Income Taxes

The provision for federal and state income taxes included in the accompanying consolidated statements of income consists of the following:



	For the Years Ended December 31,
(Dollars in thousands)	2015			2014		2013
Current:
Federal	$	5,113		$	2,509	$	4,172
State	829			777		591
Deferred:
Federal	3,877			4,027		922
State	(61		)	135		11
	$	9,758		$	7,448	$	5,696

The provision for income taxes differs from the expected statutory provision as follows:



	For the Years Ended December 31,
(Dollars in thousands)	2015		2014		2013
Expected provision at statutory rate	35.0	%	35.0	%	35.0	%
Difference resulting from:
Tax exempt interest income	(9.5	)	(11.2	)	(11.7	)
Increase in value of bank owned life insurance assets	(1.2	)	(1.9	)	(3.9	)
Retirement plans	1.9		—		2.6
Other, including state income taxes, valuation allowances and rate differentials	0.2		3.2		0.8
	26.4	%	25.1	%	22.8	%

During the years ended December 31, 2015 and 2014, the Corporation recorded excess tax benefits resulting from the exercise of employee stock options and restricted stock of $73 thousand (includes a 2014 adjustment of $23 thousand) and $0 thousand respectively, to additional paid-in capital.

At December 31, 2015, the Corporation had no material unrecognized tax benefits, accrued interest or penalties. Penalties are recorded in noninterest expense in the year they are assessed and are treated as a non-deductible expense for tax purposes. Interest is recorded in noninterest expense in the year it is assessed and is treated as a deductible expense for tax purposes. At December 31, 2015, the Corporation’s tax years 2012 through 2014 remain subject to federal examination as well as examination by state taxing jurisdictions.

Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred state taxes are combined with federal deferred taxes (net of the impact of deferred state tax on the deferred federal tax) and are shown in the table below by major category of deferred income or expense. The Corporation has a state net operating loss carry-forward of $30.6 million which will begin to expire after December 31, 2018 if not utilized. A valuation allowance at December 31, 2015 and 2014 was attributable to deferred tax assets generated in certain state jurisdictions for which management believes it is more likely than not that such deferred tax assets will not be realized. Additionally, deferred tax assets of $42 thousand and $2 thousand were reversed and recorded to additional paid-in capital during the years ended December 31, 2015 and 2014, respectively, as a result of unrecognized restricted stock and non-qualified stock option expense. During 2015, net deferred taxes of $2.5 million were added due to the Valley Green acquisition.

The assets and liabilities giving rise to the Corporation’s deferred tax assets and liabilities are as follows:



	At December 31,
(Dollars in thousands)	2015			2014
Deferred tax assets:
Loan and lease loss	$	6,012		$	7,358
Deferred compensation	2,483			2,492
Actuarial adjustments on retirement benefits*	8,525			8,625
State net operating losses	1,986			1,621
Other-than-temporary impairments on equity securities	317			577
Alternative minimum tax credits**	2,156			1,067
Net unrealized holding losses on securities available-for-sale and swaps*	472			—
Other	1,150			1,125
Gross deferred tax assets	23,101			22,865
Valuation allowance	(1,609		)	(1,461		)
Total deferred tax assets, net of valuation allowance	21,492			21,404
Deferred tax liabilities:
Market discount	2,481			2,224
Retirement plans	7,169			5,700
Intangible assets	1,663			2,308
Net unrealized holding gains on securities available-for-sale and swaps*	—			837
Total deferred tax liabilities	11,313			11,069
Net deferred tax assets	$	10,179		$	10,335

*Represents the amount of deferred taxes recorded in accumulated other comprehensive loss.

** The alternative minimum tax credits have an indefinite life.