INCOME TAXES:

Income tax expense is summarized as follows:



(Dollar amounts in thousands)	2013			2012			2011
Federal:
Currently payable	$	10,177		$	12,074		$	11,872
Deferred	740			(455		)	311
	10,917			11,619			12,183
State:
Currently payable	3,629			1,887			1,901
Deferred	(779		)	312			313
	2,850			2,199			2,214
TOTAL	$	13,767		$	13,818		$	14,397

The reconciliation of income tax expense with the amount computed by applying the statutory federal income tax rate of 35% to income before income taxes is summarized as follows:



(Dollar amounts in thousands)	2013			2012			2011
Federal income taxes computed at the statutory rate	$	15,856		$	16,320		$	18,057
Add (deduct) tax effect of:
Tax exempt income	(3,760		)	(3,864		)	(3,875		)
ESOP dividend deduction	(105		)	(258		)	(1,085		)
State tax, net of federal benefit	1,852			1,444			1,439
Affordable housing credits	(148		)	(148		)	(86		)
Other, net	72			324			(53		)
TOTAL	$	13,767		$	13,818		$	14,397

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2013 and 2012, are as follows:



(Dollar amounts in thousands)	2013			2012
Deferred tax assets:
Other than temporary impairment	$	5,820		$	5,951
Net unrealized losses on retirement plans	6,815			13,612
Net unrealized losses on securities available for sale	2,701			—
Loan losses provision	7,845			8,606
Deferred compensation	7,118			7,729
Compensated absences	857			888
Post-retirement benefits	2,045			2,040
Deferred loss on acquisition	929			136
Other	2,771			2,104
GROSS DEFERRED ASSETS	36,901			41,066
Deferred tax liabilities:
Net unrealized gains on securities available-for-sale	—			(8,954		)
Depreciation	(2,528		)	(2,715		)
Mortgage servicing rights	(752		)	(700		)
Pensions	(1,818		)	(2,518		)
Intangibles	(1,086		)	(541		)
Other	(1,563		)	(1,381		)
GROSS DEFERRED LIABILITIES	(7,747		)	(16,809		)
NET DEFERRED TAX ASSETS (LIABILITIES)	$	29,154		$	24,257

Unrecognized Tax Benefits — A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



(Dollar amounts in thousands)	2013			2012			2011
Balance at January 1	$	777		$	862		$	901
Additions based on tax positions related to the current year	65			86			137
Additions based on tax positions related to prior years	—			—			—
Reductions due to the statute of limitations	(166		)	(171		)	(176		)
Balance at December 31	$	676		$	777		$	862

Of this total, $676 represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. The Corporation does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next 12 months.

The total amount of interest and penalties recorded in the income statement for the years ended December 31, 2013, 2012 and 2011 was an expense decrease of $31, $2 and $18, respectively. The amount accrued for interest and penalties at December 31, 2013 2012 and 2011 was $65, $96 and $98, respectively.

The Corporation and its subsidiaries are subject to U.S. federal income tax as well as income tax of the states of Indiana and Illinois. The Corporation is no longer subject to examination by taxing authorities for years before 2009. The Corporation is currently under exam by the IRS for the 2011 tax year. The Corporation believes that the tax return was filed based on applicable statutes, regulations and case law in effect at the time.