Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes [Abstract]

Income Taxes

Note 9. Income Taxes

The provision for federal and state income taxes included in the accompanying consolidated statements of income consists of the following:

	For the Years Ended December 31,
(Dollars in thousands)	2012		2011		2010
Current:
Federal	$	2,753	$	2,829	$	5,142
State		258		334		387
Deferred:
Federal		2,397		1,480		(2,162	)
State		143		133		(85	)
	$	5,551	$	4,776	$	3,282

The provision for income taxes differs from the expected statutory provision as follows:

	For the Years Ended December 31,
(Dollars in thousands)	2012			2011			2010
Expected provision at statutory rate		35.0	%		35.0	%		35.0	%
Difference resulting from:
Tax exempt interest income		(12.1	)		(14.0	)		(16.0	)
Increase in value of bank owned life insurance assets		(3.5	)		(2.4	)		(2.3	)
Other, including state income taxes, valuation allowance and rate differential		1.6			1.6			0.5
		21.0	%		20.2	%		17.2	%

During the years ended December 31, 2012 and 2011, the Corporation did not record any excess tax benefits resulting from the exercise of employee stock options and restricted stock to additional paid-in capital.

At December 31, 2012 the Corporation had no material unrecognized tax benefits, accrued interest or penalties. Penalties are recorded in noninterest expense in the year they are assessed and are treated as a non-deductible expense for tax purposes. Interest is recorded in noninterest expense in the year it is assessed and is treated as a deductible expense for tax purposes. The Corporation’s tax years 2009 through 2012 remain subject to federal examination as well as examination by state taxing jurisdictions.

Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. Deferred state taxes are combined with federal deferred taxes (net of the impact of deferred state tax on the deferred federal tax) and are shown in the table below by major category of deferred income or expense. The Corporation has state net operating loss carry-forward of $22.2 million which will begin to expire after December 31, 2018 if not utilized. A valuation allowance at December 31, 2012 and 2011 was attributable to deferred tax assets generated in certain state jurisdictions for which management believes it is more likely than not that such deferred tax assets will not be realized. Additionally, deferred tax assets of $78 thousand and $7 thousand were reversed and recorded to additional paid-in capital during the years ended December 31, 2012 and 2011, respectively, as a result of unrecognizable restricted stock and non-qualified stock option expense.

The assets and liabilities giving rise to the Corporation’s deferred tax assets and liabilities are as follows:

	At December 31,
(Dollars in thousands)	2012			2011
Deferred tax assets:
Loan and lease loss	$	8,753		$	10,559
Deferred compensation		2,613			2,539
Actuarial adjustments on postretirement benefits*		7,551			6,717
Interest on nonaccrual loans		1,839			1,073
State net operating losses		1,441			987
Other-than-temporary impairments on equity securities		1,218			1,259
Alternative minimum tax credits**		1,590			—
Gross deferred tax assets		25,005			23,134
Valuation allowance		(1,432	)		(1,392	)
Total deferred tax asset, net of valuation allowance		23,573			21,742
Deferred tax liabilities:
Market discount		1,624			1,337
Retirement plans		5,100			2,183
Intangible assets		1,567			1,100
Net unrealized holding gains on securities available for sale and swaps*		3,825			3,432
Other		60			111
Total deferred tax liabilities		12,176			8,163
Net deferred tax assets	$	11,397		$	13,579

* Represents the amount of deferred taxes recorded in accumulated other comprehensive income (loss).

** The alternative minimum tax credits have an indefinite life.