INCOME TAXES

For the years ended December 31, 2015, 2014 and 2013, income tax expense attributable to income from operations consisted of the following (in thousands):



Current:	2015		2014			2013
State	$	216	$	606		$	395
Federal	3,668		5,366			3,548
Total current	3,884		5,972			3,943
Deferred expense/(benefit)	774		(2,263		)	(121		)
Income tax expense	$	4,658	$	3,709		$	3,822

Income tax expense differed from the amounts computed by applying the U.S. Federal statutory income tax rate to income before income tax expense as follows (in thousands):



	2015			2014			2013
Tax computed at statutory rate	$	4,791		$	4,034		$	4,268
Tax-exempt interest	(441		)	(456		)	(483		)
Dividend exclusion	(41		)	(60		)	(46		)
State taxes, net of Federal impact	238			227			188
Nondeductible interest expense	8			8			11
Other items, net	103			(44		)	(116		)
Income tax expense	$	4,658		$	3,709		$	3,822

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2015 and 2014, are presented below (in thousands):



	2015		2014
Deferred tax assets:
Allowance for loan losses	$	5,385	$	5,182
Accrual for employee benefit plans	597		709
Depreciation	1,553		1,010
Deferred compensation and directors' fees	1,136		1,076
Purchase accounting adjustment – deposits	37		65
Purchase accounting adjustment – loans	130		259
Purchase accounting adjustment - fixed assets	221		221
Accounting for defined benefit pension and other benefit plans	6,975		6,624
Trust preferred impairment write down	—		540
Nonaccrued interest	868		617
Accrued expense	—		1,580
Other	288		456
Total gross deferred tax assets	17,190		18,339

Deferred tax liabilities:
Deferred loan fees and costs	933		910
Prepaid pension	4,609		5,179
Net unrealized gains on securities available for sale	130		1,359
Discount accretion	427		410
Core deposit intangible	1,437		1,479
Other	149		153
Total gross deferred tax liabilities	7,685		9,490
Net deferred tax asset	$	9,505	$	8,849

Realization of deferred tax assets is dependent upon the generation of future taxable income or the existence of sufficient taxable income within the loss carryback period. A valuation allowance is recognized when it is more likely than not that some portion of the deferred tax assets will not be realized. In assessing the need for a valuation allowance, management considers the scheduled reversal of the deferred tax assets, the level of historical taxable income and projected future taxable income over the periods in which the temporary differences comprising the deferred tax assets will be deductible. Based on its assessment, management determined that no valuation allowance is necessary.

As of December 31, 2015, December 31, 2014 and December 31, 2013 the Corporation did not have any unrecognized tax benefits.

The Corporation accounts for interest and penalties related to uncertain tax positions as part of its provision for Federal and State income taxes. As of December 31, 2015, 2014 and 2013, the Corporation did not accrue any interest or penalties related to its uncertain tax positions.

The Corporation is not currently subject to examinations by Federal taxing authorities for the years prior to 2012 and for New York State taxing authorities for the years prior to 2012.