12. INCOME TAXES

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

	Year Ended December 31,
	2012			2011		2010
Currently payable	$	4,389		$	3,512	$	3,426
Deferred tax liability (asset)		(58	)		98		(270	)
Provision for income taxes	$	4,331		$	3,610	$	3,156

The following temporary differences gave rise to the net deferred tax liabilities at December 31, 2012 and 2011 (in thousands):

	2012			2011
Deferred tax assets:
Allowance for loan losses	$	2,307		$	2,206
Deferred compensation		544			563
Allowance for losses on available-for-sale securities		784			789
Pension and other retirement obligation		733			586
Unrealized loss on interest rate swap		68			118
Interest on non-accrual loans		720			572
Incentive plan accruals		323			84
Other		214			140
Total	$	5,693		$	5,058
Deferred tax liabilities:
Premises and equipment	$	(358	)	$	(343	)
Investment securities accretion		(302	)		(354	)
Loan fees and costs		(110	)		(80	)
Goodwill and core deposit intangibles		(2,126	)		(1,828	)
Low income housing tax credits		(20	)		(36	)
Mortgage servicing rights		(167	)		(103	)
Unrealized gains on available-for-sale securities		(3,480	)		(3,406	)
Total		(6,563	)		(6,150	)
Deferred tax liability, net	$	(870	)	$	(1,092	)

No valuation allowance was established at December 31, 2012 and 2011, 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,
	2012			2011			2010
Provision at statutory rates on
pre-tax income	$	6,306		$	5,590		$	4,977
Effect of tax-exempt income		(1,853	)		(1,844	)		(1,607	)
Low income housing tax credits		(57	)		(96	)		(164	)
Bank owned life insurance		(172	)		(169	)		(171	)
Nondeductible interest		87			107			113
Other items		20			22			8
Provision for income taxes	$	4,331		$	3,610		$	3,156
Statutory tax rates		34	%		34	%		34	%
Effective tax rates		23.4	%		22.0	%		21.5	%

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 2008 have been closed for purposes of examination by the federal and state taxing jurisdictions.