14.

Income Taxes

The Corporation and the Bank file a consolidated federal income tax return. The provision for income taxes for the years ended December 31 is comprised of the following:

(Dollar amounts in thousands)	2015		2014
Current	$	(5)	$	1,023
Deferred		1,146		25
	$	1,141	$	1,048

A reconciliation between the provision for income taxes and the amount computed by multiplying operating results before income taxes by the statutory federal income tax rate of 34% for the years ended December 31 is as follows:

(Dollar amounts in thousands)	2015					2014
			% Pre-tax					% Pre-tax
	Amount		Income			Amount		Income
Provision at statutory tax rate	$	1,800		34.0	%	$	1,722		34.0	%
Increase (decrease) resulting from:
Tax free interest, net of disallowance		(542)		(10.2)	%		(580)		(11.4)	%
Earnings on bank-owned life insurance		(112)		(2.1)	%		(111)		(2.2)	%
Other, net		(5)		(0.1)	%		17		0.3	%
Provision	$	1,141		21.6	%	$	1,048		20.7	%

The tax effects of temporary differences between the financial reporting basis and income tax basis of assets and liabilities that are included in the net deferred tax asset as of December 31 relate to the following:

(Dollar amounts in thousands)	2015		2014
Deferred tax assets:

Funded status of pension plan	$	1,810	$	1,646
Allowance for loan losses		1,805		1,735
Deferred compensation		406		358
Accrued incentive compensation		220		141
Stock compensation		155		166
Securities impairment		149		149
Net unrealized loss on securities		127		-
Nonaccrual loan interest income		68		153
Other		52		8
Gross deferred tax assets		4,792		4,356

Deferred tax liabilities:
		-		-
Accrued pension liability		1,702		657
Depreciation		908		765
Intangible assets		317		307
Deferred loan fees		284		149
Net unrealized gains on securities		-		102
Other		30		72
Gross deferred tax liabilities		3,241		2,052
Net deferred tax asset	$	1,551	$	2,304

In accordance with relevant accounting guidance, the Corporation determined that it was not required to establish a valuation allowance for deferred tax assets since it is more likely than not that the deferred tax asset will be realized through carry-back to taxable income in prior years, future reversals of existing taxable temporary differences, tax strategies and, to a lesser extent, future taxable income. The Corporation’s net deferred tax asset or liability is recorded in the consolidated financial statements as a component of other assets or other liabilities.

At December 31, 2015 and December 31, 2014, the Corporation had no unrecognized tax benefits. The Corporation does not expect the total amount of unrecognized tax benefits to significantly increase within the next twelve months. The Corporation recognizes interest and penalties on unrecognized tax benefits in income taxes expense in its Consolidated Statements of Income.

The Corporation and the Bank are subject to U.S. federal income tax as well as a capital-based franchise tax in the Commonwealth of Pennsylvania. The Corporation and the Bank are no longer subject to examination by taxing authorities for years before 2012.