13. INCOME TAXES

The expense for income taxes is summarized below:


	YEAR ENDED DECEMBER 31,
	2012		2011		2010
	(IN THOUSANDS)
Current	$	140	$	95	$	206
Deferred		2,101		2,758		(126	)
Income tax expense	$	2,241	$	2,853	$	80

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


	YEAR ENDED DECEMBER 31,
	2012				2011						2010
	AMOUNT		RATE		AMOUNT			RATE			AMOUNT			RATE
	(IN THOUSANDS, EXCEPT PERCENTAGES)
Income tax expense based on federal statutory rate	$	2,475		34.0%	$	3,193			34.0	%	$	463			34.0	%
Tax exempt income		(315)		(4.3)		(325	)		(3.5	)		(443	)		(32.5	)
Other		81		1.1		(15	)		(0.1	)		60			4.4
Total expense for income taxes	$	2,241		30.8%	$	2,853			30.4	%	$	80			5.9	%

The following table highlights the major components comprising the deferred tax assets and liabilities for each of the periods presented:


	AT DECEMBER 31,
	2012		2011
	(IN THOUSANDS)
DEFERRED TAX ASSETS:
Allowance for loan losses	$	4,274	$	4,972
Unfunded commitment reserve		221		259
Premises and equipment		1,626		1,468
Accrued pension obligation		2,916		2,357
Net operating loss carryforwards		2,883		4,300
Alternative minimum tax credits		1,635		1,485
Other		368		419
Total tax assets		13,923		15,260
DEFERRED TAX LIABILITIES:
Investment accretion		(28)		(34	)
Unrealized investment security gains		(2,133)		(2,295	)
Other		(295)		(250	)
Total tax liabilities		(2,456)		(2,579	)
Net deferred tax asset	$	11,467	$	12,681

At December 31, 2012 and 2011, 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,
	2012		2011
	(IN THOUSANDS)
Unrealized gains recognized in comprehensive income	$	162	$	(1,231	)
Pension obligation of the defined benefit plan not yet recognized in income		725		612
Deferred provision for income taxes		(2,101)		(2,758	)
Net decrease	$	(1,214)	$	(3,377	)

The Company has alternative minimum tax credit carryforwards of approximately $1.6 million at December 31, 2012. These credits have an indefinite carryforward period. The Company also has an $8.5 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 2008 have been closed for purposes of examination by the Internal Revenue Service and the Pennsylvania Department of Revenue.