NOTE I: INCOME TAXES

The provision for income taxes for the years ended December 31 is as follows:

(000's omitted)	2012		2011		2010
Current:
Federal	$	18,875	$	17,145	$	13,090
State and other		830		375		776
Deferred:
Federal		9,051		10,674		7,633
State and other		2,981		2,191		1,566
Provision for income taxes	$	31,737	$	30,385	$	23,065

Components of the net deferred tax liability, included in other liabilities, as of December 31 are as follows:

(000's omitted)	2012			2011
Allowance for loan losses	$	16,755		$	16,371
Employee benefits		6,748			6,718
Debt extinguishment		1,517			1,821
Other		2,292			2,169
Deferred tax asset		27,312			27,079

Investment securities		58,824			37,386
Intangible assets		16,648			9,448
Loan origination costs		6,069			5,041
Depreciation		5,138			5,779
Mortgage servicing rights		399			678
Pension		5,481			2,860
Prepaid FDIC insurance		0			3,079
Deferred tax liability		92,559			64,271
Net deferred tax liability	$	(65,247	)	$	(37,192	)

The Company has determined that no valuation allowance is necessary as it is more likely than not that the gross deferred tax assets will be realized through carryback of future deductions to taxable income in prior years, future reversals of existing temporary differences, and through future taxable income.

A reconciliation of the differences between the federal statutory income tax rate and the effective tax rate for the years ended December 31 is shown in the following table:

	2012			2011			2010
Federal statutory income tax rate		35.0	%		35.0	%		35.0	%
Increase (reduction) in taxes resulting from:
Tax-exempt interest		(7.1	)		(7.1	)		(8.3	)
State income taxes, net of federal benefit		2.3			1.6			1.8
Other		(1.0	)		(0.1	)		(1.8	)
Effective income tax rate		29.2	%		29.4	%		26.7	%

A reconciliation of the unrecognized tax benefits for the years ended December 31 is shown in the following table:

(000's omitted)	2012			2011		2010
Unrecognized tax benefits at beginning of year	$	133		$	98	$	708
Changes related to:
Positions taken during the current year		35			35		35
Settlements with taxing authorities		(98	)		0		(408	)
Lapse of statutes of limitation		0			0		(237	)
Unrecognized tax benefits at end of year	$	70		$	133	$	98

As of December 31, 2012, the total amount of unrecognized tax benefits that would impact the Company's effective tax rate if recognized is $0.1 million. It is reasonably possible that the amount of unrecognized tax benefits could change in the next twelve months as a result of the New York State examination and expiration of statutes of limitations on prior tax returns.

The Company's policy is to recognize interest and penalties related to unrecognized tax benefits as part of income taxes in the consolidated statement of income. The accrued interest related to tax positions was immaterial.

The Company's federal and state income tax returns are routinely subject to examination from various governmental taxing authorities. Such examinations may result in challenges to the tax return treatment applied by the Company to specific transactions. Management believes that the assumptions and judgment used to record tax-related assets or liabilities have been appropriate. Future examinations by taxing authorities of the Company's federal or state tax returns could have a material impact on the Company's results of operations. The Company's federal income tax returns for years after 2008 may still be examined by the Internal Revenue Service. New York State income tax returns for years after 2010 may still be examined by the New York Department of Taxation and Finance. It is not possible to estimate when those examinations may be completed.