NOTE 13: INCOME TAXES

The components of the provision for income taxes were as follows for the years ended December 31, 2016, 2015 and 2014:


(In thousands)	2016		2015		2014
Current	$	708	$	1,386	$	3,707
Deferred		3,981		1,799		(175)
Provision for income taxes	$	4,689	$	3,185	$	3,532

Not included in the above table is the income tax impact associated with the unrealized gain or loss on securities available for sale and the income tax impact associated with the funded status of the pension plan, which are recorded directly in stockholders’ equity as a component of accumulated other comprehensive loss.

The tax effects of temporary differences and tax credits that give rise to deferred tax assets and liabilities at December 31, 2016 and 2015 are presented below:


(In thousands)	2016		2015
Deferred tax assets:
Allowance for loan losses	$	4,900	$	4,497
Postretirement benefit obligation		2,045		1,986
Deferred compensation		1,454		1,466
Accrued expenses		333		565
Organizational/start-up expenses		376		434
Capital loss carryforward		89		206
Interest rate swap		—		83
Qualified school bond tax credits		921		—
Affordable housing/other tax credits		74		—
Other		595		649
Net operating loss		356		606
Investment in real estate limited partnerships, net		—		158
Unrealized loss on securities available for sale		295		—
Unrealized loss on securities held to maturity		755		1,205
Total deferred tax assets	$	12,193	$	11,855
Deferred tax liabilities:
Loan mark-to-market adjustment	$	(8,218)	$	(3,410)
Installment sales		(224)		(128)
Unrealized gain on securities available for sale		—		(93)
Depreciation		(743)		(998)
Core deposit intangible		(403)		(471)
Other		(206)		(227)
Accrued pension cost		(3,200)		(3,181)
Total deferred tax liabilities	$	(12,994)	$	(8,508)
Net deferred tax (liability) asset	$	(801)	$	3,347

In assessing the realizability of our total deferred tax assets, Management considers whether it is more likely than not that some portion or all of those assets will not be realized. Based upon Management’s consideration of historical and anticipated future pre-tax income, as well as the reversal period for the items giving rise to the deferred tax assets and liabilities, a valuation allowance for deferred tax assets was not considered necessary at December 31, 2016 and 2015. However, factors beyond management’s control, such as the general state of the economy, can affect future levels of taxable income and there can be no assurances that sufficient taxable income will be generated to fully realize the deferred tax assets in the future.

The following is a reconciliation of the federal income tax provision, calculated at the statutory rate of 35%, to the recorded provision for income taxes:


(In thousands)	2016		2015		2014
Applicable statutory Federal income tax	$	6,753	$	5,452	$	5,402
Increase (reduction) in taxes resulting from:
Low Income Housing Projects		1,206		779		858
Tax-exempt income		(823)		(736)		(729)
Tax credits		(2,444)		(1,771)		(1,936)
Bank owned life insurance		(71)		(83)		(107)
State tax		70		17		—
Other, net		(2)		(473)		44
Provision for income taxes	$	4,689	$	3,185	$	3,532

We have not identified any of our tax positions that contain significant uncertainties. Housing tax credits are recognized using the flow through method. We are subject to federal and state income tax examinations for years after December 31, 2013.

The State of Vermont assesses a franchise tax for banks in lieu of income tax. The franchise tax is assessed based on deposits. Vermont franchise taxes, net of state credits amounted to approximately $1.59 million, $1.50 million and $1.43 million in 2016, 2015 and 2014, respectively, which is included as noninterest expense in the accompanying consolidated statements of income.