NOTE K — INCOME TAXES

The components of income tax expense for the years ended December 31, 2012, 2011 and 2010, are as follows:


In thousands	2012		2011		2010
Federal:
Current	$	2,163	$	1,816	$	722
Deferred	108		279		1,296
	2,271		2,095		2,018
State:
Current	48		59		39
	$	2,319	$	2,154	$	2,057

Reconciliations of the statutory federal income tax at a rate of 34% to the income tax expense reported in the consolidated statements of income for the years ended December 31, 2012, 2011 and 2010, are as follows:


	Percentage of Income before Income Taxes
	2012		2011		2010
Federal income tax at statutory rate	34.0	%	34.0	%	34.0	%
State income taxes, net of federal benefit	0.2	%	0.4	%	0.4	%
Tax-exempt income	(5.9	)%	(6.0	)%	(5.8	)%
Earnings on investment in bank-owned life insurance	(3.0	)%	(3.1	)%	(3.5	)%
Rehabilitation and low-income housing credits	(4.9	)%	(5.2	)%	(5.5	)%
Other	0.3	%	0.1	%	0.1	%
	20.7	%	20.2	%	19.7	%

The provision for federal income taxes includes $2,000, $0 and $24,000 of income taxes related to net gains on sales of securities in 2012, 2011 and 2010, respectively. Rehabilitation and low-income housing income tax credits were $556,000, $556,000, and $578,000 during 2012, 2011 and 2010, respectively. Projected credits are $677,987 in 2013, $647,619 in 2014, and $2,332,732 thereafter.

Components of deferred tax assets and liabilities at December 31 were as follows:


In thousands	2012		2011
Deferred tax assets:
Allowance for loan losses	$	5,721	$	5,264
Accrued deferred compensation	726		664
Pension	3,000		2,751
Deferred loan fees	16		35
Other-than-temporary impairment	178		178
Low-income housing tax credit carryforward	195		447
Nonaccrual interest	183		230
Director deferred liability	351		300
Other	468		382
	10,838		10,251
Deferred tax liabilities:
Available for sale securities	2,891		3,088
Prepaid pension benefit cost	4,741		4,268
Prepaid expenses	213		281
Accumulated depreciation	558		540
Goodwill/intangibles	649		627
	9,052		8,804
Net Deferred Tax Asset	$	1,786	$	1,447

The Corporation has a federal tax credit carryforward related to low income housing credits that expires in 2032.

The Corporation did not have any uncertain tax positions at December 31, 2012 and 2011. The Corporation's policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the Consolidated Statements of Income.

Years that remain open for potential review by the Internal Revenue Service are 2009 through 2012.