17. Income Taxes

The provision for income taxes consists of the following for the years ended December 31, 2019 and 2018:



(In thousands)	2019		2018
Current Tax expense:
Federal	$	1,547	$	675
State		836		751
	$	2,383	$	1,426
Deferred tax expense:
Federal	$	818	$	1,278
State		135		60
	$	953	$	1,338
Income tax expense for the year	$	3,336	$	2,764

The reconciliation between the statutory federal income tax rate and effective income tax rate for the years ended December 31, 2019 and 2018 is as follows:



	2019		2018
Federal statutory rate		21.0%		21.0%
Tax-exempt income on securities and loans		(1.4)		(1.6)
Tax-exempt BOLI income		(2.9)		(1.8)
State income tax, net of federal tax benefit		4.8		4.9
Tax credits		(1.5)		(2.1)
Other		0.3		0.2
		20.3%		20.6%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Corporation’s temporary differences as of December 31, 2019 and 2018 are as follows:



(In thousands)	2019		2018
Deferred tax assets:
Allowance for loan losses	$	3,357	$	2,994
Deferred loan fees		193		163
Deferred compensation		852		740
Federal and state tax loss carry forwards		2,617		2,537
Tax credit carry forwards		1,853		2,606
Unrealized loss on investment securities		1,336		2,193
Pension/SERP		2,412		1,811
Lease liability		840		—
Other than temporary impairment on investment securities		655		717
Other real estate owned		479		539
Other		194		(97)
Total deferred tax assets		14,788		14,203
Valuation allowance		(2,617)		(2,449)
Total deferred tax assets less valuation allowance		12,171		11,754
Deferred tax liabilities:
Amortization of goodwill		(2,315)		(2,537)
Lease right-of-use asset		(720)		—
Pension/SERP		—		—
Depreciation		(1,528)		(1,244)
Other		(167)		(129)
Total deferred tax liabilities		(4,730)		(3,910)
Net deferred tax assets	$	7,441	$	7,844

In assessing the ability to realize deferred tax assets, management considers 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 the deferred tax assets is dependent upon the generation of future taxable income of the appropriate character (for example, ordinary income or capital gain) within the carry-back or carry-forward period available under the tax law during the periods in which temporary differences are deductible. The Corporation has considered future market growth, forecasted earnings, future taxable income, and feasible and permissible tax planning strategies in determining whether it will be able to realize the deferred tax asset. If the Corporation were to determine that it will not be able to realize a portion of its net deferred tax asset in the future for which there is currently no valuation allowance, an adjustment to the net deferred tax asset would be charged to earnings in the period such determination was made. Conversely, if the Corporation were to make a determination that it is more likely than not that the deferred tax assets for which there is a valuation allowance will be realized, the related valuation allowance would be reduced and a benefit would be recorded.

At December 31, 2019, the Corporation had Maryland net operating losses (“NOL”) of $39.2 million for which a deferred tax asset of $2.6 million has been recorded. There has been and continues to be a full valuation allowance on these NOLs based on management’s belief that it is more likely than not that these NOLs will not be realized prior to the expiration of their carry-forward periods because the Corporation will not generate sufficient taxable income in the future to fully utilize the NOLs. The valuation allowance was $2.6 million at December 31, 2019 and $2.4 million at December 31, 2018.