12. INCOME TAXES

The provision for income taxes consists of the following (in thousands):

	Year Ended December 31,
	2011	2010	2009
Currently payable	$ 3,512	$ 3,426	$ 2,438
Deferred tax liability (asset)	98	(270)	245
Provision for income taxes	$ 3,610	$ 3,156	$ 2,683

The following temporary differences gave rise to the net deferred tax assets at December 31, 2011 and 2010 (in thousands):

	2011	2010
Deferred tax assets:
Allowance for loan losses	$ 2,206	$ 2,011
Deferred compensation	563	582
Merger & acquisition costs	39	43
Other than temporary impairment on available-for-sale securities	789	1,015
Pension and other retirement obligation	586	356
Unrealized loss on interest rate swap	118	139
Interest on non-accrual loans	572	395
Other	185	61
Total	$ 5,058	$ 4,602

Deferred tax liabilities:
Premises and equipment	$ (343)	$ (386)
Investment securities accretion	(354)	(298)
Loan fees and costs	(80)	(113)
Goodwill and core deposit intangibles	(1,828)	(1,522)
Low income housing tax credits	(36)	(62)
Mortgage servicing rights	(103)	(108)
Unrealized gains on available-for-sale securities	(3,406)	(1,100)
Total	(6,150)	(3,589)
Deferred tax (liability) asset, net	$ (1,092)	$ 1,013

No valuation allowance was established at December 31, 2011 and 2010, in view of the Company's ability to carryback to taxes paid in previous years and certain tax strategies, coupled with the anticipated future taxable income as evidenced by the Company's earnings potential.

The total provision for income taxes is different from that computed at the statutory rates due to the following items (in thousands):

	Year Ended December 31,
	2011	2010	2009
Provision at statutory rates on
pre-tax income	$ 5,590	$ 4,977	$ 4,260
Effect of tax-exempt income	(1,844)	(1,607)	(1,372)
Low income housing tax credits	(96)	(164)	(187)
Bank owned life insurance	(169)	(171)	(167)
Nondeductible interest	107	113	123
Other items	22	8	26
Provision for income taxes	$ 3,610	$ 3,156	$ 2,683
Statutory tax rates	34%	34%	34%
Effective tax rates	22.0%	21.5%	21.4%

The Company prescribes 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 50 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. There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. With limited exception, the Company's federal and state income tax returns for taxable years through 2007 have been closed for purposes of examination by the federal and state taxing jurisdictions.