NOTE I: INCOME TAXES

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

(000's omitted)	2013		2012		2011
Current:
Federal	$	24,202	$	18,875	$	17,145
State and other		866		830		375
Deferred:
Federal		5,806		9,051		10,674
State and other		1,324		2,981		2,191
Provision for income taxes	$	32,198	$	31,737	$	30,385

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

(000's omitted)	2013			2012
Allowance for loan losses	$	17,246		$	16,755
Employee benefits		6,329			6,748
Investment securities		4,882			0
Debt extinguishment		1,215			1,517
Other		1,799			2,292
Deferred tax asset		31,471			27,312

Investment securities		0			58,824
Intangible assets, net		22,095			16,648
Loan origination costs		6,883			6,069
Depreciation		4,838			5,138
Mortgage servicing rights		473			399
Pension		21,735			5,481
Deferred tax liability		56,024			92,559
Net deferred tax liability	$	(24,553	)	$	(65,247	)

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:

	2013			2012			2011
Federal statutory income tax rate		35.0	%		35.0	%		35.0	%
Increase (reduction) in taxes resulting from:
Tax-exempt interest		(6.3	)		(7.1	)		(7.1	)
State income taxes, net of federal benefit		1.3			2.3			1.6
Other		(1.0	)		(1.0	)		(0.1	)
Effective income tax rate		29.0	%		29.2	%		29.4	%

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

(000’s omitted)	2013		2012			2011
Unrecognized tax benefits at beginning of year	$	70	$	133		$	98
Changes related to:
Positions taken during the current year		68		35			35
Settlements with taxing authorities		0		(98	)		0
Lapse of statutes of limitation		0		0			0
Unrecognized tax benefits at end of year	$	138	$	70		$	133

As of December 31, 2013, 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 various examinations 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 2009 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.