Note 8 - Income Taxes -

The total provision for income taxes charged to income amounted to approximately $254,000 and $54,000 for the years ended December 31, 2019 and 2018, respectively. The Tax Cuts and Jobs Act enacted December 22, 2017 reduced the federal corporate income tax rate from 34% to 21% effective January 1, 2018. As a result of the change in statutory rates, the Company recorded a $208,000 write-off of its net deferred tax asset, which was recorded as additional income tax expense during 2017.

Income tax expense for the years ended December 31 is summarized as follows:


(in thousands)	2019		2018
Income Taxes from Continuing Operations:
Current	$	—	$	—
Deferred		254		54
Income Tax Expense	$	254	$	54

The following is a reconciliation between income tax expense based on federal statutory tax rates and income taxes reported in the statements of (loss) income:


	2019				2018
(in thousands)	Amount		%		Amount		%
Expected Income Tax Expense at Statutory Rate	$	41	21	%	$	73	21	%
Tax Exempt Income		(20)	(10)	%		(20)	(6)	%
Valuation Allowance for Deferred Tax Asset (Net Operating Loss)		222	87	%		—	—	%
Other Adjustments - Net		11	6	%		1	0	%
	$	254	104	%	$	54	15	%

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. Deferred tax assets and (liabilities) were computed using currently enacted corporate tax rates of 21% at December 31, 2019 and 2018. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2019 and 2018, were as follows:


(in thousands)	2019		2018
Deferred Loan Fees (Costs)	$	(241)	$	(259)
Allowance for Loan Losses		124		137
Federal Home Loan Bank Stock		(78)		(69)
Deferred Retirement Agreements		63		377
Tax Carryforward of Loss on Sale of Investment Securities		227		456
Tax Carryforwards of Net Operating Losses		324		15
All Other Temporary Differences		30		54
		449		711
Valuation Allowance for Deferred Tax Asset (Loss on Sale of Investment Securities)		(227)		(456)
Valuation Allowance for Deferred Tax Asset (Net Operating Losses)		(222)		—
		—		255
Unrealized Losses on Securities Available-for-Sale		5		25
Net Deferred Tax Asset	$	5	$	280

At December 31, 2019 we have a federal income tax Capital Loss carryforward of $1.1 million which expires in 2020. We believe that it is more likely than not that the benefit from the Capital Loss carryforward will not be realized. In recognition of this risk, we have provided a valuation adjustment of $227,000 on the deferred tax asset related to this Capital Loss carryforward. If or when recognized, the tax benefits related to any reversal of the valuation allowance on the deferred tax asset will be accounted for as a reduction of income tax expense and an increase in equity.

At December 31, 2019 we have federal income tax Net Operating Loss (“NOL”) carryforwards of $1.5 million. Although these NOL carryforwards have no expiration date, we believe that it is more likely than not that the benefit from a portion of the NOL carryforwards will not be realized within a reasonable time period. In recognition of this risk, we have provided a valuation adjustment of $222,000 on the deferred tax asset related to these NOL carryforwards. If or when recognized, the tax benefits related to any reversal of the valuation allowance on the deferred tax asset will be accounted for as a reduction of income tax expense and an increase in equity.

Retained earnings at December 31, 2019 and 2018, include approximately $3,986,000 for which no deferred income tax liability has been recognized. These amounts represent an allocation of income to bad debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carry back of net operating losses would create income for tax purposes only, which would be subject to the then current corporate income tax rate. The unrecorded deferred income tax liability on the above amount was approximately $837,000 at December 31, 2019 and 2018.

The Small Business Protection Act of 1996 repealed Internal Revenue Code Section 593, which had allowed thrifts to use the percentage of income method as an alternative for computing their tax bad debt deductions. This act required small thrifts to change their method of computing reserves for bad debts to the experience method in accordance with the provisions of Internal Revenue Code Section 585. The repeal was effective for taxable years beginning after December 31, 1995. The Company implemented this change for the year ended December 31, 1996. As a result of the change, the Company is required to recapture the excess of the thrift’s qualifying and non-qualifying bad debt reserves as of December 31, 1995 over its contracted base year reserves. The Company had no excess amounts subject to recapture.

In management’s opinion, the reversal of temporary differences and the results of the future operations will generate sufficient earnings to realize the deferred tax assets.