13.

INCOME TAXES

The expense for income taxes is summarized below:

	YEAR ENDED DECEMBER 31,
	2014		2013		2012

	(IN THOUSANDS)
Current	$	1,036	$	139	$	140
Deferred		562		2,150		2,101
Income tax expense	$	1,598	$	2,289	$	2,241

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

	YEAR ENDED DECEMBER 31,
	2014						2013						2012
	AMOUNT			RATE			AMOUNT			RATE			AMOUNT			RATE

	(IN THOUSANDS, EXCEPT PERCENTAGES)
Income tax expense based on federal statutory rate	$	1,571			34.0	%	$	2,544			34.0	%	$	2,475			34.0	%
Tax exempt income		(274	)		(5.9	)		(359	)		(4.8	)		(315	)		(4.3	)
Other		301			6.5			104			1.4			81			1.1
Total expense for income taxes	$	1,598			34.6	%	$	2,289			30.6	%	$	2,241			30.8	%

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

	AT DECEMBER 31,
	2014			2013

	(IN THOUSANDS)
DEFERRED TAX ASSETS:
Allowance for loan losses	$	3,272		$	3,437
Unfunded commitment reserve		300			264
Premises and equipment		1,433			1,832
Accrued pension obligation		2,358			1,462
Net operating loss carryforwards		242			1,307
Alternative minimum tax credits		2,820			1,749
Other		349			393
Total tax assets		10,774			10,444
DEFERRED TAX LIABILITIES:
Investment accretion		(25	)		(18	)
Unrealized investment security gains		(950	)		(545	)
Other		(251	)		(309	)
Total tax liabilities		(1,226	)		(872	)
Net deferred tax asset	$	9,548		$	9,572

At December 31, 2014 and 2013, 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 alternative minimum tax (AMT) credits.

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

	YEAR ENDED DECEMBER 31,
	2014			2013

	(IN THOUSANDS)
Unrealized gains recognized in comprehensive income	$	(404	)	$	1,595
Pension obligation of the defined benefit plan not yet recognized in income		942			(1,340	)
Deferred provision for income taxes		(562	)		(2,150	)
Net decrease	$	(24	)	$	(1,895	)

The Company has AMT credit carryforwards of approximately $2.8 million at December 31, 2014. These credits have an indefinite carryforward period. The Company also has a $713,000 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 2010 have been closed for purposes of examination by the Internal Revenue Service and the Pennsylvania Department of Revenue.