Federal Income Taxes

12 Months Ended

Dec. 31, 2015

(17) Federal Income Taxes

The following temporary differences gave rise to the net deferred tax asset at December 31, 2015 and 2014.



(Dollars in thousands)	2015		2014
Deferred tax assets:
Allowance for loan and lease losses	$	2,097	$	2,283
Loan fees		79		68
Deferred compensation		313		289
Benefit plans		586		696
Nonaccrual interest		554		955
Phoenix adjustments		1,166		-
Other		170		111
		4,965		4,402

Deferred tax liabilities:
Depreciation		(1,074)		(801)
Bond accretion		(111)		(106)
Goodwill and intangibles		(472)		(264)
Unrealized gain on securities		(806)		(837)
Prepaid expenses		(240)		(266)
Phoenix adjustments		(428)		-
Other		(13)		(3)
		(3,144)		(2,277)
Deferred tax asset, net	$	1,821	$	2,125

The Phoenix adjustments included in deferred tax assets consisted of a $409,000 general loan credit adjustment, $259,000 fixed asset mark, $204,000 specific loan credit adjustment, $103,000 net operating loss carry forward, $88,000 in disallowed charitable contributions, $63,000 for Phoenix’s Split Dollar Life Plan, and $40,000 in other deferred tax asset adjustments. The Phoenix adjustments included in deferred tax liabilities included a $166,000 core deposit intangible adjustment, $144,000 unearned discount and deferred loan fees adjustment, $68,000 general loan interest mark, and $50,000 reserve for loan losses method adjustment.

In assessing the realizability of federal or state deferred tax assets, management considers whether it is more likely than not some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and prudent, feasible and permissible as well as available tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that Mid Penn will realize the benefits of these deferred tax assets.

The provision for income taxes consists of the following:


(Dollars in thousands)	2015		2014		2013
Current	$	647	$	1,574	$	1,009
Deferred		997		(112)		192
Total provision for income taxes	$	1,644	$	1,462	$	1,201

A reconciliation of income tax at the statutory rate of 34% to Mid Penn's effective rate is as follows:


(Dollars in thousands)	2015		2014		2013
Provision at the expected statutory rate	$	2,779	$	2,435	$	2,088
Effect of tax-exempt income		(1,105)		(1,086)		(873)
Effect of investment in life insurance		(91)		(68)		(78)
Nondeductible interest		37		42		40
Nondeductible merger and acquisition expense		34		163		-
Other items		(10)		(24)		24
Provision for income taxes	$	1,644	$	1,462	$	1,201

Mid Penn has no unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. Mid Penn does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months.

No amounts for interest and penalties were recorded in income tax expense in the consolidated statement of income for the years ended December 31, 2015, 2014, or 2013. There were no amounts accrued for interest and penalties at December 31, 2015 or 2014.

Mid Penn and its subsidiaries are subject to U.S. federal income tax and income tax for the state of Pennsylvania. With limited exceptions, Mid Penn is no longer subject to examination by taxing authorities for years before 2012.