(8) Income Taxes

A summary of income tax expense/(benefit) included in the Consolidated Statements of Income follows:

(dollars in thousands)	For the year ended December 31,
	2013			2012		2011
Current tax expense:
Federal	$	22,612			19,122		19,614
State		2,531			1,879		2,020
Total current tax expense		25,143			21,001		21,634
Deferred tax expense (benefit)		(1,426	)		1,440		(2,336	)
Total income tax expense	$	23,717			22,441		19,298

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2013 and 2012, are as follows:

	December 31,
(dollars in thousands)	2013			2012
	Deductible			Deductible
	temporary			temporary
	differences			differences

Benefits and deferred remuneration	$	(4,256	)		(4,736	)
Difference in reporting the allowance for loan losses, net		22,774			22,710
Other income or expense not yet reported for tax purposes		3,008			2,582
Depreciable assets		(1,309	)		(1,413	)
Other items		1,153			801

Net deferred tax asset at end of year		21,370			19,944

Net deferred tax asset at beginning of year		19,944			21,384

Deferred tax expense (benefit)	$	(1,426	)		1,440

Deferred tax assets are recognized subject to management’s judgment that realization is more likely than not. Based primarily on the sufficiency of historical and expected future taxable income, management believes it is more likely than not that the remaining deferred tax asset of $21.4 million and $19.9 million at December 31, 2013 and 2012, respectively, will be realized.

In addition to the deferred tax items described in the preceding table, the Company has a deferred tax asset of $12.0 million and a deferred tax liability of $2.5 million at December 31, 2013 and 2012, respectively, relating to the net unrealized gains and losses on securities available for sale and a deferred tax liability of $2.8 million and a deferred tax asset of $1.5 million at December 31, 2013 and 2012, respectively, as a result of the previously unrecognized overfunded position in the Company’s pension and postretirement benefit plans recorded, net of tax, as an adjustment to accumulated other comprehensive income.

The effective tax rates differ from the statutory federal income tax rate. The reasons for these differences are as follows:

	For the years ended
	December 31,
	2013			2012			2011
Statutory federal income tax rate		35.0	%		35.0			35.0

Increase/(decrease) in taxes resulting from:
Tax exempt income		(0.3	)		(0.7	)		(1.6	)
State income tax (including alternative minimum tax), net of federal tax benefit		2.3			2.3			2.0
Other items		0.3			0.8			1.4
Effective income tax rate		37.3	%		37.4			36.8

TrustCo adopted ASC 740-10, “Accounting for Uncertainty in Income Taxes,” as of January 1, 2008. ASC 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. As a result of the Company’s adoption of ASC 740-10, there were no required adjustments to the Company’s consolidated financial statements.

During 2012 a part of the statute of limitations expired on previously filed amended returns. The Company has determined that the tax positions claimed on amended returns are more likely than not to be sustained upon examination. The Company has appropriately recorded the remaining portion of such unrecognized tax benefit as of December 31, 2012.

For the years ended December 31, 2013 and 2012 the unrecognized tax benefits and change in those unrecognized tax benefits from the beginning of the year are as follows:

(dollars in thousands)


Balance January 1, 2012	$	905

Decrease in prior unrecognized tax benefits		(342	)
Lapse of statute of limitations		(350	)
Balance December 31, 2012	$	213

Change in unrecognized tax reserve		-

Balance December 31, 2013	$	213

TrustCo has implemented certain tax return positions that have not been fully recognized for financial statement purposes based upon management’s evaluation of the probability of the benefit being realized. Management will reevaluate the necessity of these unrecognized tax benefits after the affected tax returns have been subject to audit. The Company does not anticipate a material charge to the amount of unrecognized tax benefits in the next twelve months.

The Company recognizes interest and/or penalties related to income tax matters in noninterest expense. For 2013, 2012, and 2011, these amounts were not material. Open Federal and New York State tax years are 2008 through 2013.