INCOME TAXES

For the years ended December 31, 2019, 2018 and 2017, income tax expense attributable to income from operations consisted of the following (in thousands):



	2019			2018			2017
Current expense:
Federal	$	4,603		$	1,732		$	2,594
State	395			124			417
Total current	4,998			1,856			3,011
Deferred expense/(benefit):
Federal	(1,126		)	2,253			942
State	(438		)	345			382
Remeasurement of deferred tax assets	—			(445		)	2,927
Total deferred	(1,564		)	2,153			4,251
Income tax expense	$	3,434		$	4,009		$	7,262

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):



	2019			2018			2017
Statutory federal tax rate	21		%	21		%	34		%
Tax computed at statutory rate	$	3,999		$	4,963		$	5,006
Increase (reduction) resulting from:
Tax-exempt income	(424		)	(430		)	(663		)
831(b) premium adjustment	(189		)	(167		)	(269		)
Dividend exclusion	(7		)	(7		)	(8		)
State taxes, net of Federal impact	(86		)	262			201
Nondeductible interest expense	9			7			8
Remeasurement of deferred tax assets	—			(445		)	2,927
Other items, net	132			(174		)	60
Income tax expense	$	3,434		$	4,009		$	7,262
Effective tax rate	18.0		%	17.0		%	49.4		%

The lower tax expense in 2019 when compared to 2018 can be attributed to a decrease in pretax income.

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, 2019 and 2018, are presented below (in thousands):



	2019		2018
Deferred tax assets:
Allowance for loan losses	$	6,046	$	4,834
Accrual for employee benefit plans	92		136
Depreciation	379		(93		)
Deferred compensation and directors' fees	765		634
Operating lease liabilities	2,050		—
Purchase accounting adjustment – loans	1		7
Purchase accounting adjustment – fixed assets	149		149
Gain on deemed sale of securities	71		339
Net unrealized losses on securities available for sale	—		1,590
Accounting for defined benefit pension and other benefit plans	2,448		2,315
Nonaccrued interest	695		625
Accrued expense	179		200
Other items, net	38		153
Total gross deferred tax assets	12,913		10,889

Deferred tax liabilities:
Deferred loan fees and costs	592		640
Prepaid pension	3,189		3,141
Net unrealized gains on securities available for sale	468		—
Discount accretion	24		137
Core deposit intangible	1,213		1,101
REIT dividend	922		1,048
Operating lease right-of-use assets	2,050		—
Other	103		109
Total gross deferred tax liabilities	8,561		6,176
Net deferred tax asset	$	4,352	$	4,713

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, 2019, 2018 and 2017, 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, 2019, 2018 and 2017, 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 2016 and for New York State taxing authorities for the year prior to 2016.