11.INCOME TAXES

Pursuant to the accounting guidelines related to income taxes, the Company has evaluated its material tax positions as of December 31, 2019 and 2018. Under the “more-likely-than-not” threshold guidelines, the Company believes no significant uncertain tax positions exist, either individually or in the aggregate, that would give rise to the non-recognition of an existing tax benefit. In periods subsequent to December 31, 2019, determinations of potentially adverse material tax positions will be evaluated to determine whether an uncertain tax position may have previously existed or has been originated. In the event an adverse tax position is determined to exist, penalty and interest will be accrued, in accordance with the Internal Revenue Service (IRS) guidelines, and will be recorded as a component of other expenses in the Company’s consolidated statements of income.

As of December 31, 2019, there were no unrecognized tax benefits that, if recognized, would significantly affect the Company’s effective tax rate. Also, there were no penalties and interest recognized in the consolidated statements of income in 2019, 2018 and 2017 as a result of management’s evaluation of whether an uncertain tax position may exist nor does the Company foresee a change in its material tax positions that would give rise to the non-recognition of an existing tax benefit during the forthcoming twelve months. Tax returns filed with the IRS are subject to review by law under a three-year statute of limitations. The Company has not received notification from the IRS regarding adverse tax issues for the current year or from tax returns filed for tax years 2018, 2017 or 2016.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. The bill reduced the Company’s federal corporate income tax rate from 34% to 21% effective January 1, 2018. An adjustment of $1.1 million was made in December 2017 to re-measure the net deferred tax liability at the new tax rate.

The following temporary differences gave rise to the net deferred tax liability, a component of other assets in the consolidated balance sheets, as of the periods indicated:


	As of December 31,
(dollars in thousands)	2019		2018
Deferred tax assets:
Allowance for loan losses	$	2,047	$	2,047
Net unrealized losses on available-for-sale securities		-		291
Deferred interest from non-accrual assets		149		167
Operating lease liabilities		1,377		-
Other		556		697
Total		4,129		3,202

Deferred tax liabilities:
Net unrealized gains on available-for-sale securities		(958)		-
Loan fees and costs		(1,248)		(1,151)
Automobile leasing		(3,463)		(3,393)
Operating lease right-of-use assets		(1,265)		-
Depreciation		(685)		(416)
Mortgage loan servicing rights		(211)		(241)
Total		(7,830)		(5,201)
Deferred tax liability, net	$	(3,701)	$	(1,999)

The components of the total provision for income taxes for the years indicated are as follows:


	Years ended December 31,
(dollars in thousands)	2019		2018		2017

Current	$	1,985	$	1,110	$	1,872
Deferred		341		1,019		(666)
Total provision for income taxes	$	2,326	$	2,129	$	1,206

The deferred tax liability at December 31, 2017 included a $1.1 million credit to the provision for income taxes for the effects of the Tax Cuts and Jobs Act.

The reconciliation between the expected statutory income tax and the actual provision for income taxes is as follows:


	Years ended December 31,

(dollars in thousands)	2019		2018		2017
Expected provision at the statutory rate	$	2,919	$	2,758	$	3,373
Tax-exempt income		(592)		(567)		(845)
Bank owned life insurance		(136)		(126)		(198)
Nondeductible interest expense		37		18		19
Nondeductible other expenses and other, net		98		43		(59)
Tax rate change adjustment		-		3		(1,084)
Actual provision for income taxes	$	2,326	$	2,129	$	1,206