13. Income Taxes

The following is a summary of income tax expense for the years ended December 31, 2013, 2012, and 2011:


	2013			2012			2011

Current – federal	$	7,189		$	6,535		$	4,951

Current – state		128			116			137

Deferred - federal		(977	)		(240	)		441


Income tax expense	$	6,340		$	6,411		$	5,529

The components of the net deferred tax asset (liability) as of December 31, 2013 and 2012 are as follows:


	2013		2012

Deferred tax assets:
Allowance for loan losses	$	5,084	$	4,632
Unrealized loss on securities available for sale		4,085		0
Fair value adjustments – business combination		3,541		0
Deferred compensation		2,179		1,753
Impaired security valuation		590		670
Net operating loss carryover		2,155		0
Capital loss carryover		0		278
Post-retirement benefits		1,308		1,063
Unrealized loss on interest rate swap		391		616
Nonaccrual loan interest		516		305
Accrued expenses		817		297
Other		296		312

		20,962		9,926

Deferred tax liabilities:
Unrealized gain on securities available for sale		0		8,636
Premises and equipment		1,527		1,535
Intangibles – section 197		5,130		3,179
Mortgage servicing rights		317		250
Other		328		339

		7,302		13,939


Net deferred tax asset (liability)	$	13,660	($	4,013	)

The Corporation determined that it was not required to establish a valuation allowance for deferred tax assets since management believes that the deferred tax assets are likely to be realized through a carry back to taxable income in prior years, future reversals of existing temporary differences, and future taxable income.

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


	2013			%			2012			%			2011			%
Tax at statutory rate	$	8,057			35.0		$	8,241			35.0		$	7,222			35.0
Tax exempt income, net		(1,664	)		(7.2	)		(1,553	)		(6.6	)		(1,353	)		(6.6	)
Bank owned life insurance		(543	)		(2.4	)		(341	)		(1.4	)		(325	)		(1.6	)
Merger costs		233			1.0			0			0.0			0			0.0
Other		257			1.1			64			0.2			(15	)		(0.0	)


Income tax expense	$	6,340			27.5		$	6,411			27.2		$	5,529			26.8

At December 31, 2013 and 2012, 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, 2013 and 2012, 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. The Corporation is no longer subject to examination by the taxing authorities for years prior to 2010. Tax years 2010 through 2012 remain open to federal and state examination.

In connection with its acquisition of FC Banc Corp., the Corporation assumed a federal net operating loss carryforward of $6,367, which expires in 2033. Under Section 382 of the Internal Revenue Code, the utilization of the loss carryforward in future years is limited based on the consideration paid and other factors. Management believes that the net operating loss carryforward will be used in full before its expiration.