13. INCOME TAXES

The expense for income taxes is summarized below:


	YEAR ENDED DECEMBER 31,
	2013		2012		2011
	(IN THOUSANDS)
Current	$	139	$	140	$	95
Deferred		2,150		2,101		2,758
Income tax expense	$	2,289	$	2,241	$	2,853

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


	YEAR ENDED DECEMBER 31,
	2013				2012						2011
	AMOUNT		RATE		AMOUNT			RATE			AMOUNT			RATE
	(IN THOUSANDS, EXCEPT PERCENTAGES)
Income tax expense based on federal statutory rate	$	2,544		34.0%	$	2,475			34.0	%	$	3,193			34.0	%
Tax exempt income		(359)		(4.8)		(315	)		(4.3	)		(325	)		(3.5	)
Other		104		1.4		81			1.1			(15	)		(0.1	)
Total expense for income taxes	$	2,289		30.6%	$	2,241			30.8	%	$	2,853			30.4	%

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


	AT DECEMBER 31,
	2013		2012
	(IN THOUSANDS)
DEFERRED TAX ASSETS:
Allowance for loan losses	$	3,437	$	4,274
Unfunded commitment reserve		264		221
Premises and equipment		1,832		1,626
Accrued pension obligation		1,462		2,916
Net operating loss carryforwards		1,307		2,883
Alternative minimum tax credits		1,749		1,635
Other		393		368
Total tax assets		10,444		13,923
DEFERRED TAX LIABILITIES:
Investment accretion		(18)		(28	)
Unrealized investment security gains		(545)		(2,133	)
Other		(309)		(295	)
Total tax liabilities		(872)		(2,456	)
Net deferred tax asset	$	9,572	$	11,467

At December 31, 2013 and 2012, 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,
	2013		2012
	(IN THOUSANDS)
Unrealized gains recognized in comprehensive income	$	1,595	$	162
Pension obligation of the defined benefit plan not yet recognized in income		(1,340)		725
Deferred provision for income taxes		(2,150)		(2,101	)
Net decrease	$	(1,895)	$	(1,214	)

The Company has alternative minimum tax credit carryforwards of approximately $1.7 million at December 31, 2013. These credits have an indefinite carryforward period. The Company also has a $3.8 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 2009 have been closed for purposes of examination by the Internal Revenue Service and the Pennsylvania Department of Revenue.