Taxes on Income

The tax effects of significant items comprising the Company’s net deferred tax assets (liabilities) are as follows:



	December 31,
(In thousands)	2014			2013
Deferred tax assets:
Credit losses not currently deductible	$	4,962		$	4,927
Deferred compensation	1,976			1,920
Net operating losses	1,653			9,074
Depreciation	346			231
Accrued reserves	54			63
Write-down on other real estate owned	404			(97		)
Unrealized gain on AFS	133			(211		)
Interest on nonaccrual loans	43			36
Capitalized OREO expenses	778			1,079
Other	2,973			2,555
Total deferred tax assets	13,322			19,577
Deferred tax liabilities:
State Tax	(1,681		)	(2,640		)
FHLB dividend	(53		)	(53		)
Loss on limited partnership investment	(1,077		)	(1,808		)
Deferred gain SFAS No. 159 – fair value option	(2,425		)	(2,471		)
Fair value adjustments for purchase accounting	(139		)	(167		)
Deferred loan costs	(750		)	(570		)
Prepaid expenses	(344		)	(238		)
Total deferred tax liabilities	(6,469		)	(7,947		)
Net deferred tax assets	$	6,853		$	11,630

The Company periodically evaluates its deferred tax assets to determine whether a valuation allowance is required based upon a determination that some or all of the deferred assets may not be ultimately realized. The Company did not record a valuation allowance at December 31, 2014 or December 31, 2013.

Income tax expense (benefit) for the years ended December 31, consist of the following:



(In thousands)
2014	Federal			State			Total
Current	$	1,129		$	(1,753	)	$	(624	)
Deferred	1,994			2,822			4,816
	$	3,123		$	1,069		$	4,192
2013
Current	$	1,059		$	819		$	1,878
Deferred	(1,055		)	(718		)	(1,773		)
	$	4		$	101		$	105

A reconciliation of the statutory federal income tax rate to the effective income tax rate is as follows:



	Year Ended December 31,
	2014		2013
Statutory federal income tax rate	34.0	%	34.0	%
State franchise tax, net of federal income tax benefit	6.8		0.9
Low Income Housing – federal credits	0.0		0.0
Cash surrender value of life insurance	0.0		(2.4	)
Valuation Allowance	0.0		(33.0	)
Other	(0.5	)	1.9
	40.3	%	1.4	%

During the year ended December 31, 2013, the Company reversed the remaining valuation allowance of $2,686,000. At December 31, 2014, the Company has no remaining federal net operating loss carry-forwards, and remaining state net operating loss carry-forwards totaling $27,404,000 which expire between 2015 and 2032. The Company anticipates that it will utilize the net operating loss carry-forwards expiring in 2015.

The Company periodically reviews its tax positions under the accounting standards related to uncertainty in income taxes, which defines the criteria that an individual tax position would have to meet for some or all of the income tax benefit to be recognized in a taxable entity’s financial statements. Under the guidelines, an entity should recognize the financial statement benefit of a tax position if it determines that it is more likely than not that the position will be sustained on examination. The term, “more likely than not”, means a likelihood of more than 50 percent. In assessing whether the more-likely-than-not criterion is met, the entity should assume that the tax position will be reviewed by the applicable taxing authority and all available information is known to the taxing authority.

The Company and its subsidiary file income tax returns in the U.S federal jurisdiction, and several states within the U.S. There are no filings in foreign jurisdictions. During 2014, the Company began the process to amend its state tax returns for the years 2009 through 2012 to file a combined report on a unitary basis with the Company and USB Investment Trust . The amended return for 2009 was filed during 2014 and the amended returns for 2010, 2011, and 2012 will be filed during 2015 once the FTB accepts the 2009 amended return.

The Company is not currently aware of any other tax jurisdictions where the Company or any subsidiary is subject to examination by federal, state, or local taxing authorities.