12. Income Taxes

The Company files federal income tax returns on a calendar year basis. Income tax (benefit) expense for the years indicated is summarized as follows:


*(dollars in thousands)*	2013			2012		2011
Current	$	5,001		$	4,281	$	988
Deferred		(1,265	)		324		1,647

Total income tax expense	$	3,736		$	4,605	$	2,635

The components of the Company’s net deferred tax asset as of December 31 of the years indicated are as follows:


*(dollars in thousands)*	2013			2012
Deferred tax assets (liabilities):
FHLB stock dividends	$	(7	)	$	10
Provision for loan losses		2,421			1,809
Accumulated depreciation		(1,166	)		(1,204	)
Intangible assets		311			203
Unrealized gain on securities available for sale		(105	)		(1,668	)
Discount on purchased loans		(372	)		(435	)
Borrowings		—			67
Premium on purchased deposits		9			34
Mortgage servicing rights		(181	)		(208	)
Deferred compensation		763			284
Stock-based compensation		790			623
Other		1,060			1,116

Deferred tax asset	$	3,523		$	631

For the years ended December 31, 2013, 2012 and 2011, the provision for federal income taxes differed from the amount computed by applying the federal income tax statutory rate of 35% for the year 2013 and 34% for previous years on income from operations as indicated in the following analysis:


*(dollars in thousands)*	2013			2012			2011
Federal tax based on statutory rate	$	3,857		$	4,686		$	2,637
State tax based on statutory rate		10			13			16
(Decrease) increase resulting from:
Effect of tax-exempt income		(294	)		(160	)		(76	)
Other		163			66			58

Income tax expense	$	3,736		$	4,605		$	2,635

Effective tax rate		33.9	%		33.4	%		34.0	%

Retained earnings as of December 31, 2013, 2012 and 2011, included $5,837,000 for which no deferred federal income tax liability has been recognized. This amount represents an allocation of income to bad debt deductions for tax purposes only. Reductions of amounts so allocated for purposes other than bad debt losses would create income for tax purposes only, which would be subject to the then-current federal statutory income tax rate. The unrecorded deferred income tax liability on the above amount was $1,985,000 as of December 31, 2013, 2012 and 2011. Current accounting standards do not require the accrual of this deferred tax amount to be recorded unless it is probable that the reserve (for tax purposes) will be significantly depleted by loan losses deductible for tax purposes in the future. Based on current estimates of losses within the Company’s loan portfolio, accrual of the deferred tax liability associated with this reserve was not required as of December 31, 2013, 2012 and 2011.