INCOME TAXES

The provision for income taxes is comprised of the following components:



	Years Ended December 31
	2012			2011			2010
	(Dollars in thousands)
Current expense
Federal	$	11,928		$	11,830		$	10,453
State	4,664			5,227			4,268
Total current expense	16,592			17,057			14,721
Deferred expense (benefit)
Federal	(1,183		)	548			(2,223		)
State	(736		)	(457		)	(271		)
Total deferred expense (benefit)	(1,919		)	91			(2,494		)
Total expense	$	14,673		$	17,148		$	12,227

The difference between the statutory federal income tax rate of 35% and the effective income tax rate reported for the last three years is detailed below:



	Years Ended December 31
	2012					2011					2010
	(Dollars in thousands)
Computed statutory federal income tax provision	$	20,055		35.00	%	$	21,904		35.00	%	$	18,364		35.00	%
State taxes, net of federal tax benefit	2,553			4.46	%	3,101			4.95	%	2,598			4.95	%
Nontaxable interest, net	(542		)	(0.95	)%	(661		)	(1.06	)%	(564		)	(1.07	)%
Tax credits	(6,567		)	(11.46	)%	(6,238		)	(9.97	)%	(6,932		)	(13.21	)%
Increase in cash surrender value of life insurance and tax exempt gain on death proceeds	(1,612		)	(2.81	)%	(1,109		)	(1.77	)%	(1,117		)	(2.13	)%
Merger and other related costs (non-deductible)	404			0.71	%	—			—	%	—			—	%
Other, net	382			0.66	%	151			0.25	%	(122		)	(0.24	)%
Total expense	$	14,673		25.61	%	$	17,148		27.40	%	$	12,227		23.30	%

The tax-effected components of the net deferred tax asset at December 31 were as follows:



	2012		2011
	(Dollars in thousands)
Deferred tax assets
Allowance for loan losses	$	21,252	$	19,845
Accrued expenses not deducted for tax purposes	7,739		6,181
Derivatives fair value adjustment	6,020		6,767
Other-than-temporary impairment on securities	4,435		4,403
Federal Home Loan Bank borrowings fair value adjustment	3,883		318
Deferred gain on sale leaseback transaction	3,541		3,968
Employee and director equity compensation	2,474		2,159
Net operating loss carry-forward	2,440		—
Loan basis difference fair value adjustment	1,402		—
Other	1,768		2,166
Total	$	54,954	$	45,807
Deferred tax liabilities
Goodwill	$	11,831	$	11,499
Fixed assets	7,286		6,269
Core deposit and other intangibles	3,775		3,499
Net unrealized gain on securities available for sale	3,257		3,762
Deferred loan fees, net	3,104		2,369
Loan basis difference fair value adjustment	—		1,326
Other	356		942
Total	$	29,609	$	29,666
Total net deferred tax asset	$	25,345	$	16,141

The Company has determined that a valuation allowance is not required for any of its deferred tax assets since it is more likely than not that these assets will be realized principally through the utilization of carry-back provisions to taxable income on prior years and future reversals of existing taxable temporary differences and by offsetting other future taxable income.

Uncertainty in Income Taxes

From time to time, the Internal Revenue Service (the "IRS") may review and/or challenge specific tax positions taken by the Company in its ordinary course of business. The Company believes the tax returns were filed based upon applicable statutes, regulations and case law in effect at the time of the transaction, however the IRS could disagree with the Company's interpretation. The Company accounts for uncertainties in income taxes by providing a tax reserve for certain positions. The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits:



	(Dollars in thousands)
Balance at December 31, 2010	$	226
Reduction of tax positions for prior years	(115		)
Increase for current year tax positions	—
Balance at December 31, 2011	$	111
Reduction of tax positions for prior years	(34		)
Increase for prior year tax positions	5
Increase for current year tax positions	44
Balance at December 31, 2012	$	126

Increases to the Company's unrealized tax positions occur as a result of accruing for the nonrecognition of new positions as well the accrual of interest and penalties related to prior year positions. Decreases in the Company's unrealized tax positions occur as a result of the statute of limitation lapsing on prior year positions and/or settlements relating to outstanding positions. All of the Company’s unrecognized tax benefits, if recognized, would be recorded as a component of income tax expense therefore affecting the effective tax rate. The Company records interest and penalties related to uncertain tax positions in the provision for income taxes.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction as well as in various states. The Company is subject to U.S. federal, state and local income tax examinations by tax authorities for the 2009 through 2011 tax years including any related income tax filings from its recent Bank acquisitions. The Company is carrying forward a net operating loss acquired with the Central acquisition in addition to a capital loss carry forward relating to both the Central acquisition and Company operations. The net operating loss carry forward will expire in twenty years and the capital loss carry forward in five years if unused, however the Company anticipates utilizing the carry forwards within this time frame.