11. INCOME TAXES

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

	Year Ended December 31,
	2013	2012	2011
Currently payable	$ 3,082	$ 4,389	$ 3,512
Deferred tax liability (asset)	670	(58)	98
Provision for income taxes	$ 3,752	$ 4,331	$ 3,610

The following temporary differences gave rise to the net deferred tax liabilities at December 31, 2013 and 2012 (in thousands):

	2013	2012
Deferred tax assets:
Allowance for loan losses	$ 2,413	$ 2,307
Deferred compensation	528	544
Merger & acquisition costs	29	34
Allowance for losses on available-for-sale securities	523	784
Pension and other retirement obligation	90	733
Unrealized loss on interest rate swap	-	68
Interest on non-accrual loans	793	720
Incentive plan accruals	330	323
Other real estate owned expenses	72	84
Unrealized losses on available-for-sale securities	55	-
Other	95	96
Total	$ 4,928	$ 5,693

Deferred tax liabilities:
Premises and equipment	$ (348)	$ (358)
Investment securities accretion	(310)	(302)
Loan fees and costs	(184)	(110)
Goodwill and core deposit intangibles	(2,431)	(2,126)
Low income housing tax credits	-	(20)
Mortgage servicing rights	(180)	(167)
Unrealized gains on available-for-sale securities	-	(3,480)
Total	(3,453)	(6,563)
Deferred tax (liability) asset, net	$ 1,475	$ (870)

No valuation allowance was established at December 31, 2013 and 2012, 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,
	2013	2012	2011
Provision at statutory rates on
pre-tax income	$ 5,823	$ 6,306	$ 5,590
Effect of tax-exempt income	(1,752)	(1,853)	(1,844)
Low income housing tax credits	(198)	(57)	(96)
Bank owned life insurance	(171)	(172)	(169)
Nondeductible interest	70	87	107
Other items	(20)	20	22
Provision for income taxes	$ 3,752	$ 4,331	$ 3,610
Statutory tax rates	34%	34%	34%
Effective tax rates	21.9%	23.4%	22.0%

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.