INCOME TAX

The reconciliation between the statutory and actual income tax expense (benefit) is summarized in the following table for the years indicated:



	2012			2011			2010
Income Tax Expense (Benefit) for the Year Ended December 31:
Currently Payable:
Federal	$	(23	)	$	399		$	(1,780	)
State
Deferred:
Federal	15,890			8,256			(1,810		)
State
Total Income Tax Expense (Benefit)	$	15,867		$	8,655		$	(3,590	)
Reconciliation of Federal Statutory to Actual Tax Expense (Benefit):
Federal Statutory Income Tax at 35%	$	21,347		$	11,867		$	1,162
Tax-exempt Interest Income	(3,716		)	(3,714		)	(3,733		)
Non-deductible Interest Expense				649			421
Stock Compensation	76			69			150
Earnings on Life Insurance	(1,187		)	(899		)	(725		)
Tax Credits	(73		)	(99		)	(116		)
Other	(580		)	782			(749		)
Actual Tax Expense (Benefit)	$	15,867		$	8,655		$	(3,590	)

Tax expense applicable to security gains and losses, including unrealized losses relating to other-than-temporary impairment charges, for the years ended December 31, 2012, 2011 and 2010, was $836,000, $714,000 and $652,000, respectively.

The Corporation or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. With a few exceptions, the Corporation is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2009.

The tax effects of temporary differences related to deferred taxes shown on the balance sheets were:



	2012			2011
Deferred Tax Asset at December 31:
Assets:
Differences in Accounting for Loan Losses	$	28,788		$	29,690
Differences in Accounting for Loan Fees	941			805
Differences in Accounting for Loans and Securities	477
Deferred Compensation	7,181			7,612
Difference in Accounting for Pensions and Other Employee Benefits	1,953			3,750
Federal & State Income Tax Loss Carryforward and Credits	9,356			12,416
Other	9,356			8,796
Total Assets	58,052			63,069
Liabilities:
Differences in Depreciation Methods	6,050			5,859
Differences in Accounting for Loans and Securities				42
State Income Tax	354			354
Net Unrealized Gain on Securities Available for Sale	7,879			8,118
Gain on FDIC Modified Whole Bank Transaction	2,737
Other	1,051			1,137
Total Liabilities	18,071			15,510
Net Deferred Tax Asset Before Valuation Allowance	39,981			47,559
Valuation allowance:
Beginning Balance	(15,701		)	(13,258		)
Decrease/(Increase) During the Year	1,842			(2,443		)
Ending Balance	(13,859		)	(15,701		)
Net Deferred Tax Asset	$	26,122		$	31,858

The decrease in the Corporation’s net deferred tax asset was primarily driven by significant decreases in the timing differences associated with the deductibility of the provision for loan losses, pensions and other employee benefits, the utilization of federal tax credit carryforwards, and the increase in the deferred tax liability associated with the gain on the FDIC modified whole bank transaction.

The Corporation has recorded a valuation allowance of $13,859,000 related to deferred state taxes as it does not anticipate having future state taxable income sufficient to fully utilize the deferred state tax asset. This is primarily due to the Corporation’s current tax structure as discussed in the “INCOME TAXES” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included as item 7 of this Annual Report on Form 10-K.

As of December 31, 2012, the Corporation had approximately $110,065,000 of state tax loss carryforward available to offset future franchise tax. This state loss carryforward has a full valuation allowance.