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)	2017		2016
Current	$	1,423	$	1,045
Deferred	691		203
	$	2,114	$	1,248

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)	2017					2016
				% Pre-tax					% Pre-tax
	Amount			Income		Amount			Income
Provision at statutory tax rate	$	2,173		34.0	%	$	1,779		34.0	%
Increase (decrease) resulting from:
Tax free gain on bargain purchase	(447		)	(7.0	)%	—			—	%
Tax free interest, net of disallowance	(446		)	(7.0	)%	(472		)	(9.0	)%
Earnings on bank-owned life insurance	(113		)	(1.8	)%	(113		)	(2.2	)%
Federal tax rate change	827			12.9	%	—			—	%
Other, net	120			2.0	%	54			1.0	%
Provision	$	2,114		33.1	%	$	1,248		23.8	%


12.	Income Taxes (continued)

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)	2017		2016

Deferred tax assets:

Allowance for loan losses	$	1,287	$	1,885
Funded status of pension plan	1,286		1,964
Deferred compensation	272		414
Securities impairment	199		149
Net unrealized loss on securities	180		349
Accrued incentive compensation	136		158
Stock compensation	77		160
Nonaccrual loan interest income	53		73
Business combination adjustments	38		89
Net operating loss carryforward	—		106
Other	35		29
Gross deferred tax assets	3,563		5,376

Deferred tax liabilities:

Accrued pension liability	939		1,525
Depreciation	652		1,006
Deferred loan fees and costs	307		431
Intangible assets	204		324
Other	52		60
Gross deferred tax liabilities	2,154		3,346
Net deferred tax asset	$	1,409	$	2,030

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.

On December 22, 2017, H.R. 1, 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 of $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.


12.	Income Taxes (continued)

The Corporation will complete and record the income tax effects of these provisional items during the period the necessary information becomes available. The measurement period will not extend beyond December 22, 2018.

At December 31, 2017 and December 31, 2016, 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 2014.