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INCOME TAXES | 9 Months Ended
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Sep. 30, 2016
Income Tax Disclosure [Abstract] |
INCOME TAXES | 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 2013. The components of income tax expense for the three and nine months ended September 30, 2016 and 2015 are summarized as follows:
| Three months ended September 30, |  | Nine months ended September 30,
(Dollars in thousands) | 2016 |  | 2015 |  | 2016 |  | 2015
Current year provision (benefit): |  |  |  |  |  |  |
Federal | $ | 1,066 |  |  | $ | (104 | ) |  | $ | 1,192 |  |  | $ | (63 | )
State | 8 |  |  | (1 | ) |  | 5 |  |  | 7 |
| 1,074 |  |  | (105 | ) |  | 1,197 |  |  | (56 | )
Deferred tax expense (benefit): |  |  |  |  |  |  |
Federal | (948 | ) |  | 561 |  |  | (216 | ) |  | 1,538 |
State | (1 | ) |  | 6 |  |  | 10 |  |  | 16 |
| (949 | ) |  | 567 |  |  | (206 | ) |  | 1,554 |
Net income tax expense | $ | 125 |  |  | $ | 462 |  |  | $ | 991 |  |  | $ | 1,498 |
The provision for income taxes includes zero and $10,000 of applicable income tax expense related to net security gains for the three months ended September 30, 2016 and 2015. The provision for income taxes includes $483,000 and $669,000 of applicable income tax expense related to net securities gains for the nine months ended September 30, 2016 and 2015. In the third quarter of 2016, the Company reassessed its estimated annual effective tax rate and changed the federal statutory rate from 35% to 34%, effective January 1, 2016, to reflect management's assessment that it will not be in the higher tax bracket. As a result, income tax expense reported for the first nine months was adjusted to reflect the change in tax rates and resulted in an increase in deferred income tax expense of $176,000, which was charged to the third quarter. This amount is comprised of $235,000 of additional income tax for the six months ended June 30, 2016 and $59,000 benefit for the three months ended September 30, 2016 from the application of the new rate to existing deferred balances. The components of the net deferred tax asset, included in other assets, are as follows:
(Dollars in thousands) | September 30, 2016 |  | December 31, 2015
Deferred tax assets: |  |  |
Allowance for loan losses | $ | 5,059 |  |  | $ | 5,111 |
Deferred compensation | 532 |  |  | 547 |
Retirement plans and salary continuation | 1,904 |  |  | 1,824 |
Share-based compensation | 521 |  |  | 343 |
Off balance sheet reserves | 301 |  |  | 218 |
Nonaccrual loan interest | 415 |  |  | 246 |
Goodwill | 99 |  |  | 124 |
Bonus accrual | 127 |  |  | 359 |
Low income housing credit carryforward | 1,900 |  |  | 1,652 |
Alternative minimum tax credit carryforward | 3,648 |  |  | 2,195 |
Charitable contribution carryforward | 50 |  |  | 211 |
Net operating loss carryforward | 2,591 |  |  | 4,431 |
Other | 420 |  |  | 182 |
Total deferred tax assets | 17,567 |  |  | 17,443 |
Deferred tax liabilities: |  |  |
Depreciation | 719 |  |  | 815 |
Net unrealized gains on securities available for sale | 2,646 |  |  | 646 |
Mortgage servicing rights | 704 |  |  | 669 |
Purchase accounting adjustments | 320 |  |  | 352 |
Other | 192 |  |  | 181 |
Total deferred tax liabilities | 4,581 |  |  | 2,663 |
Net deferred tax asset | $ | 12,986 |  |  | $ | 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 September 30, 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 September 30, 2016 or December 31, 2015.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32537-109319 + Details
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