12.

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)	2018		2017
Current	$	298	$	1,423
Deferred		335		691
Total	$	633	$	2,114

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

21%

for the year ended

December 31, 2018

and

34%

for the years ended

December 31, 2017

is as follows:

(Dollar amounts in thousands)	2018						2017
				% Pre-tax						% Pre-tax
	Amount			Income			Amount			Income
Provision at statutory tax rate	$	1,017			21.0	%	$	2,173			34.0	%
Increase (decrease) resulting from:
Tax free gain on bargain purchase		-			-			(447	)		(7.0	%)
Tax free gain on retirement of CMFP shares		(145	)		(3.0	%)		-			-
Tax free interest, net of disallowance		(234	)		(4.8	%)		(446	)		(7.0	%)
Earnings on bank-owned life insurance		(71	)		(1.5	%)		(113	)		(1.8	%)
Federal tax rate change		-			-			827			12.9	%
Other, net		66			1.4	%		120			2.0	%
Provision	$	633			13.1	%	$	2,114			33.1	%

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)	2018		2017
Deferred tax assets:
Allowance for loan losses	$	1,351	$	1,287
Funded status of pension plan		1,287		1,286
Net unrealized loss on securities		401		180
Deferred compensation		391		272
Accrued incentive compensation		148		136
Nonaccrual loan interest income		75		53
Securities impairment		70		199
Stock compensation		69		77
Business combination adjustments		-		38
Other		17		35
Gross deferred tax assets		3,809		3,563
Deferred tax liabilities:
Accrued pension liability		1,044		939
Depreciation		619		652
Deferred loan fees and costs		461		307
Intangible assets		215		204
Business combination adjustments		68		-
Other		53		52
Gross deferred tax liabilities		2,460		2,154
Net deferred tax asset	$	1,349	$	1,409

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 future taxable income, future reversals of existing taxable temporary differences and tax strategies. 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.

December 22, 2017,

H.R.

commonly known as the Tax Cuts and Jobs Act (the Act) was signed into law. The Act reduced the corporate federal income tax rate from a maximum of

35%

to a flat

21%

effective

January 1, 2018.

As a result, the Corporation was required to re-measure, through income tax expense, deferred tax assets and liabilities using the enacted rate at which they are expected to be recovered or settled. The re-measurement of the Corporation's net deferred tax asset resulted in additional income tax expense in

2017

$827,000.

Also on

December 22, 2017,

the SEC released Staff Accounting Bulletin

No.

118

(SAB

118

) to address any uncertainty or diversity in practice in accounting for the income tax effects of the Act in situations where a registrant does

not

have the necessary information available, prepared or analyzed in reasonable detail to complete this accounting in the reporting period that includes the enactment date. SAB

118

allows for a measurement period

not

to extend beyond

one

year from the Act's enactment date to complete the necessary accounting.

The Corporation recorded provisional amounts of deferred income taxes using reasonable estimates in

one

area where the information necessary to complete reasonable accounting was

not

available, prepared or analyzed. The

one

area is the deferred tax liability for temporary differences between the tax and financial reporting bases of fixed assets principally due to the accelerated depreciation under the Act which allows for full expensing of qualified property purchased and placed in service after

September 27, 2017.

The Corporation completed the calculation for the provisional item with the completion of the

2017

tax return. The impact of the completed calculation did

not

result in a material re-measurement of the deferred tax liability so nothing was recorded in

2018.

December

31,

2018

and

December

31,

2017,

the Corporation had

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, a capital-based franchise tax in the Commonwealth of Pennsylvania as well as a corporate income tax in West Virginia based on earnings derived from business activity in the state. The Corporation and the Bank are

longer subject to examination by taxing authorities for years before

2015.