NOTE 9 - INCOME TAXES

The components of the provision for federal income taxes are as follows:



	Years Ended December 31,
	2018		2017
	(In Thousands)
Current	$	2,529	$	3,822
Change in corporate tax rate		-		3,060
Deferred		24		(331)
	$	2,553	$	6,551

Deferred income taxes reflect temporary differences in the recognition of revenue and expenses for tax reporting and financial statement purposes, principally because certain items, such as, the allowance for loan losses and loan fees are recognized in different periods for financial reporting and tax return purposes. As of December 31, 2018, the Company has a $4,970,000 net operating loss carryforward that will begin to expire in 2035. A valuation allowance has not been established for deferred tax assets. Realization of the deferred tax assets is dependent on generating sufficient taxable income. Although realization is not assured, management believes it is more likely than not that all of the deferred tax asset will be realized. Deferred tax assets are recorded in other assets.

Income tax expense of the Company is less than the amounts computed by applying statutory federal income tax rates to income before income taxes because of the following:



	Percentage of Income
	before Income Taxes
	Years Ended December 31,
	2018		2017
Tax at statutory rates	21.0	%	35.0	%
Tax exempt interest income, net of interest expense disallowance	(4.9)		(9.6)
Incentive stock options	0.2		0.2
Earnings and proceeds on life insurance	(1.1)		(2.7)
Change in corporate tax rate	-		20.8
Other	0.6		0.7

	15.8	%	44.4	%

The net deferred tax asset included in other assets in the accompanying Consolidated Balance Sheets includes the following amounts of deferred tax assets and liabilities:



	2018		2017
	(In Thousands)
Deferred tax assets:
Allowance for loan losses	$	1,775	$	1,603
Deferred compensation		766		775
Core deposit intangible		278		232
Prepaid expenses		90		125
Pension liability		263		384
Foreclosed real estate valuation allowance		20		7
AMT tax credit carryforward		260		260
Net operating loss carryforward		1,173		1,249
Net unrealized loss on securities		1,477		808
Other		95		92
Total Deferred Tax Assets		6,197		5,535



Deferred tax liabilities:
Premises and equipment		223		210
Deferred loan fees		186		142
Net unrealized gain on pension liability		43		99
Purchase price adjustment		321		303

Total Deferred Tax Liabilities		773		754

Net Deferred Tax Asset	$	5,424	$	4,781

The Company’s federal and state income tax returns for taxable years through 2015 have been closed for purposes of examination by the Internal Revenue Service and the Pennsylvania Department of Revenue.