Note 5. Income Taxes

Components of income tax expense for the years ended December 31, 2019 and 2018 are as follows:


	2019		2018
Current
Federal	$	62	$	64
State		954		812
Total current		1,016		876
Deferred income tax (liabilities) benefits:
Federal		1,509		1,587
State		106		(104)
Total deferred		1,615		1,483
Income tax expense	$	2,631	$	2,359

The change in deferred taxes for the year ended December 31, 2019 does not equal deferred tax expense in the amount of approximately $1.1 million as a result of purchase accounting related to the Partners acquisition.

A reconciliation of tax computed at the Federal statutory income tax rate of 21% to the actual expense for the year ended December 31, 2019 and 2018 is as follows:


	2019		2018
Tax at Federal statutory income tax rate	$	1,790	$	1,647
Tax effect of:
Tax exempt income		(146)		(89)
Other		149		242
State income taxes, net of Federal tax benefit		838		559
Income tax expense	$	2,631	$	2,359

Income taxes included in the balance sheets are as follows:


	2019		2018
Deferred income tax assets:
Allowance for credit losses and unfunded commitments	$	1,841	$	1,169
Net operating loss carryforward		275		1,949
Accumulated amortization on intangibles		28		36
Impairment loss on investment securities		—		27
Net losses on other real estate owned		1,132		1,146
Stock option expense		108		25
Discounts on acquired loans		1,539		354
Other real estate owned valuation		406		432
Other		181		21
		5,510		5,159
Valuation allowance		(275)		—
		5,235		5,159
Deferred tax liabilities:
Accumulated depreciation		72		170
Accumulated amortization on core deposit intangible		840		286
Deferred gain		134		136
Net depreciation on securities available for sale		249		(263)
Purchase discounts		36		—
Accumulated securities discount accretion		65		1
		1,396		330
Net deferred income tax asset	$	3,839	$	4,829

The Company has a state net operating loss of approximated $3.9 million. Losses incurred through December 31, 2017 have a 20 year life. Losses incurred in 2018 and after do not expire. Management has determined that this deferred tax asset will not be realizable in the future, and accordingly has recorded a valuation allowance of $275 thousand, the full value of the state net operating loss carryforward included in the deferred tax asset. Except for state net operating losses at the holding company, management has determined that no other valuation allowance is required as it is more likely than not that the other deferred tax assets will be fully realizable in the future.

At December 31, 2019 and 2018, management believes there are no uncertain tax positions under ASC Topic 740 Income Taxes. The Bank's Federal and state income tax returns are subject to examination by the IRS and/or state tax authorities. The tax years that remain subject to examination by the Federal government and the State of Maryland include the tax years ended December 31, 2016 and after. The tax years that remain subject to examination by the State of New Jersey include the tax years ended December 31, 2015 and after. The tax years that remain subject to examination by the State of Virginia include the tax years ended December 31, 2016 and after. The company’s policy is to record interest and penalty as a component of tax expense