INCOME TAXES

The Company files income tax returns in the U.S. federal jurisdiction and the Commonwealth of Pennsylvania. The Bank also files an income tax return in the State of Maryland. The Company is no longer subject to U.S. federal, state or local income tax examination by tax authorities for years before 2012.

The components of income tax expense for the three months ended March 31, 2016 and 2015 are summarized as follows:



	Three months ended March 31,
(Dollars in thousands)	2016			2015
Current year provision (benefit):
Federal	$	(112	)	$	(15	)
State	(2		)	4
	(114		)	(11		)
Deferred tax expense
Federal	722			720
State	6			6
	728			726
Net income tax expense	$	614		$	715

The provision for income taxes includes $497,000 and $535,000 of applicable income tax expense related to net securities gains for the three months ended March 31, 2016 and 2015.

The components of the net deferred tax asset, included in other assets, are as follows:



(Dollars in thousands)	March 31, 2016		December 31, 2015
Deferred tax assets:
Allowance for loan losses	$	5,078	$	5,111
Deferred compensation	546		547
Retirement plans and salary continuation	1,865		1,824
Share-based compensation	417		343
Off balance sheet reserves	224		218
Nonaccrual loan interest	315		246
Goodwill	116		124
Bonus accrual	69		359
Low income housing credit carryforward	1,735		1,652
Alternative minimum tax credit carryforward	2,262		2,195
Charitable contribution carryforward	69		211
Net operating loss carryforward	3,798		4,431
Other	190		182
Total deferred tax assets	16,684		17,443
Deferred tax liabilities:
Depreciation	771		815
Net unrealized gains on securities available for sale	2,387		646
Mortgage servicing rights	699		669
Purchase accounting adjustments	336		352
Other	180		181
Total deferred tax liabilities	4,373		2,663
Net deferred tax asset	$	12,311	$	14,780

The provision for income taxes differs from that computed by applying statutory rates to income before income taxes primarily due to the effects of tax-exempt income, non-deductible expenses and tax credits.

As of March 31, 2016, the Company had charitable contribution, low-income housing, and net operating loss carryforwards that expire through 2019, 2036 and 2032, respectively.

In assessing whether or not some or all of our deferred tax asset is more likely than not to be realized in the future, management considers all positive and negative evidence, including projected future taxable income, tax planning strategies and recent financial operating results. The ultimate realization of deferred tax assets is dependent upon existence, or generation, of taxable income in the periods when those temporary differences and net operating loss and credit carryforwards are deductible. Management considered projected future taxable income, length of time needed for carryforwards to reverse, available tax planning strategies, and other factors in making its assessment that it was more likely than not the net deferred tax assets would be realized, and that no valuation allowance was required at March 31, 2016 or December 31, 2015.