INCOME TAXES

For the years ended December 31, 2016, 2015 and 2014, income tax expense attributable to income from operations consisted of the following (in thousands):



Current:	2016			2015		2014
State	$	638		$	216	$	606
Federal	6,330			3,668		5,366
Total current	6,968			3,884		5,972
Deferred expense/(benefit)	(2,564		)	774		(2,263		)
Income tax expense	$	4,404		$	4,658	$	3,709

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):



	2016			2015			2014
Tax computed at statutory rate	$	4,907		$	4,791		$	4,034
Tax-exempt income	(879		)	(441		)	(456		)
Dividend exclusion	(5		)	(41		)	(60		)
State taxes, net of Federal impact	165			238			227
Nondeductible interest expense	9			8			8
Other items, net	207			103			(44		)
Income tax expense	$	4,404		$	4,658		$	3,709

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2016 and 2015, are presented below (in thousands):



	2016		2015
Deferred tax assets:
Allowance for loan losses	$	5,405	$	5,385
Accrual for employee benefit plans	337		597
Depreciation	2,119		1,553
Deferred compensation and directors' fees	1,195		1,136
Purchase accounting adjustment – deposits	21		37
Purchase accounting adjustment – loans	44		130
Purchase accounting adjustment – fixed assets	221		221
Gain on deemed sale of securities	798		—
Net unrealized losses on securities available for sale	2,643		—
Accounting for defined benefit pension and other benefit plans	4,091		6,975
Nonaccrued interest	944		868
Accrued expense	854		—
Other	286		288
Total gross deferred tax assets	18,958		17,190

Deferred tax liabilities:
Deferred loan fees and costs	940		933
Prepaid pension	3,956		4,609
Net unrealized gains on securities available for sale	—		130
Discount accretion	342		427
Core deposit intangible	1,460		1,437
Other	152		149
Total gross deferred tax liabilities	6,850		7,685
Net deferred tax asset	$	12,108	$	9,505

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, 2016, 2015 and 2014, 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, 2016, 2015 and 2014, 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 2013 and for New York State taxing authorities for the years prior to 2013.