Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes [Abstract]

Income Taxes

12.   Income Taxes

The following is a summary of income tax expense for the years ended December 31, 2012, 2011, and 2010:

	2012			2011		2010
Current – federal	$	6,535		$	4,951	$	1,121
Current – state		116			137		97
Deferred - federal		(240	)		441		2,251
Income tax expense	$	6,411		$	5,529	$	3,469

The components of the net deferred tax liability as of December 31, 2012 and 2011 are as follows:

	2012			2011
Deferred tax assets:
Allowance for loan losses	$	4,632		$	4,336
Deferred compensation		1,753			1,542
Impaired security valuation		670			495
Capital loss carryover		278			435
Post-retirement benefits		1,063			826
Unrealized loss on interest rate swap		616			584
Nonaccrual loan interest		305			455
Other		609			515
		9,926			9,188
Deferred tax liabilities:
Unrealized gain on securities available for sale		8,636			6,720
Premises and equipment		1,535			1,561
Intangibles – section 197		3,179			2,837
Mortgage servicing rights		250			317
Other		339			308
		13,939			11,743
Net deferred tax liability	($	4,013	)	($	2,555	)

At December 31, 2012, the Corporation had a federal capital loss carryforward of $793 that will expire in 2015 if not used. The Corporation determined that it was not required to establish a valuation allowance for deferred tax assets. Management believes that the deferred tax assets relating to the capital loss carryforward is likely to be realized through a tax planning strategy to generate capital gains in the carryforward period.

The reconciliation of income tax attributable to pre-tax income at the federal statutory tax rates to income tax expense is as follows:

	2012			%			2011			%			2010			%
Tax at statutory rate	$	8,241			35.0		$	7,222			35.0		$	5,175			35.0
Tax exempt income, net		(1,553	)		(6.6	)		(1,353	)		(6.6	)		(1,281	)		(8.7	)
Bank owned life insurance		(341	)		(1.4	)		(325	)		(1.6	)		(281	)		(1.9	)
Other		64			0.2			(15	)		-			(144	)		(0.9	)
Income tax expense	$	6,411			27.2		$	5,529			26.8		$	3,469			23.5

At December 31, 2012 and 2011, the Corporation has no unrecognized tax benefits. The Corporation does not expect the total amount of unrecognized tax benefits to significantly increase in the next twelve months.

The Corporation recognizes interest and/or penalties related to income tax matters as part of income tax expense. At December 31, 2012 and 2011, there were no amounts accrued for interest and/or penalties.

The Corporation and its subsidiaries are subject to U.S. federal income tax as well as income tax of the Commonwealth of Pennsylvania. During 2010, the Corporation’s 2006, 2007, and 2008 federal examinations closed with no material impact to the Corporation’s income or financial position. The Corporation is no longer subject to examination by the taxing authorities for years prior to 2009. Tax years 2009 through 2011 remain open to federal and state examination.