Income Taxes

The following table shows the composition of income tax expense.



Year Ended December 31 (Dollars in thousands)	2018			2017			2016
Current:
Federal	$	20,167		$	26,012		$	25,479
State	2,996			4,530			3,005
Total current	23,163			30,542			28,484
Deferred:
Federal	(875		)	5,869			2,530
State	1,200			(488		)	326
Deferred tax liability remeasurement	(875		)	(2,614		)	—
Total deferred	(550		)	2,767			2,856
Total provision	$	22,613		$	33,309		$	31,340

The following table shows the reasons for the difference between income tax expense and the amount computed by applying the statutory federal income tax rate (21% for 2018 and 35% for 2017 and 2016) to income before income taxes.



	2018					2017					2016
Year Ended December 31 (Dollars in thousands)	Amount			Percent of Pretax Income		Amount			Percent of Pretax Income		Amount			Percent of Pretax Income
Statutory federal income tax	$	22,056		21.0	%	$	35,476		35.0	%	$	31,194		35.0	%
(Decrease) increase in income taxes resulting from:
Tax-exempt interest income	(650		)	(0.6	)	(1,197		)	(1.2	)	(1,235		)	(1.4	)
State taxes, net of federal income tax benefit	3,315			3.2		2,627			2.6		2,165			2.4
Deferred tax liability remeasurement	(875		)	(0.8	)	(2,614		)	(2.6	)	—			—
Other	(1,233		)	(1.3	)	(983		)	(0.9	)	(784		)	(0.8	)
Total	$	22,613		21.5	%	$	33,309		32.9	%	$	31,340		35.2	%

The tax expense related to (losses) gains on investment securities available-for-sale for the years 2018, 2017, and 2016 was approximately $(83,000), $1,629,000, and $674,000, respectively.

The following table shows the composition of deferred tax assets and liabilities as of December 31, 2018 and 2017.



(Dollars in thousands)	2018			2017
Deferred tax assets:
Reserve for loan and lease losses	$	25,386		$	23,791
Accruals for employee benefits	2,974			2,369
Net unrealized losses on securities available-for-sale	3,386			1,285
Other	127			622
Total deferred tax assets	31,873			28,067
Deferred tax liabilities:
Differing depreciable bases in premises and leased equipment	21,184			22,641
Differing bases in assets related to acquisitions	4,021			3,954
Tax advantaged partnerships	4,354			1,921
Mortgage servicing	586			745
Capitalized loan costs	1,110			867
Prepaid expenses	273			387
Other	364			222
Total deferred tax liabilities	31,892			30,737
Net deferred tax liability	$	(19	)	$	(2,670	)

No valuation allowance for deferred tax assets was recorded at December 31, 2018 and 2017 as the Company believes it is more likely than not that all of the deferred tax assets will be realized.

The following table shows a reconciliation of the beginning and ending amounts of unrecognized tax benefits.



(Dollars in thousands)	2018			2017		2016
Balance, beginning of year	$	1,112		$	762	$	380
Additions based on tax positions related to the current year	—			350		382
Additions for tax positions of prior years	—			—		—
Reductions for tax positions of prior years	—			—		—
Reductions due to lapse in statute of limitations	—			—		—
Settlements	(1,112		)	—		—
Balance, end of year	$	—		$	1,112	$	762

The total amount of unrecognized tax benefits that would affect the effective tax rate if recognized was $0.00 million at December 31, 2018, $0.72 million at December 31, 2017, and $0.50 million at December 31, 2016. Interest and penalties are recognized through the income tax provision. For the years 2018, 2017 and 2016, the Company recognized approximately $(0.09) million, $0.05 million and $0.04 million in interest, net of tax effect, and penalties, respectively. There was $0.00 million, $0.09 million and $0.04 million accrued interest and penalties at December 31, 2018, 2017 and 2016, respectively.

Tax years that remain open and subject to audit include the federal 2015-2018 years and the Indiana 2015-2018 years. Additionally, in 2018 the Company reached a state tax settlement for the 2015-2017 years and as a result, recorded a reduction of unrecognized tax benefits in the amount of $1.11 million. The Company does not anticipate a significant change in the amount of uncertain tax positions within the next 12 months.

The Tax Cuts and Jobs Act was enacted on December 22, 2017. The Act reduced the U.S. federal corporate tax rate from 35% to 21%. At December 31, 2017, the Company had not fully completed its accounting for the tax effects of enactment of the Act and recorded a provisional benefit of $2.61 million which is included as a component of Income Tax Expense in the Consolidated Statements of Income related to the remeasurement of its deferred tax balance. During the third quarter of 2018, the Company completed its accounting for the provisional amounts recognized at December 31, 2017 and recorded an additional $0.88 million benefit as provided by the SEC’s Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act.