10. INCOME TAXES

The components of income tax expense are as follows:

Years Ended December 31,	2014		2013		2012
(In thousands)
Current:
Federal	$	3,926	$	5,500	$	5,660
State	507		664		582
	4,433		6,164		6,242
Deferred:
Federal	2,187		403		(229		)
State	619		102		67
	2,806		505		(162		)
Income tax expense	$	7,239	$	6,669	$	6,080

The reconciliation of the expected Federal income tax expense at the statutory tax rate to the actual provision follows:

Years Ended December 31,	2014					2013					2012
(Dollars in thousands)	Amount			Percentage of Pre-tax Earnings		Amount			Percentage of Pre-tax Earnings		Amount			Percentage of Pre-tax Earnings
Federal income tax expense computed by applying the statutory rate to income before income taxes	$	7,141		34	%	$	6,828		34	%	$	6,479		34	%
Tax exempt interest	(665		)	(3	)	(740		)	(4	)	(878		)	(5	)
State taxes, net of federal income tax benefit	743			4		502			3		445			2
Other	20			—		79			1		34			1
Income tax expense	$	7,239		35	%	$	6,669		34	%	$	6,080		32	%

Deferred tax assets and liabilities are comprised of the following:

December 31,	2014			2013
(In thousands)
Deferred tax assets:
Allowance for loan losses	$	7,311		$	6,815
Net unrealized losses on securities	2,177			7,895
Restricted stock awards	1,003			815
Purchase accounting fair value adjustments	8,321			666
Net change in pension liability	2,985			781
Net operating loss carryforward	2,063			426
Net change in cash flow hedge	374			65
Other	351			379
Total	24,585			17,842

Deferred tax liabilities:
Pension and SERP expense	(3,765		)	(3,491		)
Depreciation	(1,832		)	(1,548		)
REIT undistributed net income	(628		)	(707		)
Net deferred loan costs and fees	(981		)	(915		)
Other	(707		)	(252		)
Total	(7,913		)	(6,913		)
Net deferred tax asset	$	16,672		$	10,929

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of the State of New York. The Company is no longer subject to examination by taxing authorities for years before 2011. There are no unrecorded tax benefits and the Company does not expect the total amount of unrecognized income tax benefits to significantly increase in the next twelve months.

On March 31, 2014, tax legislation was enacted that changed the manner in which financial institutions and their affiliates are taxed in New York State. While most of the provisions of this legislation are effective for fiscal years beginning in 2015, the impact of this tax law change was immaterial to the Company’s consolidated financial statements. In connection with the acquisition of FNBNY, the Company acquired net operating loss (“NOL”) carryfowards subject to Internal Revenue Code Section 382. The Company has recorded a deferred tax asset that it expects to realize within the carryfoward period. At December 31, 2014, the remaining NOL carryforward was $4.9 million. As part of management’s annual review of the recoverability of their deferred tax assets, management decided to reset the federal income tax rate that was previously used from 34% to 35%. The impact of this change was immaterial to the Company’s consolidated financial statements.