Income Taxes

12 Months Ended

Dec. 31, 2019

Income tax expense is comprised of the following amounts:



	Year Ended December 31,
	2019			2018			2017
	(In Thousands)
Current provision:
Federal	$	21,706		$	23,949		$	27,825
State	6,565			7,693			5,013
Total current provision	28,271			31,642			32,838
Deferred provision (benefit):
Federal	701			(4,323		)	10,209
State	(703		)	(1,130		)	589
Total deferred provision (benefit)	(2		)	(5,453		)	10,798
Total provision for income taxes	$	28,269		$	26,189		$	43,636

Total provision for income taxes differed from the amounts computed by applying the statutory U.S. federal income tax rate of 21.0% in 2019, 21.0% in 2018 and 35.0% in 2017 to income before tax expense as a result of the following:



	Year Ended December 31,
	2019			2018			2017
	(Dollars In Thousands)
Expected income tax expense at statutory federal tax rate	$	24,366		$	23,675		$	34,039
State taxes, net of federal income tax benefit	4,837			5,184			3,641
Bank-owned life insurance	(216		)	(218		)	(364		)
Tax-exempt interest income	(435		)	(487		)	(873		)
Income attributable to noncontrolling interest in subsidiary	(11		)	(933		)	(870		)
Merger and acquisition expense	—			32			138
Tax Act Adjustment	—			(707		)	8,965
Investments in affordable housing projects	(369		)	(358		)	(653		)
Other, net	97			1			(387		)
Total provision for income taxes	$	28,269		$	26,189		$	43,636
Effective income tax rate	24.4		%	23.2		%	44.9		%

The Company's effective tax rate was 24.4% as of December 31, 2019 compared to 23.2% as of December 31, 2018. The Company's expected income tax expense was $0.7 million higher in 2019. The item impacting the Company's increase in the effective tax rate from 2018 involved Brookline Bank's completed purchase of the remaining interest in Eastern Funding in 2019. Tax savings of approximately $0.9 million were recognized for this portion of Eastern Funding in 2018, but not in 2019. In 2018, the Company made an adjustment related to the Tax Act that reduced the provision for income taxes by $0.7 million.

On December 22, 2017, the Tax Act was enacted, which represents the most comprehensive reform to the U.S. tax code in over thirty years. The majority of the provisions of the Tax Act took effect on January 1, 2018. The Tax Act lowered the Company’s federal tax rate from 35% to 21%. The Tax Act also contains other provisions that may affect the Company currently or in future years. Among these are changes to the deductibility of meals and entertainment, the deductibility of executive compensation, accelerated expensing of depreciable property for assets placed in service after September 27, 2017 and before 2023, limits the deductibility of net interest expense, eliminated the corporate alternative minimum tax, limited net operating loss carryforwards to 80% of taxable income and a parking disallowance related to employee parking.

As a result of the Tax Act, in 2017, management re-valued the carrying value of our net deferred tax asset and investments in low income housing tax credits. The impact of the Tax Act resulted in a write down of the carrying balance of net deferred tax assets and investments in affordable housing projects of $8.6 million and $0.3 million, respectively.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at the dates indicated are as follows:



	At December 31,
	2019		2018
	(In Thousands)
Deferred tax assets:
Allowance for loan and lease losses	$	16,294	$	15,936
Right-of-use asset - operating leases	6,450		—
Deferred compensation	4,748		4,692
Identified intangible assets and goodwill	4,319		—
Supplemental Executive Retirement Plans	3,023		2,846
Unrealized loss on investment securities available-for-sale	—		2,737
Net operating loss carryforwards	187		976
Postretirement benefits	458		391
Nonaccrual interest	557		482
Accrued expense	—		372
Restricted stock and stock option plans	751		497
Employee stock ownership plan	83		106
Other	733		331
Total gross deferred tax assets	37,603		29,366
Deferred tax liabilities:
Operating leases - liability	6,450		—
Identified intangible assets and goodwill	—		2,428
Deferred loan origination costs, net	3,785		3,537
Depreciation	420		789
Unrealized gain on investment securities available-for-sale	622		—
Prepaid expense	110		116
Accrued Expense	122		—
Acquisition fair value adjustments	1,077		1,001
Total gross deferred tax liabilities	12,586		7,871
Net deferred tax asset	$	25,017	$	21,495

As of December 31, 2019, the Company had net operating loss carryforwards for federal income tax purposes of $0.9 million gross which are available to offset future federal taxable income, if any, through 2020. Of this total net operating loss carryforward amount, $0.7 million is related to the Company's First Commons Bank transaction.

The Company has determined that a valuation allowance is not required for any of its deferred tax assets because it believes that it is more likely than not that these assets will reverse against future taxable income.

For federal income tax purposes, the Company has a $1.8 million reserve for credit losses which remains subject to recapture. If any portion of the reserve is used for purposes other than to absorb the losses for which it was established, approximately 150% of the amount actually used (limited to the amount of the reserve) would be subject to taxation in the year in which used. As the Company intends to use the reserve only to absorb credit losses, no provision has been made for the $0.5 million liability that would result if 100% of the reserve were recaptured.

The Company did not have any unrecognized tax benefits accrued as income tax payables, receivables or as deferred tax items as of December 31, 2019 and 2018. The Company files U.S. federal and state income tax returns. As of December 31, 2019, the Company is subject to examination by the Massachusetts, Rhode Island and several other state tax authorities for tax years after December 31, 2014.