INCOME TAXES

12 Months Ended

Dec. 31, 2019

NOTE I: INCOME TAXES

The provision for income taxes for the years ended December 31 is as follows:

(000’s omitted)	2019			2018		2017
Current:
Federal	$	34,804		$	32,504	$	31,152
State and other		7,773			9,180		6,788
Deferred:
Federal		(699	)		2,122		(28,146	)
State and other		(1,603	)		541		(546	)
Provision for income taxes	$	40,275		$	44,347	$	9,248

Components of the net deferred tax liability, included in other liabilities, as of December 31 are as follows:

(000’s omitted)	2019			2018
Allowance for loan losses	$	12,059		$	12,131
Employee benefits		5,393			4,479
Operating lease liabilities		9,801			0
Other, net		837			541
Deferred tax asset		28,090			17,151

Investment securities		21,547			14,451
Goodwill and intangibles		39,189			39,540
Operating lease right-of-use assets		9,566			0
Loan origination costs		7,639			6,851
Depreciation		2,736			3,098
Mortgage servicing rights		162			277
Pension		13,769			11,078
Deferred tax liability		94,608			75,295
Net deferred tax liability	$	(66,518	)	$	(58,144	)

The Company has determined that no valuation allowance is necessary as it is more likely than not that the gross deferred tax assets will be realized through future reversals of existing temporary differences and through future taxable income.

A reconciliation of the differences between the federal statutory income tax rate and the effective tax rate for the years ended December 31 is shown in the following table:

	2019			2018			2017
Federal statutory income tax rate		21.0	%		21.0	%		35.0	%
Increase (reduction) in taxes resulting from:
Tax-exempt interest		(1.5	)		(1.6	)		(3.8	)
State income taxes, net of federal benefit		2.5			3.4			2.5
Stock-based compensation		(1.6	)		(0.9	)		(2.0	)
Federal deferred tax revaluation adjustment		0			0			(23.7	)
Federal tax credits		(1.3	)		(1.4	)		(1.5	)
Other, net		0.1			0.3			(0.7	)
Effective income tax rate		19.2	%		20.8	%		5.8	%

A reconciliation of the unrecognized tax benefits for the years ended December 31 is shown in the following table:

(000’s omitted)	2019		2018			2017
Unrecognized tax benefits at beginning of year	$	0	$	24		$	92
Changes related to:
Lapse of statutes of limitations		0		(24	)		(68	)
Unrecognized tax benefits at end of year	$	0	$	0		$	24

As of December 31, 2019, there was no amount of material unrecognized tax benefits that would impact the Company’s effective tax rate if recognized. It is reasonably possible that the amount of unrecognized tax benefits could change in the next twelve months as a result of various examinations and expiration of statutes of limitations on prior tax returns.

The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits as part of income taxes in the consolidated statement of income. The accrued interest related to tax positions was immaterial.

The Company’s federal and state income tax returns are routinely subject to examination from various governmental taxing authorities. Such examinations may result in challenges to the tax return treatment applied by the Company to specific transactions. Management believes that the assumptions and judgment used to record tax-related assets or liabilities have been appropriate. Future examinations by taxing authorities of the Company’s federal or state tax returns could have a material impact on the Company’s results of operations. The Company’s federal income tax returns for years after 2015 may still be examined by the Internal Revenue Service. New York State income tax returns for years after 2015 may still be examined by the New York Department of Taxation and Finance. The Company is currently under examination by the New York Department of Taxation and Finance in connection with tax years 2015 to 2017, and has not received any notices of proposed adjustments. It is not possible to estimate, if and when those examinations may be completed.

On December 22, 2017, H.R.1, referred to as the “Tax Cuts and Jobs Act,” was signed into law. Among other things, the Tax Cuts and Jobs Act lowered the corporate tax rate to 21% from the existing maximum rate of 35%, effective for tax years including or commencing January 1, 2018. ASC 740, Income Taxes, requires existing deferred tax assets and liabilities to be measured at the enacted tax rate expected to be applied when the temporary differences are to be realized or settled. Thus, as of the date of enactment, deferred taxes were re-measured based upon the new 21% tax rate. Prior to the change in tax rate, the Company had recorded net deferred tax liabilities based on a marginal tax rate of 37.70%. The change in tax rate resulted in a decrease in the marginal tax rate to 24.29% and a deferred tax benefit of $38.0 million from the write-down of the net deferred tax liabilities. The effect of this change in tax law was recorded as a component of the income tax provision including those deferred assets and liabilities that were established through a financial statement component other than continuing operations.