
Years ended December 31 (in millions)	2019		2018		2017
Income tax expense applicable to pre-tax income	$	132.0	$	108.2	$	129.9
Deferred income tax expense (benefit) applicable to items reported in total other comprehensive income (loss) (note 17)	27.2		(12.2)		8.3
Total	$	159.2	$	96.0	$	138.2


	2019						2018						2017
Years ended December 31 (dollars in millions)	Amount		Rate		Amount		Rate		Amount		Rate
Expected income tax expense	$	137.0	21.0	%	$	121.0	21.0	%	$	163.5	35.0	%
State income tax, net of federal tax effect	22.6		3.4		23.2		4.1		12.2		2.6
Non-deductible FDIC insurance premiums	4.4		0.7		6.5		1.1		—		—
Tax-exempt interest	(21.4)		(3.3)		(19.4)		(3.4)		(26.6)		(5.7)
Federal income tax credits	(12.7)		(2.0)		(12.3)		(2.1)		(11.6)		(2.5)
Tax-exempt income from BOLI	(2.2)		(0.3)		(1.5)		(0.3)		(2.2)		(0.5)
Tax benefits recognized in connection with:
The Tax Cuts and Jobs Act	—		—		(9.2)		(1.6)		(6.5)		(1.4)
Equity-based compensation	(0.1)		—		(1.3)		(0.2)		(1.1)		(0.2)
Other, net	4.4		0.7		1.2		0.2		2.2		0.5
Actual income tax expense	$	132.0			$	108.2			$	129.9
Effective income tax rate			20.2	%			18.8	%			27.8	%

The Tax Cuts and Jobs Act (the "Act") was enacted on December 22, 2017. The most significant provision of the Act applicable to the Company served to reduce the U.S. federal corporate income tax rate, effective January 1, 2018, from 35% to 21%. In connection with its accounting for enactment of the Act, the Company recognized an income tax benefit of $6.5 million during the quarter ended December 31, 2017. This benefit, which served to reduce income tax expense, reflected the revaluation of certain deferred tax assets ($58.0 million) and deferred tax liabilities ($64.5 million) based on the rates at which they are expected to reverse in the future (generally 21%). During the quarter ended December 31, 2018, the Company recognized an income tax benefit of $9.2 million related, primarily, to voluntary employer contributions totaling $50 million made to the Company’s defined benefit pension plans in February 2018 and deducted (as permitted) on the Company’s 2017 federal income tax return (see Note 18).

Under GAAP, the effect of a change in tax law is recorded discretely as a component of the income tax provision related to continuing operations in the period of enactment. This is true even if the deferred taxes being revalued were established through a financial statement component other than continuing operations (e.g. accumulated other comprehensive income). Adjusting the deferred taxes for temporary differences that arose from items of income or loss that were originally recorded in accumulated other comprehensive income through continuing operations may result in a disproportionate tax effect lodged in accumulated other comprehensive income. In other words, the original deferred tax amount recorded through accumulated other comprehensive income at the old tax rate will remain in accumulated other comprehensive income despite the fact that its related deferred tax asset/liability will be reduced through continuing operations to reflect the new tax rate. The amounts lodged in accumulated other comprehensive income are often referred to as “stranded tax effects.”

In February 2018, as a result of the enactment of the Act, the FASB issued new accounting guidance that provided entities with the option to reclassify, from accumulated other comprehensive income to retained earnings, certain “stranded tax effects” resulting from application of the Act. The guidance became effective for all organizations for fiscal years beginning after December 15, 2018 (January 1, 2019 for People’s United), including interim periods within those fiscal years, and early adoption was permitted. The Company elected to early adopt this amendment effective January 1, 2018 (see Note 1).

People's United holds ownership interests in limited partnerships formed to develop and operate affordable housing units for lower income tenants throughout its franchise area. The underlying partnerships, which are considered VIEs, are not consolidated into the Company's Consolidated Financial Statements. These investments have historically played a role in enabling the Bank to meet its Community Reinvestment Act requirements while, at the same time, providing federal income tax credits.

Affordable housing investments, including all legally binding commitments to fund future investments, are included in other assets in the Consolidated Statements of Condition ($383.9 million and $304.1 million at December 31, 2019 and 2018, respectively). Included in other liabilities in the Consolidated Statements of Condition is a liability for all legally binding unfunded commitments to fund future investments ($141.1 million and $119.7 million at those dates). The cost of the Company's investments is amortized on a straight-line basis over the period during which the related federal income tax credits are realized (generally ten years). Amortization expense, which is included as a component of income tax expense in the Consolidated Statements of Income, totaled $25.0 million, $19.1 million and $16.7 million for the years ended  December 31, 2019, 2018 and 2017, respectively.

