INCOME TAX

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



	2013			2012			2011
Income Tax Expense for the Year Ended December 31:
Currently Payable:
Federal	$	738		$	(23	)	$	399
State
Deferred:
Federal	13,939			15,890			8,256
State
Total Income Tax Expense	$	14,677		$	15,867		$	8,655
Reconciliation of Federal Statutory to Actual Tax Expense:
Federal Statutory Income Tax at 35%	$	20,722		$	21,347		$	11,867
Tax-exempt Interest Income	(3,923		)	(3,716		)	(3,714		)
Non-deductible Interest Expense							649
Stock Compensation	50			76			69
Earnings on Life Insurance	(905		)	(1,187		)	(899		)
Tax Credits	(857		)	(73		)	(99		)
Other	(410		)	(580		)	782
Actual Tax Expense	$	14,677		$	15,867		$	8,655

Tax expense applicable to security gains and losses, including unrealized losses relating to other-than-temporary impairment charges, for the years ended December 31, 2013, 2012 and 2011, was $157,000, $759,000 and $714,000, respectively.

The Corporation or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state 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 2010.

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



	2013			2012
Deferred Tax Asset at December 31:
Assets:
Differences in Accounting for Loan Losses	$	28,064		$	28,788
Differences in Accounting for Loan Fees	736			941
Differences in Accounting for Loans and Securities	13,579			477
Deferred Compensation	5,479			7,181
Difference in Accounting for Pensions and Other Employee Benefits				1,953
Federal & State Income Tax Loss Carryforward and Credits	24,981			9,356
Net Unrealized Loss on Securities Available for Sale	151
Other	12,828			9,356
Total Assets	85,818			58,052
Liabilities:
Differences in Depreciation Methods	8,008			6,050
Difference in Accounting for Pensions and Other Employee Benefits	1,096
State Income Tax	354			354
Net Unrealized Gain on Securities Available for Sale				7,879
Gain on FDIC Modified Whole Bank Transaction	2,147			2,737
Other	1,257			1,051
Total Liabilities	12,862			18,071
Net Deferred Tax Asset Before Valuation Allowance	72,956			39,981
Valuation allowance:
Beginning Balance	(13,859		)	(15,701		)
Decrease/(Increase) During the Year	(3,312		)	1,842
Ending Balance	(17,171		)	(13,859		)
Net Deferred Tax Asset	$	55,785		$	26,122

The $29,663,000 increase in the Corporation’s net deferred tax asset was primarily driven by a $30,265,000 increase resulting from the CFS acquisition. Additionally, an increase in the net deferred tax asset of $8,030,000 resulted from net unrealized gains/losses associated with securities available for sale. Partially offsetting this were decreases in the net deferred tax asset of $5,880,000 related to pensions and other employee benefits and $1,702,000 related to deferred compensation.

The Corporation has recorded a valuation allowance of $17,171,000 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, 2013, the Corporation had approximately $136,769,000 of state tax loss carryforward available to offset future franchise tax. This state loss carryforward has a full valuation allowance.

The Corporation has approximately $13,393,000 of additional paid-in capital that is considered restricted resulting from the CFS acquisition. CFS qualified as a bank under provisions of the Internal Revenue Code which permitted it to deduct from taxable income an allowance for bad debts which differed from the provision for losses charged to income. No provision for income taxes had been provided. If in the future this portion of additional paid-in capital is distributed, or the Corporation no longer qualifies as a bank for income tax purposes, income taxes may be imposed at the then applicable tax rates. The unrecorded deferred tax liability at December 31, 2013, would have been approximately $4,688,000.