NOTE 11: 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)	2016		2015		2014
Current taxes	$	4,482	$	3,475	$	2,897
Deferred taxes		(23)		1,378		2,247
	$	4,459	$	4,853	$	5,144

The income tax provision is less than would be obtained by application of the statutory federal corporate tax rate to pre-tax accounting income as a result of the following items:


	Year Ended December 31,
			Percent of				Percent of				Percent of
			Pre-tax				Pre-tax				Pre-tax
(Dollars in thousands)	2016		Income		2015		Income		2014		Income
Income tax computed at federal statutory rates	$	6,272	35.0	%	$	6,084	35.0	%	$	6,120	35.0	%
Tax effect of exclusion of interest income on obligations of states and political subdivisions		(1,310)	(7.3)			(1,456)	(8.4)			(1,546)	(8.8)
Reduction of interest expense incurred to carry tax-exempt assets		36	0.2			38	0.2			42	0.2
Increase in bank-owned life insurance		(324)	(1.8)			(159)	(0.9)			(38)	(0.2)
State income taxes, net of federal tax benefit		403	2.2			563	3.3			532	3.0
Amortization of investments in qualified affordable housing projects, net of federal tax benefit		217	1.2			264	1.5			270	1.5
Tax credit on investments in qualified affordable housing projects		(364)	(2.0)			(400)	(2.3)			(180)	(1.0)
Share-based compensation		(476)	(2.7)			—	—			—	—
Other		5	—			(81)	(0.5)			(56)	(0.3)
	$	4,459	24.8	%	$	4,853	27.9	%	$	5,144	29.4	%

The Corporation’s net deferred income taxes totaled $21.5 million and $20.4 million at December 31, 2016 and 2015, respectively. The tax effects of each type of significant item that gave rise to deferred taxes are:


	December 31,
(Dollars in thousands)	2016		2015
Deferred tax asset
Allowance for loan losses and OREO losses	$	14,035	$	13,445
Fair value adjustments related to acquisition		3,953		4,888
Reserve for indemnification losses		875		898
Deferred compensation		2,005		1,940
Share-based compensation		1,036		918
Interest on nonaccrual loans		1,088		997
Cash flow hedges		22		68
Other		3,722		3,411
Deferred tax asset		26,736		26,565
Deferred tax liability
Goodwill and other intangible assets		(3,848)		(3,569)
Core deposit intangible		(307)		(566)
Defined benefit plan		(116)		(63)
Depreciation		(180)		(125)
Net unrealized gain on securities available for sale		(746)		(1,880)
Deferred tax liability		(5,197)		(6,203)
Net deferred tax asset	$	21,539	$	20,362

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 2013.