Income Taxes

The total tax expense consisted of the following for the years ended December 31, 2019 and 2018:



	Year Ended December 31,
	2019			2018
	(In thousands)
Current income tax expense:
Federal	$	1,202		$	1,000
State	656			518
	1,858			1,518
Deferred income tax expense (benefit):
Federal	(129		)	180
State	(62		)	113
	(191		)	293
	$	1,667		$	1,811

A reconciliation of the statutory federal income tax at a rate of 21%, to the income tax expense included in the statements of income for the year ended December 31, 2019 and 2018 is as follows:



	Year ended December 31,
	2019					2018
	Amount			% of Pretax Income		Amount			% of Pretax Income
Federal income tax at statutory rate	$	1,212		21.0	%	$	1,396		21.0	%
State tax, net of federal benefit	469			8.1		498			7.5
Bank Owned Life Insurance	(116		)	(2.0	)	(81		)	(1.2	)
ESOP and stock-based compensation	20			0.3		(11		)	(0.2	)
Other	82			1.5		9			0.2
	$	1,667		28.9	%	$	1,811		27.3	%

The components of the net deferred tax asset at December 31, 2019 and 2018 were as follows:



	At December 31,			At December 31,
	2019			2018
	(In thousands)
Deferred tax assets:
Allowances for losses on loans and commitments	$	1,633		$	1,610
Uncollected interest	225			48
Benefit plans	142			127
Restricted stock award	38			38
Deferred Rent	0			16
Accrued compensation	118			131
Deferred loan costs	151			0
Lease Liability	271			0
Other	55			55
	2,633			2,025
Deferred tax liabilities
Depreciation	(619		)	(427		)
Deferred loan costs	0			(125		)
Right of use asset	(254		)	0
Other	(172		)	(76		)
	(1,045		)	(628		)
Net deferred tax asset included in other assets	$	1,588		$	1,397

The company and its subsidiaries are subject to U.S. federal income tax as well as income tax in the state of New Jersey. The company is generally no longer subject to examination for federal for tax years prior to 2016 and the state of New Jersey for tax years prior to 2015. At December 31, 2019 and 2018, the Company had state net operating loss carryforwards of $1.4 million which begin to expire in 2030. Realization of deferred tax assets associated with net operating loss carryforwards is dependent upon generating sufficient taxable income prior to their expiration. A valuation allowance to reflect management’s estimate of the temporary deductible differences that may expire prior to their utilization has been recorded at December 31, 2019 and 2018. The deferred tax asset and valuation allowance related to state net operating losses was $100,000 as of December 31, 2019 and 2018.

Retained earnings included $1.5 million at December 31, 2019 and 2018 for which no provision for income tax has been made. These amounts represent deductions for bad debt reserves for tax purposes which were only allowed to savings institutions which met certain definitional tests prescribed by the Internal Revenue Code of 1986, as amended (the "Code"). The Small Business Job Protection Act of 1996 (the "Act") eliminated the special bad debt deduction granted solely to thrifts. Under the terms of the Act, there would be no recapture of the pre-1988 (base year) reserves. However, these pre-1988 reserves would be subject to recapture under the rules of the Code if the Bank itself pays a cash dividend in excess of earnings and profits, or liquidates. The Act also provides for the recapture of deductions arising from the "applicable excess reserve" defined as the total amount of reserve over the base year reserve. The Bank's total reserve exceeds the base year reserve and deferred taxes have been provided for this excess.