Note 13. Federal Income Taxes

The temporary differences which give rise to significant portions of deferred tax assets and liabilities at December 31 are as follows:


(Dollars in thousands)
Deferred Tax Assets	2019		2018
Allowance for loan losses	$	2,532	$	2,607
Deferred compensation		762		601
Purchase accounting		16		16
Capital loss carryover		—		34
Other than temporary impairment of investments		58		124
Net operating loss carryforward		—		1,787
Lease liabilities		1,092		—
Accumulated other comprehensive loss		1,591		1,696
Other		580		759
		6,631		7,624
Valuation allowance		(58)		(158)
Total gross deferred tax assets		6,573		7,466

Deferred Tax Liabilities
Depreciation		309		239
Right-of-use asset		1,084		—
Joint ventures and partnerships		46		36
Pension		1,093		1,173
Deferred loan fees and costs, net		38		26
Total gross deferred tax liabilities		2,570		1,474
Net deferred tax asset	$	4,003	$	5,992

In assessing the realizability of 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 deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, Management believes it is more likely than not that the Bank will realize the benefits of these deferred tax assets other than those for which a valuation allowance has been recorded.

The components of the provision for Federal income taxes attributable to income from operations were as follows:


	For the Years Ended December 31
(Dollars in thousands)	2019		2018
Current tax expense (benefit)	$	996	$	(164)
Deferred tax expense (benefit)		1,884		(1)
Income tax provision	$	2,880	$	(165)

For the years ended December 31, 2019 and 2018, the income tax provisions are different from the tax expense which would be computed by applying the Federal statutory rate to pretax operating earnings. The Federal statutory rate was 21% for 2019 and 2018. A reconciliation between the tax provision at the statutory rate and the tax provision at the effective tax rate is as follows:


	For the Years Ended December 31
(Dollars in thousands)	2019		2018
Tax provision at statutory rate	$	3,992	$	1,252
Income on tax-exempt loans and securities		(1,134)		(1,404)
Nondeductible interest expense relating to carrying tax-exempt obligations		45		33
Income from bank owned life insurance		(148)		(108)
Stock option compensation		—		39
Other, net		125		23
Income tax provision	$	2,880	$	(165)

Effective income tax rate		15.2%		(2.8%)

At December 31, 2018, the Corporation had a net operating loss (NOL) carryforward of $8.5 million, which was utilized in 2019.

At December 31, 2018, the Corporation had a capital loss carryover of $160 thousand, expiring in 2019. This loss carryover was utilized in 2019.

The Corporation recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense for all periods presented. No penalties or interest were recognized in 2019 or 2018. The Corporation has no uncertain tax positions at December 31, 2019. The Corporation is no longer subject to U.S. Federal examinations by tax authorities for the years before 2016.