The Company has unrecognized tax benefits representing tax positions for which a liability has been established. A reconciliation of the beginning and ending amount of the liability relating to unrecognized tax benefits is as follows:  Tax years that remain open and subject to audit include the years 2009 through 2012 for both federal and state tax  purposes. The Company recognized $199,000 and $276,000 of previously unrecognized tax benefits during 2012 and 2011,  respectively. The gross unrecognized tax benefits of $986,000 and $856,000 at December 31, 2012 and 2011, respectively,  would favorably impact the effective tax rate by $651,000 and $565,000, respectively, if recognized. During 2012 and  2010, the Company recorded $23,000 and $28,000, respectively, of income tax expense associated with interest and  penalties compared to an income tax benefit of $71,000 during 2011. As of December 31, 2012 and 2011, the Company  has accrued interest and penalties related to the unrecognized tax benefits of $201,000 and $178,000, respectively which are  not included in the table above. The Company believes that it is reasonably possible that a reduction in gross unrecognized  tax benefits of up to $314,000 is possible during the next 12 months as a result of the lapse of the statute of limitations.  Employee Retirement Plan. Substantially all employees are covered under a 401(k) defined contribution savings  plan. Eligible employees receive 100% matching contributions from the Company of up to 6% of their compensation. Matching contributions by the Company were $355,000, $350,000 and $370,000 for the years ended December 31, 2012,  2011 and 2010, respectively.  Deferred Compensation and Retirement Agreements. The Company has recognized a liability for future  benefits payable under an agreement that splits the benefits of a bank owned life insurance policy between the Company and  a former employee. At December 31, 2012 and 2011, the liability was $297,000 and $303,000, respectively. At December  31, 2012, the Company had an asset of $2.2 million recorded representing the net cash surrender value of the corresponding  bank owned life insurance policy.  The Company has entered into deferred compensation and other retirement agreements with certain key employees  that provide for cash payments to be made after their retirement. The obligations under these arrangements have been  recorded at the present value of the accrued benefits. The Company has also entered into agreements with certain directors  to defer portions of their compensation. The balance of accrued benefits under all of these arrangements, including the  split-dollar life insurance arrangement, was $1.0 million and $1.1 million at December 31, 2012 and 2011, respectively, and  was included as a component of other liabilities in the accompanying consolidated balance sheets. To assist in funding  benefits under each of these plans, the Bank has purchased certain assets including bank owned life insurance policies on  covered employees in which the Bank is the beneficiary. At December 31, 2012 and 2011, the cash surrender values on  these policies established to meet such obligations were $3.9 million and $3.8 million, respectively. In addition to these policies, the Bank purchased $7.5 million of bank owned life insurance policies during 2006  and $2.5 million during 2011. The cash surrender value of bank owned life insurance policies at December 31, 2012 totaled  $12.8 million. These policies are not related to deferred compensation split-dollar arrangements or other retirement  agreements but are utilized to offset the cost of employee benefits. The Company has a stock-based employee compensation plan which allows for the issuance of stock options and  restricted common stock, the purpose of which is to provide additional incentive to certain officers, directors, and key  employees by facilitating their purchase of a stock interest in the Company. The plan is administered by the compensation  (11) Stock Compensation Plan  88  (10) Employee Benefit Plans  (Dollars in thousands) 2012 2011 Unrecognized tax benefits at beginning of year  $ 856 $ 837  Gross increases to current year tax positions 334 297  Gross decreases to prior year’s tax positions (5) (2) Lapse of statute of limitations (199) (276) Unrecognized tax benefits at end of year  $ 986 $ 856  Years ended December 31,