INCOME TAXES

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



	Years Ended December 31
	2013		2012			2011
	(Dollars in thousands)
Current expense
Federal	$	9,570	$	11,928		$	11,830
State	4,357		4,664			5,227
Total current expense	13,927		16,592			17,057
Deferred expense (benefit)
Federal	1,598		(1,183		)	548
State	959		(736		)	(457		)
Total deferred expense (benefit)	2,557		(1,919		)	91
Total expense	$	16,484	$	14,673		$	17,148

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
	2013					2012					2011
	(Dollars in thousands)
Computed statutory federal income tax provision	$	23,359		35.00	%	$	20,055		35.00	%	$	21,904		35.00	%
State taxes, net of federal tax benefit	3,455			5.17	%	2,553			4.46	%	3,101			4.95	%
Nontaxable interest, net	(557		)	(0.83	)%	(542		)	(0.95	)%	(661		)	(1.06	)%
Tax credits	(9,194		)	(13.77	)%	(6,567		)	(11.46	)%	(6,238		)	(9.97	)%
Increase in cash surrender value of life insurance and tax exempt gain on benefit payments	(1,209		)	(1.81	)%	(1,612		)	(2.81	)%	(1,109		)	(1.77	)%
Merger and other related costs (non-deductible)	366			0.55	%	404			0.71	%	—			—	%
Other, net	264			0.39	%	382			0.66	%	151			0.25	%
Total expense	$	16,484		24.70	%	$	14,673		25.61	%	$	17,148		27.40	%

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



	2013		2012
	(Dollars in thousands)
Deferred tax assets
Allowance for loan losses	$	21,743	$	21,252
Accrued expenses not deducted for tax purposes	8,530		8,627
Other-than-temporary impairment on securities	4,074		4,435
Derivatives fair value adjustment	3,440		6,020
Deferred gain on sale leaseback transaction	3,104		3,541
Employee and director equity compensation	2,351		2,474
New Markets Tax Credit carry-forward	2,257		—
Loan basis difference fair value adjustment	1,819		1,402
Net operating loss carry-forward	1,671		2,440
Net unrealized loss on securities available for sale	1,418		—
Federal Home Loan Bank borrowings fair value adjustment	220		4,005
Other	1,481		758
Total	$	52,108	$	54,954
Deferred tax liabilities
Goodwill	$	13,030	$	11,831
Fixed assets	5,571		7,286
Core deposit and other intangibles	4,052		3,775
Deferred loan fees, net	3,530		3,104
Net unrealized gain on securities available for sale	—		3,257
Other	956		356
Total	$	27,139	$	29,609
Total net deferred tax asset	$	24,969	$	25,345

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 that its income tax returns have been filed based upon applicable statutes, regulations and case law in effect at the time of filing, 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, 2011	$	111
Reduction of tax positions for prior years	(34		)
Increase for prior year tax position	5
Increase for current year tax positions	44
Balance at December 31, 2012	$	126
Reduction of tax positions for prior years	(113		)
Increase for prior year tax positions	42
Increase for current year tax positions	—
Balance at December 31, 2013	$	55

Increases to the Company's unrealized tax positions occur as a result of accruing for the unrecognized tax benefit 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 2010 through 2012 tax years including any related income tax filings from its recent Bank acquisitions. The Company is utilizing net operating loss carry forwards acquired from the Central and Mayflower acquisitions that are subject to annual change in ownership limitations. In addition, the Company has a general business credit carry forward that resulted from 2013 operations that can be used to reduce future federal income tax. The net operating loss carry forwards of $4.7 million will expire at various dates through 2032 and the general business credit carryforward of $2.3 million will expire in 2033. The Company anticipates utilizing these carry forwards prior to their expirations.