NOTE L - INCOME TAXES

The significant components of the provision for income taxes for the years ended December 31, 2019, 2018 and 2017 are as follows:


	2019		2018		2017
	(dollars in thousands)
Current tax provision:
Federal	$	2,699	$	2,366	$	3,059
State		412		483		328
Total current tax provision		3,111		2,849		3,387

Deferred tax provision:
Federal		575		943		2,328
State		10		118		(3)
Total deferred tax provision		585		1,061		2,325

Net income tax provision	$	3,696	$	3,910	$	5,712

The difference between the provision for income taxes and the amounts computed by applying the statutory federal income tax rate of 21% for 2019 and 2018 and 34% for 2017 to income before income taxes is summarized below:


	2019		2018		2017
	(dollars in thousands)

Income tax at federal statutory rate	$	3,513	$	3,715	$	3,025
Increase (decrease) resulting from:
State income taxes, net of federal tax effect		333		475		214
Tax-exempt interest income		(95)		(99)		(128)
Income from life insurance		(141)		(144)		(195)
Incentive stock option expense		41		(2)		39
Merger expenses		—		20		209
Impact of changes in tax rates		—		—		2,591
Other permanent differences		45		(55)		(43)

Provision for income taxes	$	3,696	$	3,910	$	5,712

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred taxes at December 31, 2019 and 2018 are as follows:


	2019		2018
	(dollars in thousands)
Deferred tax assets relating to:
Allowance for loan losses	$	1,913	$	1,992
Deferred compensation		116		132
Unrealized losses on available-for-sale securities		—		(17)
Net operating loss carryforwards		541		999
Acquisition accounting		1,024		1,107
Write-downs on foreclosed real estate		120		108
Other		229		269
Total deferred tax assets		3,943		4,590
Deferred tax liabilities relating to:
Premises and equipment		(796)		(721)
Deferred loan fees/costs		(73)		(67)
Unrealized gains on available-for-sale securities		(268)		—
Core deposit intangible		(8)		(140)
Total deferred tax liabilities		(1,145)		(928)

Net recorded deferred tax asset, included in other assets	$	2,798	$	3,662

Deferred income taxes are measured at the enacted tax rate for the period in which they are expected to reverse. In December 2017 the U.S. Congress passed and the President signed legislation which reduced the statutory federal corporate tax rate to 21% effective January 1, 2018 and for all taxable years ending after that date. North Carolina also enacted legislation to reduce its corporate tax rate from 3.0% to 2.5% effective January 1, 2019. The impact of this change in tax rate was an additional income tax expense of $2.6 million for 2017.

The Company had $2.6 million of net operating losses which can be carried forward and applied against future taxable income. If unused, these net operating losses will expire in 2027 through 2036. The Company’s policy is to report interest and penalties, if any, related to uncertain tax positions in income tax expense in the Consolidated Statements of Operations. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2014. As of December 31, 2019 and 2018, the Company has no uncertain tax positions.

The Company’s net deferred tax asset was $2.8 million and $3.7 million at December 31, 2019 and 2018. In evaluating whether the Company will realize the full benefit of the net deferred tax asset, both positive and negative evidence are considered, including among other things recent earnings trends, projected earnings, and asset quality. As of December 31, 2019, management concluded that the Company’s net deferred tax assets were fully realizable. The Company will continue to monitor deferred tax assets closely to evaluate whether we will be able to realize the full benefit of our net deferred tax asset or whether there is any need for a valuation allowance. Significant negative trends in credit quality, losses from operations or other factors could impact the realization of the deferred tax asset in the future.