NOTE I: INCOME TAXES

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

(000's omitted)	2015		2014		2013
Current:
Federal	$	27,663	$	30,006	$	24,202
State and other		2,608		870		866
Deferred:
Federal		9,604		6,867		5,806
State and other		1,112		594		1,324
Provision for income taxes	$	40,987	$	38,337	$	32,198

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

(000's omitted)	2015			2014
Allowance for loan losses	$	17,791		$	17,476
Employee benefits		6,633			6,834
Debt extinguishment		613			904
Other, net		9,704			10,725
Deferred tax asset		34,741			35,939

Investment securities		38,314			37,527
Tax-deductible goodwill		39,724			35,842
Loan origination costs		7,295			6,792
Depreciation		886			3,722
Mortgage servicing rights		565			419
Pension		14,807			16,845
Deferred tax liability		101,591			101,147
Net deferred tax liability	$	(66,850	)	$	(65,208	)

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:

	2015			2014			2013
Federal statutory income tax rate		35.0	%		35.0	%		35.0	%
Increase (reduction) in taxes resulting from:
Tax-exempt interest		(5.0	)		(5.4	)		(6.3	)
State income taxes, net of federal benefit		1.8			0.7			1.3
Other		(0.8	)		(0.7	)		(1.0	)
Effective income tax rate		31.0	%		29.6	%		29.0	%

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

(000’s omitted)	2015			2014		2013
Unrecognized tax benefits at beginning of year	$	162		$	138	$	70
Changes related to:
Positions taken during the current year		0			24		68
Lapse of statutes of limitations		(35	)		0		0
Unrecognized tax benefits at end of year	$	127		$	162	$	138

As of December 31, 2015, 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 2011 may still be examined by the Internal Revenue Service. New York State income tax returns for years after 2011 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.