Note 15 - Income Taxes

Our income tax expense consists of the following for the years ended December 31:


	2019		2018
	(dollars in thousands)
Current	$	2,632	$	25
Deferred		604		2,952
Income tax expense	$	3,236	$	2,977

The income tax expense is reconciled to the amount computed by applying the federal corporate tax rates of 21% to the net income before taxes as follows for the years ended December 31:


	2019				2018
	Amount		Rate		Amount		Rate
	(dollars in thousands)
Tax at statutory federal rate	$	2,438	21.0	%	$	2,425	21.0	%
State tax net of Federal income tax benefit		744	6.4	%		685	5.9	%
Other adjustments		54	0.5	%		(133)	(1.1)	%
	$	3,236	27.9	%	$	2,977	25.8	%

The tax effects of temporary differences between the financial reporting basis and income tax basis of assets and liabilities relate to the following at December 31:


	2019		2018
Deferred tax assets:		(dollars in thousands)
Net operating loss carryforward	$	891	$	972
Allowance		2,492		2,710
Reserve on real estate acquired through foreclosure		45		—
Reserve for uncollected interest		58		192
Reserve for contingent liability		7		47
Charitable contributions		—		174
Unrealized losses on AFS securities		17		28
AMT		93		185
Total gross deferred tax assets		3,603		4,308
Deferred tax liabilities:
FHLB stock dividends		57		57
Loan origination costs		580		734
Accelerated depreciation		896		817
Prepaid expenses		185		186
MSRs		89		120
Reserve on real estate acquired through foreclosure		—		3
Other		48		28
Total gross deferred tax liabilities		1,855		1,945
Net deferred tax assets	$	1,748	$	2,363

At December 31, 2019, state net operating losses totaled $13.7 million and expire at various times from 2023 through 2033.

In assessing the realizability of federal or state deferred tax assets at December 31, 2019, management considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considered the scheduled reversal of deferred tax liabilities, projected future taxable income, and prudent, feasible, and permissible, as well as available, tax planning strategies in making this assessment. Given the consistent earnings and improving asset quality, the Company’s analysis concluded that, as of December 31, 2019, it was more likely than not that it will generate sufficient taxable income within the applicable carry-forward periods to realize its net deferred tax asset. The Company will continue to have the benefit of the net operating loss carryforward relating to the deferred tax asset and will have the ability to utilize the carryforward against future federal and state income taxes.

The statute of limitations for Internal Revenue Service examination of the Company’s federal consolidated tax returns remains open for tax years 2016 through 2019.

Our income tax returns are subject to review and examination by federal and state taxing authorities. We are no longer subject to examination by federal tax authorities for the years ended before 2015. The years open to examination by state taxing authorities vary by jurisdiction.