NOTE I: INCOME TAXES

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

(000's omitted)	2014		2013		2012
Current:
Federal	$	30,006	$	24,202	$	18,875
State and other		870		866		830
Deferred:
Federal		6,867		5,806		9,051
State and other		594		1,324		2,981
Provision for income taxes	$	38,337	$	32,198	$	31,737

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

(000's omitted)	2014			2013
Allowance for loan losses	$	17,476		$	17,246
Employee benefits		6,834			6,329
Investment securities		0			4,882
Debt extinguishment		904			1,215
Other, net		10,725			11,701
Deferred tax asset		35,939			41,373

Investment securities		37,527			0
Tax-deductible goodwill		35,842			31,997
Loan origination costs		6,792			6,883
Depreciation		3,722			4,838
Mortgage servicing rights		419			473
Pension		16,845			21,735
Deferred tax liability		101,147			65,926
Net deferred tax liability	$	(65,208	)	$	(24,553	)

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:

	2014			2013			2012
Federal statutory income tax rate		35.0	%		35.0	%		35.0	%
Increase (reduction) in taxes resulting from:
Tax-exempt interest		(5.4	)		(6.3	)		(7.1	)
State income taxes, net of federal benefit		0.7			1.3			2.3
Other		(0.7	)		(1.0	)		(1.0	)
Effective income tax rate		29.6	%		29.0	%		29.2	%

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

(000’s omitted)	2014		2013		2012
Unrecognized tax benefits at beginning of year	$	138	$	70	$	133
Changes related to:
Positions taken during the current year		24		68		35
Settlements with taxing authorities		0		0		(98	)
Unrecognized tax benefits at end of year	$	162	$	138	$	70

As of December 31, 2014, the total amount of unrecognized tax benefits that would impact the Company’s effective tax rate if recognized is $0.2 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 2010 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.