INCOME TAXES

The components of income tax expense for the years ended December 31, 2016, 2015 and 2014, are as follows:



In thousands	2016		2015		2014
Federal:
Current	$	3,530	$	3,316	$	2,152
Deferred	171		392		875
	3,701		3,708		3,027
State:
Current	67		53		53
	$	3,768	$	3,761	$	3,080

Reconciliations of the statutory federal income tax to the income tax expense reported in the consolidated statements of income for the years ended December 31, 2016, 2015 and 2014, are as follows:



	Percentage of Income before Income Taxes
	2016		2015		2014
Federal income tax at statutory rate	34.0	%	34.0	%	34.0	%
State income taxes, net of federal benefit	0.3	%	0.2	%	0.3	%
Tax-exempt income	(4.8	)%	(4.4	)%	(3.5	)%
Earnings on investment in bank-owned life insurance	(2.6	)%	(2.5	)%	(2.8	)%
Rehabilitation and low-income housing credits	(2.0	)%	(2.0	)%	(5.1	)%
Other	0.8	%	0.2	%	0.1	%
	25.7	%	25.5	%	23.0	%

The provision for federal income taxes includes $9,000, $89,000 and $21,000 of income taxes related to net gains on sales of securities in 2016, 2015 and 2014, respectively. Rehabilitation and low-income housing income tax credits were $287,000, $299,000, and $678,000 during 2016, 2015 and 2014, respectively. Projected credits are $287,000 in 2017 and 2018, and $1,163,000 thereafter.

Components of deferred tax assets and liabilities at December 31 were as follows:



In thousands	2016		2015
Deferred tax assets:
Allowance for loan losses	$	4,968	$	5,014
Available for sale securities	143		—
Accrued deferred compensation	1,166		1,008
Pension	3,101		3,034
Deferred loan fees	—		4
Other-than-temporary impairment	70		178
Nonaccrual interest	226		168
Deferred director fees	686		576
Other	982		644
	11,342		10,626
Deferred tax liabilities:
Deferred loan fees	79		—
Available for sale securities	—		600
Prepaid pension benefit cost	6,632		6,505
Prepaid expenses	123		166
Accumulated depreciation	372		331
Goodwill/intangibles	1,006		873
	8,212		8,475
Net Deferred Tax Asset	$	3,130	$	2,151

The Corporation did not have any uncertain tax positions at December 31, 2016 and 2015. The Corporation’s policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the Consolidated Statements of Income.

Years that remain open for potential review by the Internal Revenue Service are 2013 through 2016.