13. Income Taxes

The following is a summary of income tax expense for the years ended December 31, 2014, 2013, and 2012:


	2014		2013			2012

Current – federal	$	8,471	$	7,189		$	6,535

Current – state		110		128			116

Deferred - federal		733		(977	)		(240	)


Income tax expense	$	9,314	$	6,340		$	6,411

The components of the net deferred tax asset (liability) as of December 31, 2014 and 2013 are as follows:


	2014		2013

Deferred tax assets:
Allowance for loan losses	$	5,076	$	5,084
Unrealized loss on securities available for sale		0		4,085
Fair value adjustments – business combination		2,466		3,541
Deferred compensation		2,238		2,179
Impaired security valuation		479		590
Net operating loss carryover		1,646		2,155
Post-retirement benefits		1,423		1,308
Unrealized loss on interest rate swap		331		391
Nonaccrual loan interest		598		516
Accrued expenses		974		817
Other		391		296

		15,622		20,962

Deferred tax liabilities:
Unrealized gain on securities available for sale		1,499		0
Premises and equipment		1,528		1,527
Intangibles – section 197		4,900		5,130
Mortgage servicing rights		299		317
Other		124		328

		8,350		7,302


Net deferred tax asset	$	7,272	$	13,660

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:


	2014			%			2013			%			2012			%
Tax at statutory rate	$	11,336			35.0		$	8,057			35.0		$	8,241			35.0
Tax exempt income, net		(1,684	)		(5.2	)		(1,664	)		(7.2	)		(1,553	)		(6.6	)
Bank owned life insurance		(364	)		(1.1	)		(543	)		(2.4	)		(341	)		(1.4	)
Merger costs		0			0.0			233			1.0			0			0.0
Other		26			0.1			257			1.1			64			0.2


Income tax expense	$	9,314			28.8		$	6,340			27.5		$	6,411			27.2

At December 31, 2014 and 2013, 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, 2014 and 2013, 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 2011. Tax years 2011 through 2013 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. As of December 31, 2014, the balance of the net operating loss carryforward is $4,703. Management believes that the net operating loss carryforward will be used in full before its expiration.