Note 12. Income Taxes

The provision for income taxes consists of the following for the fiscal years ended June 30:


(In thousands)		2013		2012
Current expense:
Federal	$	2,070	$	1,665
State		278		455
Total current expense		2,348		2,120
Deferred expense		324		560
Total provision for income taxes	$	2,672	$	2,680

The effective tax rate differs from the federal statutory rate as follows for fiscal years ended June 30:


	2013		2012
Tax based on federal statutory rate	34.00	%	34.00	%
State income taxes, net of federal benefit	1.04		1.82
Tax-exempt income	(6.65)		(6.00)
Other, net	1.16		1.68
Total income tax expense	29.55	%	31.50	%

The components of the deferred tax assets and liabilities at June 30 were as follows:


(In thousands)		2013		2012
Deferred tax assets:
Allowance for loan losses	$	2,724	$	2,390
Pension benefits		129		625
Other		553		468
Total deferred tax assets		3,406		3,483

Deferred tax liabilities:
Depreciation		1,470		1,581
Loan costs		514		425
Real estate investment trust income		1,406		1,202
Unrealized gains on securities available for sale		269		786
Total deferred tax liabilities		3,659		3,994
Net deferred tax liability included in other liabilities	$	(253)	$	(511)

Income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities and enacted changes in tax rates and laws are recognized in the period in which they occur.

Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of the evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

The Company accounts for uncertain tax positions if it is more likely than not, based on technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgments.

The Company recognizes interest and penalties on income taxes, if any, as a component of the provision for income taxes.

As of June 30, 2013 and 2012, the Company did not have any uncertain tax positions. The Company does not expect to have any changes in unrecognized tax benefits as a result of settlements with taxing authorities during the next twelve months. As of June 30, 2013, tax years ended June 30, 2009 through June 30, 2012, remain open and are subject to Federal and State taxing authority examination.