the Company was required to revalue its existing net DTA on that date based on the future federal corporate tax rate of 21%. The DTA revaluation resulted in a one-time charge to income tax expense in the amount of $8.6 million. Prior to enactment of this new legislation, the Company's net DTA was $34.0 million which was then revalued to the $25.4 million reflected in the table above. The tax charge was estimated by the Company as of December 22, 2017 based on an initial analysis of the Act and may be adjusted in future periods following completion of the Company’s 2017 federal income tax return and evaluation of the effects, if any, of implementation guidance or regulations that may be issued by the Internal Revenue Service on the Company’s initial analysis of the Act.

During the period, the Company early adopted ASU 2018-02 as discussed in Note A - Significant Accounting Policies to adjust for the historical impact of the corporate tax rate change to accumulated other comprehensive income. The adjustment relates to changes in the deferred tax asset associated with mark to market adjustments on available for sale securities. The table below reflects the balances before and after the adjustment between accumulated other comprehensive income and retained earnings:

	Unadjusted as of December 31, 2017		Adjustment		Adjusted as of December 31, 2017
Retained Earnings	$	29,208	$	706	$	29,914
Accumulated Other Comprehensive Income		(3,510)		(706)		(4,216)