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)	2017		2016		2015
Current taxes	$	1,989	$	4,482	$	3,475
Deferred taxes		9,405		(23)		1,378
	$	11,394	$	4,459	$	4,853

Income tax expense is comprised of the following items:


	Year Ended December 31,
			Percent of				Percent of				Percent of
			Pre-tax				Pre-tax				Pre-tax
(Dollars in thousands)	2017		Income		2016		Income		2015		Income
Income tax computed at federal statutory rates	$	6,288	35.0	%	$	6,272	35.0	%	$	6,084	35.0	%
Tax effect of exclusion of interest income on obligations of states and political subdivisions		(1,125)	(6.3)			(1,310)	(7.3)			(1,456)	(8.4)
Reduction of interest expense incurred to carry tax-exempt assets		32	0.2			36	0.2			38	0.2
Increase in bank-owned life insurance		(151)	(0.8)			(324)	(1.8)			(159)	(0.9)
State income taxes, net of federal tax benefit		348	1.9			403	2.2			563	3.3
Amortization of investments in qualified affordable housing projects, net of federal tax benefit		255	1.4			217	1.2			264	1.5
Tax credit on investments in qualified affordable housing projects		(390)	(2.2)			(364)	(2.0)			(400)	(2.3)
Share-based compensation		(597)	(3.3)			(476)	(2.7)			—	—
Reduction in net deferred tax asset due to change in federal statutory rate		6,643	37.0			—	—			—	—
Other		91	0.5			5	—			(81)	(0.5)
	$	11,394	63.4	%	$	4,459	24.8	%	$	4,853	27.9	%

The Corporation’s net deferred income taxes totaled $12.1 million and $21.5 million at December 31, 2017 and 2016, respectively. The tax effects of each type of significant item that gave rise to deferred taxes are:


	December 31,
(Dollars in thousands)	2017 1		2016
Deferred tax asset
Allowances for loan losses and OREO losses	$	9,004	$	14,035
Fair value adjustments related to CVBK acquisition		2,123		3,953
Reserve for indemnification losses		641		875
Deferred compensation		1,383		2,005
Share-based compensation		769		1,036
Interest on nonaccrual loans		475		1,088
Cash flow hedges		—		22
Other		2,363		3,722
Deferred tax asset		16,758		26,736
Deferred tax liability
Goodwill and other intangible assets		(2,810)		(3,848)
Core deposit intangible		(76)		(307)
Defined benefit plan		(934)		(116)
Depreciation		(632)		(180)
Cash flow hedges		(43)		—
Net unrealized gain on securities available for sale		(170)		(746)
Deferred tax liability		(4,665)		(5,197)
Net deferred tax asset	$	12,093	$	21,539

The deferred tax asset and liability values at December 31, 2017 have been re-measured as a result of the Act and the 21 percent federal corporate income tax rate that will apply to the Corporation’s future fiscal years.

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 2014.