13. INCOME TAXES

The expense for income taxes is summarized below:


	YEAR ENDED DECEMBER 31,
	2011		2010			2009
	(IN THOUSANDS)
Current	$	95	$	206		$	170
Deferred		2,758		(126	)		(3,220	)

Income tax expense (benefit)	$	2,853	$	80		$	(3,050	)

The reconciliation between the federal statutory tax rate and the Company's effective consolidated income tax rate is as follows:


	YEAR ENDED DECEMBER 31,
	2011						2010						2009
	AMOUNT			RATE			AMOUNT			RATE			AMOUNT			RATE
	(IN THOUSANDS, EXCEPT PERCENTAGES)
Income tax expense (benefit) based on federal statutory rate	$	3,193			34.0	%	$	463			34.0	%	$	(2,701	)		(34.0	)%
Tax exempt income		(325	)		(3.5	)		(443	)		(32.5	)		(443	)		(5.6	)
Other		(15	)		(0.1	)		60			4.4			94			1.2

Total expense (benefit) for income taxes	$	2,853			30.4	%	$	80			5.9	%	$	(3,050	)		(38.4	)%

At December 31, 2011 and 2010, deferred taxes are included in the accompanying Consolidated Balance Sheets. The following table highlights the major components comprising the deferred tax assets and liabilities for each of the periods presented:


	AT DECEMBER 31,
	2011			2010
	(IN THOUSANDS)
DEFERRED TAX ASSETS:
Allowance for loan losses	$	4,972		$	6,720
Unfunded commitment reserve		259			298
Premises and equipment		1,468			1,193
Accrued pension obligation		2,357			1,867
Net operating loss carryforwards		4,300			5,444
Alternative minimum tax credits		1,485			1,352
Other		419			504

Total tax assets		15,260			17,378

DEFERRED TAX LIABILITIES:
Investment accretion		(34	)		(34	)
Unrealized investment security gains		(2,295	)		(1,064	)
Other		(250	)		(222	)

Total tax liabilities		(2,579	)		(1,320	)

Net deferred tax asset	$	12,681		$	16,058

At December 31, 2011 and 2010, the Company had no valuation allowance established against its deferred tax assets as we believe the Company will generate sufficient future taxable income to fully utilize all net operating loss carryforwards and AMT tax credits.

The change in net deferred tax assets and liabilities consist of the following:


	YEAR ENDED DECEMBER 31,
	2011			2010
	(IN THOUSANDS)
Unrealized gains recognized in comprehensive income	$	(1,231	)	$	(98	)
Pension obligation of the defined benefit plan not yet recognized in income		612			357
Deferred provision for income taxes		(2,758	)		(126	)

Net (decrease) increase	$	(3,377	)	$	133

The Company has alternative minimum tax credit carryforwards of approximately $1.5 million at December 31, 2011. These credits have an indefinite carryforward period. The Company also has a $12.6 million net operating loss carryforward that will begin to expire in the year 2025.

The Company utilizes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The Company has no tax liability for uncertain tax positions. The Company's federal and state income tax returns for taxable years through 2007 have been closed for purposes of examination by the Internal Revenue Service and the Pennsylvania Department of Revenue.