(12)	INCOME TAXES

The components of income tax expense for the years ended December 31, 2013 and 2012 were as follows:


(In thousands)	2013		2012
Current	$	2,055	$	2,037
Deferred		200		(478	)

Totals	$	2,255	$	1,559

The reconciliation of income tax expense for the years ended December 31, 2013 and 2012, with the amount which would have been provided at the federal statutory rate of 34% follows:


(In thousands)	2013			2012
Provision at federal statutory tax rate	$	2,496		$	1,868
State income tax-net of federal tax benefit		214			102
Tax-exempt interest income		(402	)		(353	)
Increase in cash value of life insurance		(54	)		(62	)
Other		1			4

Totals	$	2,255		$	1,559

Effective tax rate		30.7	%		28.4	%

Significant components of the deferred tax assets and liabilities as of December 31, 2013 and 2012 were as follows:


(In thousands)	2013			2012
Deferred tax assets (liabilities):
Deferred compensation plans	$	102		$	112
Allowance for loan losses		1,661			1,645
Accrued early retirement		32			189
Other		157			92
Unrealized loss on securities available for sale		443			0

Deferred tax assets		2,395			2,038

Depreciation		(664	)		(580	)
Deferred loan fees and costs		(86	)		(54	)
FHLB stock dividends		(99	)		(101	)
Unrealized gain on securities available for sale		0			(959	)

Deferred tax liabilities		(849	)		(1,694	)

Net deferred tax asset	$	1,546		$	344

At December 31, 2013 and 2012, the Company had no liability for unrecognized income tax benefits related to uncertain tax positions and does not anticipate any increase in the liability for unrecognized tax benefits during the next twelve months. The Company believes that its income tax positions would be sustained upon examination and does not anticipate any adjustments that would result in a material change to its financial position or results of operations. The Company files consolidated U.S. federal income tax returns and Indiana state income tax returns. Returns filed in these jurisdictions for tax years ended on or after December 31, 2010 are subject to examination by the relevant taxing authorities. Each entity included in the consolidated federal and Indiana state income tax returns filed by the Company are charged or given credit for the applicable tax as though separate returns were filed.

Prior to July 1, 1996, the Bank was permitted by the Internal Revenue Code to deduct from taxable income an annual addition to a statutory bad debt reserve subject to certain limitations. Retained earnings at December 31, 2013 and 2012 include approximately $1.0 million of cumulative deductions for which no deferred federal income tax liability has been recorded. Reduction of these reserves for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes subject to the then current corporate income tax rate. The unrecorded deferred liability on these amounts was approximately $354,000 at December 31, 2013 and 2012.

Federal legislation enacted in 1996 repealed the use of the qualified thrift reserve method of accounting for bad debts for tax years beginning after December 31, 1995. As a result, the Bank discontinued the calculation of the annual addition to the statutory bad debt reserve using the percentage-of-taxable-income method and adopted the experience reserve method for banks. Under this method, the Bank computes its federal tax bad debt deduction based on actual loss experience over a period of years. The legislation also provided that the Bank will not be required to recapture its pre-1988 statutory bad debt reserves if it ceases to meet the qualifying thrift definitional tests as provided under prior law and if the Bank continues to qualify as a “bank” under existing provisions of the Internal Revenue Code.