10.	INCOME TAXES

Allocation of federal and state income taxes between current and deferred portions is as follows (in thousands):

	Years Ended December 31,
	2016			2015
Current tax expense:
Federal	$	—		$	—
State		13			9
Total current tax expense		13			9
Deferred tax expense (benefit):
Federal		(25	)		(676	)
State		23			29
		(2	)		(647	)
Change in valuation allowance		2			530
Total deferred tax expense (benefit)		—			(117	)
Total tax expense (benefit)	$	13		$	(108	)

The reasons for the differences between the statutory federal income tax expense (benefit) and the actual tax expense (benefit) are summarized as follows (in thousands):

	Years Ended December 31,
	2016			2015
Statutory federal tax at 34%	$	162		$	(293	)
Increase (decrease) resulting from:
State taxes, net of federal tax effect		24			25
Bank-owned life insurance		(81	)		(217	)
Tax exempt income		(125	)		(139	)
Dividends received deduction		(4	)		(26	)
Change in valuation allowance		2			530
Other, net		35			12
Total tax expense (benefit)	$	13		$	(108	)

The components of the net deferred tax asset are as follows (in thousands):

	December 31,
	2016			2015
Deferred tax assets:
Federal	$	6,059		$	5,311
State		875			677
		6,934			5,988
Valuation allowance		(3,900	)		(3,898	)
		3,034			2,090
Deferred tax liabilities:
Federal		(2,461	)		(1,720	)
State		(573	)		(370	)
		(3,034	)		(2,090	)
Net deferred tax asset	$	—		$	—

The tax effects of items giving rise to deferred tax assets (liabilities) are as follows (in thousands):

	December 31,
	2016			2015
Employee benefit plans	$	1,211		$	1,177
Allowance for loan losses		1,306			1,294
Funded status of post-retirement benefits		(56	)		(56	)
Securities available for sale		(423	)		(423	)
Alternative minimum tax credit		462			462
Depreciation and amortization		179			86
Net deferred loan origination costs		(445	)		(474	)
Mortgage servicing rights		(1,738	)		(1,025	)
Net operating loss carryforward		2,682			2,571
Charitable contribution carryforward		988			84
Derivatives		(254	)		(43	)
Merger expenses		—			244
Other, net		(12	)		1
		3,900			3,898
Valuation allowance on deferred tax assets		(3,900	)		(3,898	)
Net deferred tax asset	$	—		$	—

At December 31, 2016, the Company has a federal net operating loss carryforward of $7,887,000, of which $4,745,000 expires on December 31, 2033, $406,000 expires on December 31, 2034, $1,542,000 expires on December 31, 2035 and $1,194,000 expires on December 31, 2036.

At December 31, 2016, the Company has a charitable contribution carryforward of $2,468,000 of which all but $154,000 expires on December 31, 2021.

A summary of the change in net deferred tax assets is as follows (in thousands):

	Years Ended December 31,
	2016		2015
Balance at beginning of year	$	—	$	—
Deferred tax benefit		—		117
Deferred tax effect of post-retirement benefit plans		—		(117	)
Balance at end of year	$	—	$	—

The Company reduces deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company assesses the realizability of its deferred tax assets by (1) reviewing taxable income in allowable federal carry-back periods, and (2) assessing the likelihood of the Company generating federal and state taxable income, as applicable, in future periods in amounts sufficient to offset the deferred tax items in the periods they are expected to reverse. The Bank continues to project losses for state tax purposes

In performing its year-end 2014 assessment of available evidence for purposes of determining whether it was more likely than not that some portion or all of deferred tax assets would be realized, management determined that a valuation allowance for all of its deferred tax assets was warranted. This determination was based on the Company’s NOL carryforward position, its current period operating results exclusive of non-recurring items and its expectations for the upcoming year. In performing subsequent assessments, management concluded that no significant changes in the key factors affecting the realizability of our deferred tax assets had occurred and that a valuation allowance for all deferred tax assets should be maintained.

The federal income tax reserve for loan losses at the Company’s base year amounted to $2,033,000. If any portion of the reserve is used for purposes other than to absorb the losses for which it was established, approximately 150% of the amount actually used (limited to the amount of the reserve) would be subject to taxation in the fiscal year in which used. As the Company intends to use the reserve only to absorb loan losses, a deferred income tax liability of $812,000 has not been provided.

The Company’s income tax returns are subject to review and examination by federal and state taxing authorities. The Company is currently open to audit under the applicable statutes of limitations by the Internal Revenue Service for the years ended December 31, 2013 through 2016. The years open to examination by state taxing authorities vary by jurisdiction; no years prior to 2013 are open.