At year-end, components of income tax expense consist of the following:

 

		(Dollars in thousands)
		2019				2018
Federal:
Current		$	587			$	1,218
Deferred			755				129
State:
Current			-				(44	)
Deferred, net of valuation allowance			417				127
Income tax expense		$	1,759			$	1,430

 

Effective tax rates differ from the federal statutory rate of for and applied to income before income taxes due to the following:

 

		(Dollars in thousands)
		2019				2018
Federal statutory rate			21	%			21	%
Tax expense at statutory rate		$	2,909			$	2,260
State tax, net of federal effect			335				66
Tax exempt income			(704	)			(778	)
Bank owned life insurance			(187	)			(102	)
Captive insurance			(197	)			(169	)
Tax credit investments			(392	)			-
Non-deductible transaction costs			58				99
Other			(63	)			54
Total income tax expense		$	1,759			$	1,430

 

At the components of the net deferred tax asset recorded in the consolidated balance sheets are as follows:

 

		(Dollars in thousands)
		2019				2018
Deferred tax assets:
Bad debts		$	2,182			$	1,859
Deferred loan fees			-				49
Deferred compensation			337				322
Unrealized depreciation on securities available-for-sale, net			-				743
Net operating loss			3,218				1,373
Tax credits			183				147
Nonaccrual loan interest income			162				62
Share based compensation			202				185
REO writedowns			55				195
Unqualified deferred compensation plan			58				54
Other-than-temporary impairment			40				52
Accrued vacation			35				56
Impairment on land			49				48
Other			93				78
Total deferred tax assets			6,614				5,223
Deferred tax liabilities:
Depreciation			(1,067	)			(550	)
Prepaids			(368	)			(254	)
Mortgage servicing rights			(49	)			(68	)
Deferred stock dividends			(101	)			(76	)
Deferred loan costs, net of fees			(93	)			-
Unrealized appreciation on securities available-for-sale, net			(1,126	)			-
Purchase accounting			(187	)			(118	)
Partnership			(173	)			-
Other			(92	)			(191	)
Total deferred tax liabilities			(3,256	)			(1,257	)
Valuation allowance			(92	)			(87	)
Net deferred tax asset		$	3,266			$	3,879

 

 

At the Bancorp has an Indiana net operating loss carry forward of approximately million which will begin to expire in if used. The Bancorp also has an Indiana tax credit carry forward of approximately thousand which began to expire in and will continue to expire if used. Management has concluded that the Indiana net operating loss will be fully utilized and therefore valuation allowance is necessary on the Indiana net operating loss. A valuation allowance remains in place on the Indiana tax credit carryforward. A valuation allowance of thousand and thousand was provided at and respectively, for the Indiana tax credits.

 

The Bancorp acquired million of federal net operating loss carryforwards, thousand of federal AMT credits, and million of Illinois net operating loss carryforwards with the acquisition of First Personal during of which million of the federal losses expire in years ranging from to million of the federal losses do expire, thousand of the federal AMT credits do expire, and the Illinois losses expire in years ranging from to Under Section of the Internal Revenue Code, the annual limitation on the use of the federal losses is thousand while there is limitation on the use of the Illinois losses. Management has determined that all of the losses are more likely than to be utilized before expiration.

 

The Bancorp acquired million of federal net operating loss carryforwards and million of Illinois net operating loss carryforwards with the acquisition of AJS during of which million of the federal losses expire in years ranging from to million of the federal losses do expire, and the Illinois losses expire in years ranging from to Under Section of the Internal Revenue Code, the annual limitation on the use of the federal losses is thousand for AJS, while there is limitation on the use of the Illinois losses. Management has determined that all of the losses are more likely than to be utilized before expiration.

 

At million of the federal loss carryforwards and million of the Illinois loss carryforwards remain, the benefit of which is reflected in deferred tax assets.

 

The Bancorp qualified under provisions of the Internal Revenue Code, to deduct from taxable income a provision for bad debts in excess of the provision for such losses charged to income in the financial statements, if any. Accordingly, retained earnings at and includes, approximately million and million, respectively, for which provision for income taxes has been made. If, in the future this portion of retained earnings is used for any purpose other than to absorb bad debt losses, income taxes would be imposed at the then applicable rates. The unrecorded deferred income tax liability on the above amounts was approximately million and million, respectively, at and

 

The Bancorp had unrecognized tax benefits at any time during or and does anticipate any significant increase or decrease in unrecognized tax benefits during Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is the Bancorp's policy to record such accruals through income tax accounts; such accruals existed at any time during or

 

The Bancorp and its subsidiaries are subject to US federal income tax as well as income tax of the states of Indiana and Illinois. The Bancorp is longer subject to examination by taxing authorities for the years before