Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”) became law. The 2017 Tax Act includes a number of changes to existing U.S. tax laws that impact the Company, most notably a reduction of the U.S. corporate income tax rate to 21 percent for tax years beginning after December 31, 2017.

The components of income tax expense are as follows:



Income Tax Expense
	For the Years Ended December 31,
(in thousands)	2018			2017
Current
Federal	$	3,696		$	4,612
State	1,427			1,231
Total Current Expense	5,123			5,843
Deferred tax benefit	(141		)	(239		)
Change in corporate income tax rate	—			1,386
Total Income Tax Expense	$	4,982		$	6,990

The components of the net deferred tax asset are:



Net Deferred Tax Asset
(in thousands)	2018	2017
Deferred tax assets
Allowance for loan and credit losses	3,384	3,003
Reserve for recourse on mortgage loans sold	138	125
Nonaccrual interest	63	268
Foreclosed real estate write-downs	3	8
Stock-based compensation	239	188
Long-term incentive program (LTIP)	189	77
Core deposit intangible	24	26
Unrealized loss on investment securities available for sale	227	97
Net operating loss carryforward	244	212
	4,511	4,004
Deferred tax liabilities
Unrealized gain on cash flow hedging derivative	2	2
Unrealized gain on loans held for sale	51	9
Accumulated depreciation	516	399
Deferred casualty gain	1	1
Other	43	—
	613	411
Net deferred tax asset before valuation allowance	3,898	3,593
Less: Valuation allowance	244	212
Net deferred tax asset	3,654	3,381

The differences between the federal income tax rate and the effective tax rate for the Company are reconciled as follows:



Reconciliation of Federal Tax Rate to the Effective Rate
	2018		2017
Statutory federal income tax rate	21.00	%	34.00	%
Increase (decrease) resulting from
State income taxes, net of federal income tax benefit	6.35		5.37
Nondeductible expenses	0.42		0.84
Tax exempt income	(0.04	)	(0.22	)
Change in corporate income tax rate	—		9.83
Other	0.34		(0.24	)
Effective Tax Rate	28.07	%	49.58	%

Deferred tax assets represent the future tax benefit of deductible differences and, if it is more likely than not that a tax asset will not be realized, a valuation allowance is required to reduce the net deferred tax assets to net realizable value. As of December 31, 2018, management has determined that it is more likely than not that the majority of the deferred tax asset from continuing operations will be realized. At December 31, 2018 and 2017, a valuation allowance of $244,376 and $212,367 was recognized, respectively, for a State of Maryland net operating loss carryforward that may not be realizable.

The Company does not have material uncertain tax positions and did not recognize any adjustments for unrecognized tax benefits. The Company remains subject to examination of income tax returns for the years ending after December 31, 2015.