Note

. Income Taxes

The Tax Reform Act was enacted on

December 22, 2017.

Among other things, the new law establishes a new, flat corporate federal statutory income tax rate of

21%;

eliminates the corporate alternative minimum tax and allows the use of any such carryforwards to offset regular tax liability for any taxable year; limits the deduction for net interest expense incurred by U.S. corporations; allows businesses to immediately expense the cost of new investments in certain qualified depreciable assets for tax purposes; eliminates or reduces certain deductions related to meals and entertainment expenses; modifies the limitation on excessive employee remuneration to eliminate the exception for performance-based compensation and clarifies the definition of a covered employee; and limits the deductibility of deposit insurance premiums. The Tax Reform Act also significantly changes U.S. tax law related to foreign operations, however, such changes do

not

currently impact the Company. As a result of the Tax Reform Act, the Company recognized additional tax expense totaling

$6.55

million during the

fourth

quarter of

2017

related to the revaluation of our deferred tax balances, which included provisional estimates primarily related to certain purchase accounting, indemnification asset, intangible, and depreciation items. During the

third

quarter of

2018,

the Company completed the deferred tax asset revaluation and recorded a

$1.67

million reduction in tax expense.

Income tax expense is comprised of current and deferred, federal and state income taxes on the Company’s pre-tax earnings. The following table presents the components of the income tax provision for the periods indicated:

	Year Ended December 31,
(Amounts in thousands)	2018		2017			2016
Current tax expense (benefit):
Federal	$	7,201	$	14,509		$	13,634
State		1,233		926			675
Total current tax expense		8,434		15,435			14,309

Deferred tax expense (benefit):
Federal		296		5,205			(1,480	)
State		52		(12	)		(10	)
Total deferred tax expense (benefit)		348		5,193			(1,490	)
Total income tax expense	$	8,782	$	20,628		$	12,819

The Company’s effective tax rate, income tax as a percent of pre-tax income,

may

vary significantly from the statutory rate due to permanent differences and available tax credits. Permanent differences are income and expense items excluded by law in the calculation of taxable income. The Company’s most significant permanent differences generally include interest income on municipal securities and increases in the cash surrender value of life insurance policies. The following table reconciles the Company’s income tax expense to the amount computed by applying the federal statutory tax rate to pre-tax income for the periods indicated:

	Year Ended December 31,
	2018						2017						2016
	Amount			Percent			Amount			Percent			Amount			Percent
(Amounts in thousands)
Federal income tax at the statutory rate	$	9,475			21.00	%	$	14,739			35.00	%	$	13,281			35.00	%
State income tax, net of federal benefit		1,016			2.25	%		692			1.64	%		598			1.58	%
		10,491			23.25	%		15,431			36.64	%		13,879			36.58	%
Increase (decrease) resulting from:
Tax-exempt interest income		(702	)		-1.56	%		(1,228	)		-2.92	%		(1,336	)		-3.52	%
Nondeductible goodwill impairment and disposition		569			1.26	%		-			0.00	%		340			0.89	%
Bank owned life insurance		(144	)		-0.32	%		(478	)		-1.13	%		(335	)		-0.88	%
Deferred tax revaluation		(1,669	)		-3.70	%		6,552			15.56	%		-			0.00	%
Other items, net		237			0.53	%		351			0.83	%		271			0.71	%
Income tax at the effective tax rate	$	8,782			19.46	%	$	20,628			48.98	%	$	12,819			33.78	%

Deferred taxes derived from continuing operations reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for tax purposes. The following table presents the significant components of the net deferred tax asset as of the dates indicated:

	December 31,
(Amounts in thousands)	2018		2017
Deferred tax assets
Allowance for loan losses	$	4,275	$	4,511
Unrealized losses on available-for-sale securities		87		-
Unrealized asset losses		730		722
Purchase accounting		24		3,418
FDIC assisted transactions		1,510		4,131
Intangible assets		2,430		2,616
Deferred compensation assets		3,468		3,617
Deferred loan fees		1,201		1,221
Other		491		450
Total deferred tax assets		14,216		20,686

Deferred tax liabilities
FDIC indemnification asset		1,195		8,525
Fixed assets		1,381		1,282
Unrealized gains on available-for-sale securities		-		259
Odd days interest deferral		1,614		233
Other		460		819
Total deferred tax liabilities		4,650		11,118
Net deferred tax asset	$	9,566	$	9,568

The Company had

unrecognized tax benefits or accrued interest or penalties as of

December 31, 2018

2017.

The Company had

deferred tax valuation allowance recorded as of

December 31, 2018

2017,

as management believes it is more likely than

not

that all of the deferred tax assets will be realized against deferred tax liabilities and projected future taxable income. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service and various state tax departments for the years ended

December 31, 2015

through

2017.