12. INCOME TAXES

The provision for income taxes consists of the following (in thousands):

	Year Ended December 31,
	2019		2018			2017
Currently payable	$	3,503	$	3,838		$	4,583
Change in corporate tax rate		-		-			1,531
Deferred tax liability (asset)		317		(435	)		(83	)
Provision for income taxes	$	3,820	$	3,403		$	6,031

The following temporary differences gave rise to the net deferred tax asset and liabilities at December 31, 2019 and 2018, respectively (in thousands):

	2019			2018
Deferred tax assets:
Allowance for loan losses	$	3,470		$	3,323
Deferred compensation		500			479
Pension and other retirement obligation		368			301
Interest on non-accrual loans		726			1,126
Incentive plan accruals		418			361
Unrealized losses on available-for-sale securities		-			259
Low income housing tax credits		135			139
NOL carry forward		83			212
Other		146			145
Total	$	5,846		$	6,345

Deferred tax liabilities:
Premises and equipment	$	(662	)	$	(612	)
Investment securities accretion		(70	)		(53	)
Loan fees and costs		(238	)		(253	)
Goodwill and core deposit intangibles		(2,248	)		(2,229	)
Mortgage servicing rights		(134	)		(139	)
Unrealized gains on available-for-sale securities		(630	)		-
Other		(1	)		(4	)
Total		(3,983	)		(3,290	)
Deferred tax asset, net	$	1,863		$	3,055

No valuation allowance was established at December 31, 2019 and 2018, due to the Company’s ability to carryback to taxes paid in previous years and certain tax strategies, coupled with the anticipated future taxable income as evidenced by the Company’s earnings potential.

The total provision for income taxes is different from that computed at the statutory rates due to the following items (dollars in thousands):

	Year Ended December 31,
	2019			2018			2017
Provision at statutory rates on
pre-tax income	$	4,895		$	4,502		$	6,505
Effect of tax-exempt income		(920	)		(955	)		(1,710	)
Low income housing tax credits		(141	)		(141	)		(141	)
Bank owned life insurance		(131	)		(131	)		(225	)
Nondeductible interest		52			41			54
Nondeductible merger and acquisition expenses		38			-			-
Change in tax rate		-			-			1,531
Other items		27			87			17
Provision for income taxes	$	3,820		$	3,403		$	6,031
Statutory tax rates		21	%		21	%		35	%
Effective tax rates		16.4	%		15.9	%		31.6	%

The Company prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. With limited exception, the Company’s federal and state income tax returns for taxable years through 2015 have been closed for purposes of examination by the federal and state taxing authorities.

Investments in Qualified Affordable Housing Projects

As of December 31, 2019 and 2018, the Company was invested in four partnerships that provide affordable housing. The balance of the investments, which is included within other assets in the Consolidated Balance Sheet, was $325,000 and $433,000 as of December 31, 2019 and 2018, respectively. Investments purchased prior to January 1, 2015, are accounted for utilizing the effective yield method. As of December 31, 2019, the Company has $423,000 of tax credits remaining that will be recognized over four years. Tax credits of $141,000 were recognized as a reduction of tax expense during 2019, 2018 and 2017. Included within other expenses on the Consolidated Statement of Income was $108,000, $108,000 and $159,000 of amortization of the investments in qualified affordable housing projects for 2019, 2018 and 2017, respectively.