Note

17.

Income Taxes

Current and Deferred Income Tax Components

The components of income tax expense (benefit) (substantially all Federal) are as follows:

(dollars in thousands)	2019		2018

Current	$	1,189	$	(375	)
Deferred		591		1,589
	$	1,780	$	1,214

Rate Reconciliation

A reconciliation of income tax expense computed at the statutory federal income tax rate to income tax expense (benefit) included in the statements of income follows:

(dollars in thousands)	2019			2018

Tax at statutory federal rate	$	1,877		$	1,205
Tax exempt interest income		(52	)		(49	)
Tax exempt insurance income		(92	)		(155	)
State income tax, net of federal benefit		48			21
Merger expenses		-			162
Other		(1	)		30
Deferred tax asset re-measurement		-			-
	$	1,780		$	1,214

Deferred Income Tax Analysis

The significant components of net deferred tax assets (all Federal) at

December 31, 2019

and

2018

are summarized as follows:

(dollars in thousands)	2019		2018

Deferred tax assets
Allowance for loan losses	$	838	$	603
Acquired loan credit mark		684		1,061
Deferred compensation		315		322
Investment impairment charge recorded directly to stockholders’ equity as a component of other comprehensive income		47		57
Minimum pension liability		259		276
Net operating loss carryforward		1,666		1,738
Alternative minimum tax credit carryforward		-		294
Net unrealized losses on securities available for sale		-		247
Nonaccrual interest income		445		206
Purchase accounting adjustments		1		144
Other		103		216
	$	4,358	$	5,164
Deferred tax liabilities
Deferred loan origination costs		365		635
Core deposit intangible		661		831
Accrued pension costs		1,113		1,049
Depreciation		1,059		795
Merger expenses		161		-
Net unrealized losses on securities available for sale		14		-
Accretion of discount on investment securities, net		-		1
	$	3,373	$	3,311
Net deferred tax asset	$	985	$	1,853

The Bank has analyzed the tax positions taken or expected to be taken in its tax returns and concluded it has

liability related to uncertain tax positions in accordance with applicable regulations. Tax returns for the years subsequent to

2016

remain subject to examination by both federal and state tax authorities.

Deferred tax assets or liabilities are initially recognized for differences between the financial statement carrying amount and the tax basis of assets and liabilities which will result in future deductible or taxable amounts and operating loss and tax credit carry-forwards. A valuation allowance is then established, as applicable, to reduce the deferred tax asset to the level at which it is “more likely than

not”

that the tax benefits will be realized. Sources of taxable income that

may

allow for the realization of tax benefits include (

) taxable income in the current year or prior years that is available through carry-back, (

) future taxable income that will result from the reversal of existing taxable temporary differences, and (

) taxable income generated by future operations. There is

valuation allowance for deferred tax assets as of

December 31, 2019

and

2018.

The net operating loss of approximately

$7.9

million, if

not

utilized will begin to expire in

2031.

It is management’s belief that realization of the deferred tax asset is more likely than

not.