| NOTE 15. | INCOME TAXES |
The current and deferred amounts of income tax expense were as follows:
| Years Ended December 31, | ||||||||||||
| (in thousands) | 2017 | 2016 | 2015 | |||||||||
| Current | $ | 10,952 | $ | 12,708 | $ | 5,486 | ||||||
| Deferred | 4,430 | (3,337 | ) | 603 | ||||||||
| Adjustment to the net deferred tax asset for the Tax Cuts and Jobs Act | 885 | - | - | |||||||||
| Income tax expense | $ | 16,267 | $ | 9,371 | $ | 6,089 | ||||||
On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. The new law amends the Internal Revenue Code to reduce corporate tax rates and modify various tax policies, credits, and deductions. The corporate federal tax rate was reduced from a maximum of 35% to a flat 21% rate, which is effective for the Company beginning January 1, 2018. As a result of the corporate tax rate reduction, the Company reduced its net deferred tax asset for the year ended December 31, 2017, by $885,000, which was recognized as additional income tax expense.
The differences between the income tax expense recognized and the amount computed by applying the statutory federal income tax rate of 35% to the income before income taxes, less noncontrolling interest, for the years ended as indicated are included in the following table.
| Years Ended December 31, | ||||||||||||
| (in thousands) | 2017 | 2016 | 2015 | |||||||||
| Tax on pretax income, less noncontrolling interest, at statutory rates | $ | 17,296 | $ | 9,742 | $ | 5,956 | ||||||
| State income taxes, net of federal effect | 2,242 | 1,339 | 980 | |||||||||
| Tax-exempt interest income | (1,073 | ) | (769 | ) | (430 | ) | ||||||
| Non-deductible interest disallowance | 28 | 18 | 15 | |||||||||
| Increase in cash surrender value life insurance | (807 | ) | (452 | ) | (338 | ) | ||||||
| Non-deductible business entertainment | 168 | 106 | 94 | |||||||||
| Non-deductible merger expenses | 65 | 18 | 106 | |||||||||
| Stock-based employee compensation | (62 | ) | (35 | ) | 20 | |||||||
| Adjustment to the net deferred tax asset for the Tax Cuts and Jobs Act | 885 | - | - | |||||||||
| Deduction attributable to share-based payments * | (1,854 | ) | - | - | ||||||||
| Other, net | (621 | ) | (596 | ) | (314 | ) | ||||||
| Income tax expense | $ | 16,267 | $ | 9,371 | $ | 6,089 | ||||||
The net deferred tax asset includes the following amounts of deferred tax assets and liabilities at December 31:
| (in thousands) | 2017 | 2016 | ||||||
| Deferred tax assets: | ||||||||
| ALLL | $ | 7,806 | $ | 13,975 | ||||
| Net operating loss carryforwards | 2,694 | 3,058 | ||||||
| Credit carryforwards | 1,433 | 981 | ||||||
| Compensation | 1,818 | 3,727 | ||||||
| Other | 1,379 | 2,299 | ||||||
| Unrealized loss on securities AFS | 794 | 1,743 | ||||||
| Total deferred tax assets | 15,924 | 25,783 | ||||||
| Deferred tax liabilities: | ||||||||
| Premises and equipment | (954 | ) | (681 | ) | ||||
| Prepaid expenses | (728 | ) | (808 | ) | ||||
| Investment securities | (1,589 | ) | (2,856 | ) | ||||
| Core deposit and other intangibles | (4,101 | ) | (6,125 | ) | ||||
| Estimated section 382 limitation | (543 | ) | (561 | ) | ||||
| Purchase accounting adjustments to liabilities | (2,113 | ) | (3,192 | ) | ||||
| Other | (868 | ) | (621 | ) | ||||
| Total deferred tax liabilities | (10,896 | ) | (14,844 | ) | ||||
| Net deferred tax assets | $ | 5,028 | $ | 10,939 | ||||
A valuation allowance is required if it is more likely than not that some portion of the deferred tax asset will not be realized. At December 31, 2017 and 2016, no valuation allowance was determined to be necessary.
At December 31, 2017, the Company had a federal and state net operating loss carryforward of $4.9 million and $20.3 million, respectively. Of these amounts, the entire $4.9 million of federal net operating loss carryover and $18.0 million of the state net operating loss carryover were the result of the Company’s mergers with Mid-Wisconsin, Baylake, and First Menasha. The federal and state net operating loss carryovers resulting from the mergers have been included in the IRC section 382 limitation calculation and are being limited to the overall amount expected to be realized. The full $2.3 million state net operating loss carried over from the Company’s regular operations is expected to be utilized over the next 14 years and will not expire. The Company’s federal income tax returns are open and subject to examination from the 2014 tax return year and forward. The years open to examination by state and local government authorities varies by jurisdiction.