Income Taxes

Income tax expense consists of the following:



	For the Year Ended December 31,
	2019			2018
	(In Thousands)
Current:
Federal	$	1,483		$	729
State	1,988			1,054
Current tax expense	3,471			1,783
Deferred:
Federal	(1,979		)	(367		)
State	(317		)	(65		)
Deferred tax benefit	(2,296		)	(432		)
Total income tax expense	$	1,175		$	1,351

Deferred income tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax basis. Deferred tax assets and liabilities are measured using enacted tax rates to apply to taxable income in the period in which the temporary differences are expected to be recovered or settled. Effective January 1, 2018, the enactment of the Tax Cuts and Jobs Act reduced the corporate federal income tax rate to 21% from 35%. Net deferred tax assets are included in accrued interest receivable and other assets in the Consolidated Balance Sheets.

The significant components of the Corporation’s deferred tax assets and liabilities were as follows:



	December 31, 2019		December 31, 2018
	(In Thousands)
Deferred tax assets:
Allowance for loan and lease losses	$	5,104	$	5,424
SBA recourse reserve	352		785
Deferred compensation	1,335		1,045
State net operating loss carryforwards	526		571
Tax credit carryforwards	2,881		1,373
Non-accrual loan interest	864		1,472
Capital loss carryforwards	22		22
Unrealized losses on securities	464		579
Other	531		68
Total deferred tax assets before valuation allowance	12,079		11,339
Valuation allowance	—		—
Total deferred tax assets	12,079		11,339
Deferred tax liabilities:
Leasing and fixed asset activities	5,841		6,965
Loan servicing asset	337		358
Other	548		844
Total deferred tax liabilities	6,726		8,167
Net deferred tax asset	$	5,353	$	3,172

The tax effects of unrealized gains and losses on securities are components of other comprehensive income. A reconciliation of the change in net deferred tax assets to deferred tax expense is as follows:



	December 31, 2019		December 31, 2018
	(In Thousands)
Change in net deferred tax assets	$	2,181	$	588
Deferred taxes allocated to other comprehensive income	115		(156		)
Deferred income tax benefit	$	2,296	$	432

Realization of the deferred tax asset over time is dependent upon the Corporation generating sufficient taxable earnings in future periods. In making the determination that the realization of the deferred tax was more likely than not, the Corporation considered several factors including its recent earnings history, its expected earnings in the future, appropriate tax planning strategies, and expiration dates associated with operating loss carryforwards.

The Corporation had state net operating loss carryforwards of approximately $8.4 million and $9.1 million at December 31, 2019 and 2018, respectively, which can be used to offset future state taxable income. The Corporation believes it will be able to fully utilize its Wisconsin state net operating losses under this law and therefore no valuation allowance has been established as of December 31, 2019.

The provision for income taxes differs from that computed at the federal statutory corporate tax rate as follows:



	Year Ended December 31,
	2019			2018
	(Dollars in Thousands)
Income before income tax expense	$	24,499		$	17,654
Tax expense at statutory federal rate of 21% applied to income before income tax expense	$	5,145		$	3,707
State income tax, net of federal effect	1,321			803
Tax-exempt security and loan income, net of TEFRA adjustments	(635		)	(847		)
Bank-owned life insurance	(252		)	(250		)
Tax credits, net	(4,503		)	(2,157		)
Other	99			95
Total income tax expense	$	1,175		$	1,351
Effective tax rate	4.80		%	7.65		%

There were no uncertain tax positions outstanding as of December 31, 2019 and 2018. As of December 31, 2019, tax years remaining open for the State of Wisconsin tax were 2015 through 2018. Federal tax years that remained open were 2016 through 2018. As of December 31, 2019, there were also no unrecognized tax benefits that are expected to significantly increase or decrease within the next twelve months.