13. Income Taxes

The following is a summary of income tax expense for the years ended December 31, 2015, 2014, and 2013:


	2015		2014		2013

Current – federal	$	7,777	$	8,471	$	7,189

Current – state		139		110		128

Deferred - federal		376		733		(977	)


Income tax expense	$	8,292	$	9,314	$	6,340

The components of the net deferred tax asset as of December 31, 2015 and 2014 are as follows:


	2015		2014

Deferred tax assets:
Allowance for loan losses	$	4,799	$	5,076
Fair value adjustments – business combination		1,661		2,466
Deferred compensation		2,443		2,238
Impaired security valuation		497		479
Net operating loss carryover		1,137		1,646
Post-retirement benefits		1,562		1,423
Unrealized loss on interest rate swap		258		331
Nonaccrual loan interest		762		598
Accrued expenses		1,072		974
Deferred fees and costs		388		40
Other		442		351

		15,021		15,622

Deferred tax liabilities:
Unrealized gain on securities available for sale		1,900		1,474
Premises and equipment		1,737		1,528
Intangibles – section 197		4,558		4,900
Mortgage servicing rights		337		299
Other		19		124

		8,551		8,325


Net deferred tax asset	$	6,470	$	7,297

During 2014, the Corporation generated net capital losses of $36 which were unable to be utilized and expire December 31, 2019. During 2015, the Corporation generated additional net capital losses of $222 which were unable to be utilized and expire December 31, 2020. The associated deferred tax assets of $90 and $13 as of December 31, 2015 and 2014, respectively, are included in other deferred tax assets. The Corporation determined that it was not required to establish a valuation allowance for deferred tax assets since management believes that the deferred tax assets are likely to be realized through a carry back to taxable income in prior years, future reversals of existing temporary differences, future net capital gains and future taxable income.

The reconciliation of income tax attributable to pre-tax income at the federal statutory tax rates to income tax expense is as follows:


	2015			%			2014			%			2013			%
Tax at statutory rate	$	10,671			35.0		$	11,336			35.0		$	8,057			35.0
Tax exempt income, net		(1,816	)		(6.0	)		(1,684	)		(5.2	)		(1,664	)		(7.2	)
Bank owned life insurance		(418	)		(1.4	)		(364	)		(1.1	)		(543	)		(2.4	)
Merger costs		30			0.1			0			0.0			233			1.0
Other		(175	)		(0.5	)		26			0.1			257			1.1


Income tax expense	$	8,292			27.2		$	9,314			28.8		$	6,340			27.5

At December 31, 2015 and 2014, the Corporation has no unrecognized tax benefits. The Corporation does not expect the total amount of unrecognized tax benefits to significantly increase in the next twelve months.

The Corporation recognizes interest and/or penalties related to income tax matters as part of income tax expense. At December 31, 2015 and 2014, there were no amounts accrued for interest and/or penalties and no amounts recorded as expense for the years ending December 31, 2015, 2014 and 2013.

The Corporation and its subsidiaries are subject to U.S. federal income tax as well as income tax of the Commonwealth of Pennsylvania. The Corporation is no longer subject to examination by the taxing authorities for years prior to 2012. Tax years 2012 through 2014 remain open to federal and state examination.

In connection with its acquisition of FC Banc Corp., the Corporation assumed a federal net operating loss carryforward of $6,367, which expires in 2033. Under Section 382 of the Internal Revenue Code, the utilization of the loss carryforward in future years is limited based on the consideration paid and other factors. The annual limitation on the utilization of this loss carry forward is $1,455. As of December 31, 2015, the balance of the net operating loss carryforward is $3,248. Management believes that the net operating loss carryforward will be used in full before its expiration.