Income Taxes

The provision for income taxes consists of the following:



	Year Ended December 31,
	2013		2012		2011
	(Dollars in thousands)
Income Taxes:
Federal current expense	$	1,070	$	1,562	$	1,199
Federal deferred expense (benefit)	856		372		(43		)
Total Income Tax expense	$	1,926	$	1,934	$	1,156

The following presents a reconciliation of income taxes as shown on the Consolidated Statements of Income with that which would be computed by applying the statutory Federal tax rate of 34% to income (loss) before taxes in 2013, 2012 and 2011.



	Year Ended December 31,
	2013			2012			2011
	(Dollars in thousands)
Computed “expected” tax expense	$	2,750		$	2,734		$	2,094
Increase (reduction) in income taxes resulting from:
Tax exempt interest on obligations of state and political subdivisions	(483		)	(451		)	(404		)
Tax exempt interest on bank owned life insurance	(212		)	(210		)	(203		)
New markets tax credit	(59		)	(208		)	(270		)
Other, net	(70		)	69			(61		)
Total Income Tax Expense	$	1,926		$	1,934		$	1,156

Management monitors changes in tax statutes and regulations and the issuance of judicial decisions to determine the potential impact to uncertain income tax positions. During 2013 and 2012 there were no material uncertain income tax positions. At December 31, 2013 and December 31, 2012, the Corporation had no unrecognized tax benefits recorded. The Corporation does not expect the amount of unrecognized tax benefits to significantly change within the next twelve months. During 2013, 2012 and 2011 there were no material uncertain income tax positions.

Net deferred Federal tax assets are included in other assets on the consolidated Balance Sheets. Management believes that it is more likely than not that the deferred Federal tax assets will be realized. At December 31, 2013 and 2012 there was no valuation allowance required. The tax effects of temporary differences that give rise to significant portions of the deferred Federal tax assets and deferred Federal tax liabilities are presented below.



	At December 31
	2013			2012
	(Dollars in thousands)
Deferred Federal tax assets:
Allowance for loan losses	$	5,952		$	5,996
Deferred compensation	729			420
Minimum pension liability	668			1,059
Equity based compensation	225			228
Accrued loan fees and costs	295			314
New Market Tax Credit and AMT Credit Carryforward	—			335
Non-accrual loan interest	884			1,126
Mark-to-market adjustments	1			75
Net unrealized loss on securities available for sale	2,005			—
Other deferred tax assets	251			179
Total deferred Federal tax assets	11,010			9,732
Deferred Federal tax liabilities:
Net unrealized gain on securities available for sale	—			(1,698		)
FHLB stock dividends	(254		)	(255		)
Intangible asset amortization	(1,079		)	(1,118		)
Accretion	(250		)	(238		)
Deferred charges	(213		)	(182		)
FHLB restructure	(270		)	(342		)
Prepaid pension	(901		)	(969		)
Other deferred tax liabilities	(540		)	(274		)
Total deferred Federal tax liabilities	(3,507		)	(5,076		)
Net deferred Federal tax assets	$	7,503		$	4,656

The Corporation’s income tax returns are subject to review and examination by federal and state taxing authorities. The Corporation is no longer subject to examination by the federal taxing authority for years prior to 2011. Tax years 2011 and later remain open to examination by the federal taxing authority.