INCOME TAXES

Allocation of the federal and state income taxes between current and deferred portions is as follows:



	Years Ended June 30,
	2014		2013			2012
	(In Thousands)
Current tax provision:
Federal	$	1,672	$	1,564		$	452
State	350		392			35
	2,022		1,956			487
Deferred tax provision (benefit):
Federal	398		610			1,019
State	124		(54		)	252
	522		556			1,271
Change in valuation allowance	—		(735		)	25
	522		(179		)	1,296
Total tax provision	$	2,544	$	1,777		$	1,783

The reasons for the differences between the statutory federal income tax rate and the effective tax rates are summarized as follows:



	Years Ended June 30,
	2014		2013		2012
Statutory tax rate	34.0	%	34.0	%	34.0	%
Increase (decrease) resulting from:
State taxes, net of federal tax benefit	4.4		4.7		3.9
Tax exempt income	(0.8	)	(0.6	)	(0.6	)
Bank-owned life insurance	(2.4	)	(3.8	)	(3.2	)
Change in valuation allowance assumptions, net of carryover expiration	—		0.7		0.5
Stock options	(0.2	)	1.3		1.8
Other, net	1.0		1.1		0.8
Effective income tax rate	36.0	%	37.4	%	37.2	%

INCOME TAXES (Continued)

The components of the net deferred tax asset are as follows:



	June 30,
	2014			2013
	(In Thousands)
Deferred tax assets:
Federal	$	3,923		$	4,297
State	1,132			1,257
	5,055			5,554
Deferred tax liabilities:
Federal	(689		)	(786		)
State	(184		)	(184		)
	(873		)	(970		)
Net deferred tax asset	$	4,182		$	4,584

The tax effects of each item that give rise to deferred taxes are as follows:



	June 30,
	2014			2013
	(In Thousands)
Non-accrued interest income	$	158		$	64
Net unrealized gain on securities available for sale	(75		)	(195		)
Depreciation	439			547
Mortgage servicing rights	(316		)	(261		)
Allowance for loan losses	2,345			2,261
Employee benefit plans	1,771			2,234
Other-than-temporary impairment of securities	—			91
Other, net	(140		)	(157		)
Net deferred tax asset	$	4,182		$	4,584

In fiscal 2013, the Company eliminated its valuation allowance against the deferred tax asset related to its charitable contribution carryforward as it expired. There was a charge of $35,000 to income tax expense as a result of the expiration. In fiscal 2012, the Company increased the valuation allowance by $25,000. The valuation allowance was established to reflect the uncertainty of fully utilizing a five-year charitable contribution carryforward of approximately $3.5 million that expired on October 31, 2012. The carryforward was created primarily by the contribution of 378,566 shares of the Company’s common stock to the Hampden Bank Charitable Foundation as part of the mutual to stock conversion.

As of June 30, 2014, management believes it is more likely than not that the net deferred tax assets will be realizable through future earnings and future reversals of existing taxable temporary differences.

The federal income tax reserve for loan losses at the Company's base year amounted to $2.3 million. If any portion of the reserve is used for purposes other than to absorb loan losses, approximately 150% of the amount actually used, limited to the amount of the reserve, would be subject to taxation in the fiscal year in which used. As the Company intends to use the reserves solely to absorb loan losses, a deferred income tax liability of $887,000 has not been provided.

The Company’s income tax returns are subject to review and examination by federal and state taxing authorities. The Company is currently open to audit under applicable statutes of limitation by the Internal Revenue Service for the years ended October 31, 2011 through June 30, 2013. The Company changed its tax year end to coincide with the Company's fiscal year end, and a short return was filed for the period November 1, 2012 to June 30, 2013. The years open to examination by state taxing authorities vary by jurisdiction. However, no years prior to October 31, 2011 are open.