INCOME TAXES

For the years ended December 31, 2018, 2017 and 2016, income tax expense attributable to income from operations consisted of the following (in thousands):



	2018			2017		2016
Current expense:
Federal	$	1,732		$	2,594	$	6,330
State	124			417		638
Total current	1,856			3,011		6,968
Deferred expense/(benefit):
Federal	2,253			942		(2,177		)
State	345			382		(387		)
Remeasurement of deferred tax assets	(445		)	2,927		—
Total deferred	2,153			4,251		(2,564		)
Income tax expense	$	4,009		$	7,262	$	4,404

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):



	2018			2017			2016
Statutory federal tax rate	21		%	34		%	34		%
Tax computed at statutory rate	$	4,963		$	5,006		$	4,907
Increase (reduction) resulting from:
Tax-exempt income	(430		)	(663		)	(511		)
831(b) premium adjustment	(167		)	(269		)	(368		)
Dividend exclusion	(7		)	(8		)	(5		)
State taxes, net of Federal impact	262			201			165
Nondeductible interest expense	7			8			9
Remeasurement of deferred tax assets	(445		)	2,927			—
Other items, net	(174		)	60			207
Income tax expense	$	4,009		$	7,262		$	4,404
Effective tax rate	17.0		%	49.4		%	30.5		%

The lower tax expense in 2018 when compared to 2017 can be attributed to a tax benefit of $0.4 million recorded in December 2018 and to the estimated $2.9 million one-time net deferred tax revaluation recorded in December 2017, both due to the enactment of Tax Act. On December 22, 2017, the Tax Act was enacted into legislation. Under ASC 740, the effects of changes in tax rates and laws are recognized in the period in which the new legislation is enacted. Accordingly, the Corporation had recorded $2.9 million for the remeasurement of the Corporation's deferred tax assets.

Additionally, on December 22, 2017, the SEC released Staff Bulletin No. 118 ("SAB 118") to address any uncertainty or diversity of views in practice in accounting for the income tax effects of the Tax Act in situations where the necessary information is not available, prepared, or analyzed in reasonable detail to complete the accounting in the reporting period that includes the enactment date. SAB 118 allows for a measurement period not to extend beyond one year from the Tax Act's enactment date to the complete the necessary accounting. In 2017, the Corporation recorded provisional amounts of deferred income taxes using reasonable estimates in areas where information necessary to complete the accounting was not available, prepared, or analyzed. In 2018, the Corporation completed its accounting of the effects of the Tax Act with the completion of its 2017 tax returns.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2018 and 2017, are presented below (in thousands):



	2018			2017
Deferred tax assets:
Allowance for loan losses	$	4,834		$	5,396
Accrual for employee benefit plans	136			186
Depreciation	(93		)	86
Deferred compensation and directors' fees	634			872
Purchase accounting adjustment – deposits	—			7
Purchase accounting adjustment – loans	7			35
Purchase accounting adjustment – fixed assets	149			149
Gain on deemed sale of securities	339			567
Net unrealized losses on securities available for sale	1,590			1,169
Accounting for defined benefit pension and other benefit plans	2,315			2,370
Nonaccrued interest	625			544
Accrued expense	200			868
Other items, net	153			160
Total gross deferred tax assets	10,889			12,409

Deferred tax liabilities:
Deferred loan fees and costs	640			676
Prepaid pension	3,141			3,023
Discount accretion	137			239
Core deposit intangible	1,101			1,026
REIT dividend	1,048			844
Other	109			101
Total gross deferred tax liabilities	6,176			5,909
Net deferred tax asset	$	4,713		$	6,500

Realization of deferred tax assets is dependent upon the generation of future taxable income. 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, 2018, 2017 and 2016, 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, 2018, 2017 and 2016, 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 2015 and for New York State taxing authorities for the year prior to 2015.