Note 12. Income Taxes

The provision for income taxes consists of the following for the years ended June 30, 2017 and 2016:

(In thousands)	2017			2016
Current expense:
Federal	$	3,591		$	3,137
State		409			256
Total current expense		4,000			3,393
Deferred benefit		(259	)		(714	)
Total provision for income taxes	$	3,741		$	2,679

The effective tax rate differs from the federal statutory rate as follows for the years ended June 30, 2017 and 2016:

	2017			2016
Tax based on federal statutory rate		34.00	%		34.00	%
State income taxes, net of federal benefit		0.89			0.75
Tax-exempt income		(8.20	)		(9.05	)
Captive insurance premium income		(2.28	)		(2.95	)
Other, net		0.55			0.26
Total income tax expense		24.96	%		23.01	%

The components of the deferred tax assets and liabilities at June 30 were as follows:

(In thousands)	2017		2016
Deferred tax assets:
Allowance for loan losses	$	4,220	$	3,669
Pension benefits		310		689
Other benefit plans		1,957		1,137
Total deferred tax assets		6,487		5,495

Deferred tax liabilities:
Depreciation		1,392		1,346
Loan costs		1,051		894
Real estate investment trust income		3,052		2,283
Unrealized gains on securities		379		771
Other		224		225
Total deferred tax liabilities		6,098		5,519
Net deferred tax asset (liability) included in prepaid expenses and other assets (other liabilities)	$	389	$	(24	)

Income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities and enacted changes in tax rates and laws are recognized in the period in which they occur.

Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of the evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

The Company accounts for uncertain tax positions if it is more likely than not, based on technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgments.

The Company recognizes interest and penalties on income taxes, if any, as a component of the provision for income taxes.

As of June 30, 2017 and 2016, the Company did not have any uncertain tax positions. The Company does not expect to have any changes in unrecognized tax benefits as a result of settlements with taxing authorities during the next twelve months. As of June 30, 2017, tax years ended June 30, 2014 through June 30, 2016, remain open and are subject to Federal taxing authority examination. For New York State, tax years ended June 30, 2015 through June 30, 2016 remain open and are subject to taxing authority examination.