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)	2018		2017		2016
Current taxes	$	3,889	$	1,989	$	4,482
Deferred taxes		632		9,405		(23)
	$	4,521	$	11,394	$	4,459

Income tax expense for the years ended December 31, 2018, 2017 and 2016 differed from the federal statutory rate applied to income before income taxes for the following reasons:


	Year Ended December 31,
		2018				2017				2016
(Dollars in thousands)	Amount		Percent		Amount		Percent		Amount		Percent
Income tax at statutory rates	$	4,734	21.0	%	$	6,288	35.0	%	$	6,272	35.0	%
State income taxes		575	2.6			348	1.9			403	2.2
Tax-exempt interest income		(592)	(2.6)			(1,162)	(6.5)			(1,367)	(7.6)
Carrying cost of tax-exempt assets		18	0.1			32	0.2			36	0.2
Share based compensation		(103)	(0.5)			(284)	(1.6)			(255)	(1.4)
Change in value of bank-owned life insurance		(89)	(0.4)			(151)	(0.8)			(324)	(1.8)
Investments in qualified housing projects		(85)	(0.4)			(135)	(0.8)			(147)	(0.8)
Remeasurement of net deferred tax assets		—	—			6,643	37.0			—	—
Other		63	0.3			(185)	(1.0)			(159)	(0.9)
	$	4,521	20.1	%	$	11,394	63.4	%	$	4,459	24.9	%

The Tax Cuts and Jobs Act of 2017, which was signed into law on December 22, 2017, permanently lowered the federal corporate income tax rate to 21 percent from the previous maximum rate of 35 percent, effective January 1, 2018. In the year ended December 31, 2017, as a result of the reduction in the federal corporate income tax rate, the Corporation recorded a one-time remeasurement adjustment to its net federal deferred tax asset of $6.64 million, which was recognized in income tax expense.

The Corporation’s net deferred income taxes totaled $12.2 million and $12.1 million at December 31, 2018 and 2017, respectively. The tax effects of each type of significant item that gave rise to deferred taxes are:


	December 31,
(Dollars in thousands)	2018		2017
Deferred tax asset
Allowances for loan losses and OREO losses	$	8,567	$	9,004
Fair value adjustments related to business combinations		1,643		2,123
Nonqualified defined contribution plan		2,925		2,460
Share-based compensation		825		769
Reserve for indemnification losses		663		641
Interest on nonaccrual loans		346		475
Net unrealized loss on securities available for sale		365		—
Other		1,415		1,286
Deferred tax asset		16,749		16,758
Deferred tax liability
Goodwill and other intangible assets		(2,838)		(2,886)
Depreciation		(1,024)		(632)
Defined benefit plan		(620)		(934)
Cash flow hedges		(74)		(43)
Net unrealized gain on securities available for sale		—		(170)
Deferred tax liability		(4,556)		(4,665)
Net deferred tax asset	$	12,193	$	12,093

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 2015.