NOTE I - INCOME TAXES:

Deferred taxes (or deferred charges) as of

December 31, 2019

and

2018,

included in other assets, were as follows (in thousands):

December 31,	2019			2018

Deferred tax assets:
Allowance for loan losses	$	883		$	1,121
Employee benefit plans' liabilities		3,189			3,117
Unrealized loss on available for sale securities, charged from equity					973
Loss on credit impairment of securities		356			356
Earned retiree health benefits plan liability		1,049			1,048
General business and AMT credits		1,707			1,750
Tax net operating loss carryforward		2,048			2,118
Other		863			943
Valuation allowance		(7,099	)		(8,642	)
Deferred tax assets		2,996			2,784
Deferred tax liabilities:
Unrealized gain on available for sale securities, charged from equity		342
Unearned retiree health benefits plan asset		381			298
Bank premises and equipment		2,047			2,235
Other		226			251
Deferred tax liabilities		2,996			2,784
Net deferred taxes	$			$

Income taxes consist of the following components (in thousands):

Years Ended December 31,	2019			2018			2017

Current	$			$	(36	)	$	(1,080	)
Deferred:
Federal		166			(425	)		4,023
Change in valuation allowance		(166	)		425			(4,023	)
Total deferred
Totals	$			$	(36	)	$	(1,080	)

Income taxes amounted to less than the amounts computed by applying the U.S. Federal income tax rate of

21.0%

for

2019

and

2018

and

34.0%

for

2017

to income before income taxes. The reasons for these differences are shown below (in thousands):

	2019						2018						2017
	Tax			Rate			Tax			Rate			Tax			Rate
Taxes computed at statutory rate	$	321			21		$	125			21		$	571			34
Increase (decrease) resulting from:
Tax-exempt interest income		(172	)		(11	)		(206	)		(35	)		(362	)		(22	)
Income from BOLI		(92	)		(6	)		(96	)		(16	)		(302	)		(18	)
Federal tax credits		(20	)		(1	)		(298	)		(50	)		(298	)		(18	)
Other		129			8			50			8			(656	)		(39	)
Impact of tax rate change														3,990			238
Change in valuation allowance for enacted change in tax rates														(3,990	)		(238	)
Realization of AMT credit								(36	)		(6	)		(742	)		(44	)
Other changes in valuation allowance		(166	)		(11	)		425			72			709			42

Total income tax (benefit) expense	$						$	(36	)		(6	)	$	(1,080	)		(65	)

During

2019,

the Company recorded

income tax benefit or expense. During

2018

and

2017,

the Company recorded an income tax benefit of

$36,000

and

$1,080,000,

respectively. On

December 22, 2017,

the President signed into law The Tax Cuts and Jobs Act (the “Act”). In addition to reducing U.S. corporate income tax rates from

34%

21%,

the Act repealed the alternative minimum tax (“AMT”) regime for tax years beginning after

December 31, 2017.

For tax years beginning in

2018,

2019

and

2020,

the AMT credit carryforward can be utilized to offset regular tax with any remaining AMT carryforwards eligible for a refund of

50%.

Any remaining AMT credit carryforwards will become fully refundable beginning in the

2021

tax year. As a result, during

2018

and

2017,

the Company reclassified the AMT credit carryforward to a tax receivable resulting in a deferred tax benefit of

$36,000

and

$742,000,

respectively. In

2017,

the Company also recorded a current tax benefit of

$338,000

to account for the carryback of general business tax credits to open tax years.

2017,

the Company also remeasured the net deferred tax asset and corresponding valuation allowance as a result of the Act. The impact was to reduce the deferred tax asset and corresponding valuation allowance by

$3,990,000

A valuation allowance is recognized against deferred tax assets when, based on the consideration of all available positive and negative evidence using a more likely than

not

criteria, it is determined that all or a portion of these tax benefits

may

not

be realized. This assessment requires consideration of all sources of taxable income available to realize the deferred tax asset including taxable income in prior carry-back years, future reversals of existing temporary differences, tax planning strategies and future taxable income exclusive of reversing temporary differences and carryforwards. The Company incurred losses on a cumulative basis for the

three

-year period ended

December 31, 2014,

which is considered to be significant negative evidence. The positive evidence considered in support was insufficient to overcome this negative evidence. As a result, the Company established a full valuation allowance for its net deferred tax asset in the amount of

$8,140,000

as of

December 31, 2014.

The Company intends to maintain this valuation allowance until it determines it is more likely than

not

that the asset can be realized through current and future taxable income. If

not

utilized, the Company’s federal net operating loss of

$9,753,000

will begin to expire in

2035.

The Company has reviewed its income tax positions and specifically considered the recognition and measurement requirements of the benefits recorded in its financial statements for tax positions taken or expected to be taken in its tax returns. The Company currently has

unrecognized tax benefits that, if recognized, would favorably affect the income tax rate in future periods.