NOTE 9 - INCOME TAXES

The components of the provision for federal income taxes are as follows:



	Years Ended December 31,
	2015		2014		2013
	(In Thousands)
Current	$	2,019	$	2,657	$	2,566

Deferred		(387)		(51)		140
	$	1,632	$	2,606	$	2,706

Deferred income taxes reflect temporary differences in the recognition of revenue and expenses for tax reporting and financial statement purposes, principally because certain items, such as, the allowance for loan losses and loan fees are recognized in different periods for financial reporting and tax return purposes. A valuation allowance has not been established for deferred tax assets. Realization of the deferred tax assets is dependent on generating sufficient taxable income. Although realization is not assured, management believes it is more likely than not that all of the deferred tax asset will be realized. Deferred tax assets are recorded in other assets.

Income tax expense of the Company is less than the amounts computed by applying statutory federal income tax rates to income before income taxes because of the following:



	Percentage of Income
	before Income Taxes
	Years Ended December 31,
	2015		2014		2013
Tax at statutory rates	34.0	%	34.0	%	34.0	%
Tax exempt interest income, net of interest expense disallowance	(11.3)		(7.7)		(6.7)
Incentive stock options	0.3		0.4		0.4
Earnings and proceeds on life insurance	(1.8)		(1.5)		(3.7)
Other	0.4		0.2		0.2

	21.6	%	25.4	%	24.2	%

The net deferred tax asset included in other assets in the accompanying Consolidated Balance Sheets includes the following amounts of deferred tax assets and liabilities:



	2015		2014
	(In Thousands)
Deferred tax assets:
Allowance for loan losses	$	2,481	$	1,997
Deferred compensation		485		491
Purchase price adjustment		884		999
Other		182		201
Foreclosed real estate valuation allowance		305		280
Total Deferred Tax Assets		4,337		3,968

Deferred tax liabilities:
Premises and equipment		245		265
Deferred loan fees		172		170
Net unrealized gains on securities		251		248

Total Deferred Tax Liabilities		668		683

Net Deferred Tax Asset	$	3,669	$	3,285

The Company’s federal and state income tax returns for taxable years through 2011 have been closed for purposes of examination by the Internal Revenue Service and the Pennsylvania Department of Revenue.