16. Income Taxes

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


	2014			2013			2012
(dollars in thousands)
Current expense:
Federal	$	3,981		$	3,520		$	3,181
State		498			416			315

Total current expense		4,479			3,936			3,496

Deferred (benefit) expense:
Federal		(3,179	)		(2,564	)		(1,833	)
State		(434	)		(365	)		(271	)

Total deferred benefit		(3,613	)		(2,929	)		(2,104	)

Provision for income taxes	$	866		$	1,007		$	1,392

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


	2014		2013
(dollars in thousands)
Currently receivable	$	707	$	702
Deferred income tax asset, net		37,251		30,857

Total	$	37,958	$	31,559

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


	2014			2013			2012
(dollars in thousands)
Federal income tax expense at statutory rates	$	7,727		$	7,158		$	6,946
State income tax, net of federal income tax benefit		42			34			29
Insurance income		(353	)		(380	)		(396	)
Effect of tax-exempt interest		(6,097	)		(5,348	)		(4,628	)
Net tax credit		(517	)		(572	)		(633	)
Other		64			115			74

Total	$	866		$	1,007		$	1,392

Effective tax rate		3.8	%		4.8	%		6.8	%

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


	2014			2013
(dollars in thousands)
Deferred income tax assets:
Pension and SERP liability	$	7,806		$	4,880
Allowance for loan losses		9,550			9,199
Deferred compensation		7,447			6,515
Unrealized losses on securities transferred to held-to-maturity		6,586			8,590
AMT credit		4,630			3,164
Accrued bonus		613			—
Depreciation		366			109
Acquisition premium		334			438
Nonaccrual interest		148			136
Limited partnerships		88			(2,769	)
Investments write down		26			26
Other		136			198

Gross deferred income tax asset		37,730			30,486

Deferred income tax liabilities:
Mortgage servicing rights		(376	)		(281	)
Unrealized (gains) losses on securities available-for-sale		(103	)		652

Gross deferred income tax liability		(479	)		371

Deferred income tax asset net	$	37,251		$	30,857

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, 2014. 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”) credit position. The AMT credit is carried as a deferred asset and has an indefinite life. The Company has potential tax planning strategies available which support the deferred AMT credit 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 and state examinations for tax years after December 31, 2010.