The components of income tax expense (benefit) for the years ended December 31, 2020 and 2019 are as follows: (in thousands)

	Year Ended December 31, 2020			Year Ended December 31, 2019
Current	$	865		$	(174	)
Rate reduction adjustment		—			—
Deferred		(73	)	145
	$	792		$	(29	)

The difference between income tax expense (benefit) and the amount computed by applying the statutory federal income tax rate to income before taxes for the years ended December 31, 2020 and 2019 is as follows (in thousands):

	Year Ended December 31, 2020			Year Ended December 31, 2019
Statutory Federal tax rate		21	%		21	%
Pretax income at statutory rate	$	815		$	68
State income tax, net of federal benefit		(95	)		19
Cash surrender value of life insurance		(83	)		(44	)
Permanent adjustments		26			(12	)
Other		129			(60	)
Actual tax expense 20% and 23%, respectively	$	792		$	(29	)

The following summarizes the sources and expected tax consequences of future deductions or income for income tax purposes which comprised the net deferred taxes at December 31, 2020 and 2019: (in thousands)

	Year Ended December 31, 2020		Year Ended December 31, 2019
Deferred income tax assets:
Allowance for loan losses	$	1,625	$	1,015
Deferred compensation	873		814
Net operating losses		1,683		—
State tax credits	358		296
Fair value adjustments		673		—
Other	199		38
Total deferred income tax assets		5,411		2,163
Deferred income tax liabilities:
Core deposit intangible		440		—
Premises and equipment	533		226
Unrealized gain on investment securities available-for-sale	52		3
Other	154		82
Total deferred income tax liabilities		1,179	311
Net deferred income tax asset	$	4,232	$	1,852

The Company establishes a valuation allowance if, based on the weight of the available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of December 31, 2020 and 2019, the Company believes that it will have sufficient earnings to realize its deferred tax asset and has not provided an allowance.

The Company is subject to federal income tax and income tax of state taxing authorities. The Company's federal income tax returns for the years ended December 31, 2020 and 2019 and its state taxing authorities income tax returns for the years ended September 30, 2018 and 2017 are open to audit under the statutes of limitations.

Prior to January 1, 1996, the Bank was permitted under the Internal Revenue Code (the “Code”) a special bad debt deduction related to additions to tax bad debt reserves established for the purpose of absorbing losses. The provisions of the Code permitted the Bank to deduct from taxable income an allowance for bad debts based on the greater of a percentage of taxable income before such deduction or actual loss experience. Retained earnings at December 31, 2020 includes approximately $3,625,000 for which no deferred Federal income tax liability has been recognized. The amounts represent an allocation of income for bad debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses would create income for tax purposes only, which would be subject to the then current corporate income tax rate.

On August 20, 1996, legislation was passed which eliminated the percentage of taxable income bad debt deduction for thrift institutions for tax years beginning after December 31, 1995. This legislation also requires a thrift to generally recapture the excess of its current tax reserves over its 1987 base year reserves whereas the base year reserves are frozen from taxation. No additional financial statement tax expense resulted from this legislation as the Bank had previously provided deferred taxes on this recaptured amount.