NOTE 10 - INCOME TAXES

The components of the provision for federal income taxes are as follows:



	Years Ended December 31,
	2019		2018
	(In Thousands)
Current	$	1,620	$	2,529
Deferred		988		24
	$	2,608	$	2,553

Deferred income taxes reflect temporary differences in the recognition of revenue and expenses for tax reporting and financial statement purposes, principally because certain items, such as the allowance for loan losses and loan fees are recognized in different periods for financial reporting and tax return purposes. As of December 31, 2019, the Company has a $4,611,000 net operating loss carryforward that will begin to expire in 2035. A valuation allowance has not been established for deferred tax assets. Realization of the deferred tax assets is dependent on generating sufficient taxable income. Although realization is not assured, management believes it is more likely than not that all of the deferred tax asset will be realized. Deferred tax assets are recorded in other assets.

Income tax expense of the Company is less than the amounts computed by applying statutory federal income tax rates to income before income taxes because of the following:



	Percentage of Income
	before Income Taxes
	Years Ended December 31,
	2019		2018
Tax at statutory rates	21.0	%	21.0	%
Tax exempt interest income, net of interest expense disallowance	(4.4)		(4.9)
Earnings and proceeds on life insurance	(1.0)		(1.1)
Other	(0.1)		0.8

	15.5	%	15.8	%

The net deferred tax asset included in other assets in the accompanying Consolidated Balance Sheets includes the following amounts of deferred tax assets and liabilities:



	2019		2018
	(In Thousands)
Deferred tax assets:
Allowance for loan losses	$	1,787	$	1,775
Deferred compensation		797		766
Core deposit intangible		141		278
Prepaid expenses		55		90
Pension liability		360		363
Foreclosed real estate valuation allowance		17		20
AMT tax credit carryforward		-		260
Net operating loss carryforward		968		1,173
Net unrealized loss on securities		-		1,477
Other		122		95
Total Deferred Tax Assets		4,247		6,297



Deferred tax liabilities:
Premises and equipment		598		223
Deferred loan fees		220		186
Net unrealized gain on pension liability		221		143
Purchase price adjustment		327		321
Net unrealized gain on securities		94		-
Total Deferred Tax Liabilities		1,460		873

Net Deferred Tax Asset	$	2,787	$	5,424

The Company’s federal and state income tax returns for taxable years through 2016 have been closed for purposes of examination by the Internal Revenue Service and the Pennsylvania Department of Revenue.