Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes

14.     Income Taxes

The current and deferred components of income tax expense for the years ended December 31 are as follows:

	2011			2010			2009
	(Dollars in thousands)
Current expense:
Federal	$	2,198		$	2,262		$	3,058
State		309			528			419
Total current expense		2,507			2,790			3,477
Deferred (benefit) expense:
Federal		(961	)		(1,223	)		(1,759	)
State		8			(323	)		(535	)
Total deferred benefit		(953	)		(1,546	)		(2,294	)
Provision for income taxes	$	1,554		$	1,244		$	1,183

There were no penalties during 2009, 2010, or 2011. There was approximately $2,000 paid to the Internal Revenue Service for interest during 2011.

Income tax accounts included in other assets/liabilities at December 31 are as follows:

	2011		2010
	(Dollars in thousands)
Currently receivable	$	785	$	181
Deferred income tax asset, net		13,714		13,465
Total	$	14,499	$	13,646

Differences between income tax expense at the statutory federal income tax rate and total income tax expense are summarized as follows:

	2011			2010			2009
	(Dollars in thousands)
Federal income tax expenseat statutory rates	$	6,204		$	5,038		$	3,856
State income tax, net of federal income tax benefit		209			135			(76	)
Insurance income		(396	)		(570	)		(442	)
Effect of tax-exempt interest		(3,801	)		(2,763	)		(1,965	)
Net tax credit		(683	)		(622	)		(376	)
Other		21			26			186
Total	$	1,554		$	1,244		$	1,183
Effective tax rate		8.5	%		8.4	%		10.4	%

The following table sets forth the Company’s gross deferred income tax assets and gross deferred income tax liabilities at December 31:

	2011			2010
	(Dollars in thousands)
Deferred income tax assets:
Allowance for loan losses	$	7,056		$	7,078
Deferred compensation		5,009			4,895
Pension and SERP liability		7,398			4,959
Acquisition premium		596			543
Investments writedown		26			31
Deferred gain		31			51
AMT		1,049			172
Other		75			77
Nonaccrual interest		727			727
Gross deferred income tax asset		21,967			18,533
Deferred income tax liabilities:
Depreciation		(201	)		(250	)
Limited partnerships		(2,667	)		(2,576	)
Unrealized gain on securities available-for-sale		(5,385	)		(2,242	)
Gross deferred income tax liability		(8,253	)		(5,068	)
Deferred income tax asset net	$	13,714		$	13,465

Based on the Company’s historical and current pre-tax earnings, management believes it is more likely than not that the Company will realize the deferred income tax asset existing at December 31, 2011. Management believes that existing net deductible temporary differences which give rise to the deferred tax asset will reverse during periods in which the Company generates net taxable income. In addition, gross deductible temporary differences are expected to reverse in periods during which offsetting gross taxable temporary differences are expected to reverse. Factors beyond management’s control, such as the general state of the economy and real estate values, can affect future levels of taxable income, and no assurance can be given that sufficient taxable income will be generated to fully absorb gross deductible temporary differences. The Company is in an Alternative Minimum Tax (“AMT”) position. The AMT is carried as a deferred asset and has an indefinite life. The Company has potential tax planning strategies available which support the deferred AMT and at this time no valuation allowance is needed.

The Company and its subsidiaries file a consolidated federal tax return. For the tax year beginning in 2009, the Commonwealth of Massachusetts requires a combined state tax return, except for security corporations, which file separate tax returns. The Company is subject to federal examinations for tax years after December 31, 2009, and state examinations for tax years after December 31, 2007.