As a result of its acquisition of United Financial, People’s United became a limited liability member in three  tax-advantaged funds – Solar Eclipse Investment Fund X, LLC; Solar Eclipse Investment Fund XV, LLC; and Solar Eclipse Investment Fund XXII, LLC (collectively, the “LLCs”) – each of which previously generated solar investment tax credits for United Financial. Solarmore Management Services, Inc. (“Solarmore”) originally served as the managing member for each of the LLCs, and also acted as the managing member of a number of other solar investment tax credit LLC funds (collectively, the “Funds”). In December 2019, Solarmore was replaced as the manager of the LLCs. The LLCs were established to participate in a government-sponsored program to promote solar technology and obtain financing to acquire approximately 500 mobile solar generators and place those generators in service to qualify for a federal tax credit based upon the fair value of the generators. Each Fund (and each LLC) obtained financing from D.C. Solar Solutions, Inc. (“Solutions”), which is also the manufacturer and seller of the generators, and entered into a master lease arrangement with D.C. Solar Distribution, Inc. (“Distribution”), the entity that is responsible for the end sub-lease activity supporting the fair value of the master lease agreement. Solutions and Distribution are indirectly related.

In December 2018, Solutions and Distribution (collectively, “D.C. Solar”) had certain assets seized by the  U.S. Government. In late January and early February 2019, D.C. Solar and certain affiliated companies filed voluntary petitions for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in an attempt to reorganize. On March 22, 2019, primarily as a result of a lack of financing to maintain the on-going operations of these companies, ambiguity around actual inventory in existence and the U.S. Government’s seizure of certain assets, the bankruptcy cases were converted to cases under Chapter 7. Prior to conversion of the bankruptcy cases, an FBI affidavit filed in the bankruptcy cases contained allegations of a potential fraud perpetrated by the principals of D.C. Solar, including allegations of fictitious or overstated sales of mobile solar generators sold to the Funds (including the LLCs) as well as the fabrication of sublease revenue streams for the generators.

At the time of the Company’s acquisition of United Financial, further developments had occurred which served to increase the level of uncertainty with respect to the existence, condition and fair value of the generators. These factors were considered by the Company and, as a result, it was concluded that there was sufficient evidence to support that a full loss was probable. Accordingly, in connection with the related purchase accounting for United Financial, People’s United recorded a full write-down of the balance of the remaining investments in the LLCs of $8.4 million (after-tax) and established a reserve against tax benefits and credits of $18.9 million to reflect a full loss on the generators and the associated tax benefits previously realized by United Financial.

In January 2020, the principals of D.C. Solar plead guilty in federal court to conspiracy to commit wire fraud and money laundering in connection with their role in a Ponzi scheme in which they: (i) sold solar generators that did not exist; (ii) made it appear as though solar generators existed in locations where they did not; (iii) created false financial statements; and  (iv) obtained false lease contracts. In connection with the guilty plea, the U.S. Securities and Exchange Commission filed related civil charges against the principals.

In 1998, the Bank formed a passive investment company, People's Mortgage Investment Company ("PMIC"), in accordance with Connecticut tax laws, which permit transfers of mortgage loans to such subsidiaries on or after  January 1, 1999. The related earnings of PMIC, and any dividends it pays to the Bank, are not subject to Connecticut income tax. As a result of the exclusion of such earnings and dividends from Connecticut taxable income beginning in 1999, the Bank has established a valuation allowance for the full amount of its Connecticut deferred tax asset attributable to net temporary differences and state net operating loss carryforwards. Connecticut tax net operating loss carryforwards totaled $1.2 billion at December 31, 2019 and expire between 2020 and 2032.


As of December 31 (in millions)	2019		2018
Deferred tax assets:
State tax net operating loss carryforwards, net of federal tax effect	$	71.8	$	79.4
Allowance for loan losses and non-accrual interest	65.5		62.3
Acquisition-related deferred tax assets	30.5		13.3
Tax credits and net operating loss carryforwards	24.7		—
Equity-based compensation	18.1		15.6
ROU lease assets, net of lease liabilities	7.5		—
D.C. Solar investment basis difference	6.8		—
Unrealized loss on debt securities transferred to held-to-maturity	3.6		4.7
Unrealized loss on debt securities available-for-sale	—		15.4
Other deductible temporary differences	28.2		28.5
Total deferred tax assets	256.7		219.2
Less: valuation allowance for state deferred tax assets	(72.4)		(80.1)
Total deferred tax assets, net of the valuation allowance	184.3		139.1
Deferred tax liabilities:
Leasing activities	(92.7)		(82.0)
Pension and other postretirement benefits	(20.0)		(9.7)
Book over tax income recognized on consumer loans	(18.0)		(17.5)
Unrealized gain on debt securities available-for-sale	(6.6)		—
Mark-to-market and original issue discounts for tax purposes	(5.2)		(10.4)
Temporary differences related to merchant services joint venture	(3.5)		(3.7)

Other taxable temporary differences	(4.7)		(4.4)
Total deferred tax liabilities	(150.7)		(127.7)
Net deferred tax asset	$	33.6	$	11.4


Years ended December 31 (in millions)	2019		2018		2017
Balance at beginning of year	$	5.2	$	2.7	$	2.8
Additions for tax positions taken in prior years	0.5		2.5		0.1
Additions related to D.C. Solar:
Established by United Financial prior to acquisition	8.7		—		—
Established by People's United subsequent to acquisition	18.9		—		—
Reductions attributable to audit settlements/lapse of statute of limitations	—		—		(0.2)
Balance at end of year	$	33.3	$	5.2	$	2.7