Income Taxes

Income tax expense is comprised of the following:



	Year Ended December 31,
(In thousands)	2015			2014		2013
Taxes currently payable
Federal	$	52,869		$	52,514	$	24,426
State	(3,119		)	4,763		3,496
Deferred expense	47,269			44,666		51,585
Total income tax expense	$	97,019		$	101,943	$	79,507

The actual income tax rate differs from the statutory tax rate as shown in the following table:



		Year Ended December 31,
		2015		2014		2013
Statutory rate		35.00	%	35.00	%	35.00	%
Increase (decrease) in rate due to:
	Interest on tax-exempt securities and tax-free loans, net	(2.75	)	(2.77	)	(3.16	)
	Merger expenses at acquisition	—		—		0.54
	Reduction in excess tax reserves	—		—		0.11
	Bank owned life insurance	(1.76	)	(2.10	)	(2.53	)
	State income tax (net)	0.59		0.91		0.87
	Tax credits	(0.82	)	(0.96	)	(1.06	)
	ESOP Dividends	(0.14	)	(0.13	)	(0.14	)
	Nondeductible meals and entertainment	0.25		0.22		0.27
	Other	(0.66	)	(0.18	)	0.31
Effective tax rates		29.71	%	29.99	%	30.21	%

Income tax expense as reflected in the previous table excludes net worth-based taxes, which are assessed on financial institutions in lieu of income tax in Ohio, Pennsylvania and Michigan. These taxes are $8.1 million, $8.2 million, and $9.9 million in 2015, 2014, and 2013, respectively, and are recorded in other operating expense in the accompanying Consolidated Statement of Income.

Principal components of the Corporation’s net deferred tax asset are summarized as follows:



		Year Ended
		December 31,
(In thousands)		2015			2014
Deferred tax assets:
	Allowance for credit losses	$	40,069		$	35,760
	Employee benefits	50,868			51,584
	Real Estate Mortgage Investment Credit	3,791			4,831
	Acquired liabilities	5,931			6,296
	Acquired loans	25,388			51,701
	Available for sale securities	11,475			3,862
	Loan fees and expenses	—			—
	Federal NOL carryforwards	102,194			131,195
	Alternative minimum tax credit carryforward	112,861			83,428
	General business tax credit carryforward	2,924			1,982
	State income tax (net of federal benefit)	2,441			1,970
	Other	1,789			467
	Total deferred tax assets	359,731			373,076
Deferred tax liabilities:
	Leased assets and depreciation	(41,649		)	(24,699		)
	FHLB stock	(18,641		)	(18,165		)
	Loan fees and expenses	(1,480		)	(2,537		)
	Goodwill	(26,885		)	(16,580		)
	Core deposit intangibles	(18,697		)	(22,013		)
	Other	—			—
	Total deferred tax liabilities	(107,352		)	(83,994		)
Total net deferred tax asset		$	252,379		$	289,082

At December 31, 2015 and 2014, there was no valuation allowance for deferred tax assets.

At December 31, 2015, the Corporation had gross federal loss carryforwards of $292.0 million that expire in 2028 through 2032, general business credits of $2.9 million that expire in 2028, and $112.9 million of federal alternative minimum tax credits with an indefinite life. In addition, future state income taxes are expected to be reduced by $450.0 thousand resulting from state non-operating losses at various levels in various states. This benefit is expected to be fully used during the expiration period of 2015 through 2027.

The period change in deferred taxes recorded both directly to shareholders’ equity and as a part of the income tax expense is summarized as follows:



		Year Ended December 31,
(In thousands)		2015			2014
Deferred tax changes reflected in other comprehensive income		$	(10,565	)	$	(2,698	)
Deferred tax changes reflected in Federal income tax expense		47,269			44,666
	Net decrease/(increase) in DTA	$	36,704		$	41,968

Income tax benefits are recognized in the financial statements for a tax position only if it is considered “more likely than not” of being sustained on audit based solely on the technical merits of the income tax position. If the recognition criteria are met, the amount of income tax benefits to be recognized is measured based on the largest income tax benefit that is more than 50 percent likely to be realized on ultimate resolution of the tax position.

A reconciliation of the change in the reserve for uncertain tax positions for 2015 and 2014 is as follows:



(In thousands)	Federal and State Tax			Accrued Interest and Penalties			Gross Unrecognized Income Tax Benefits
Balance as of January 1, 2015	$	305		$	19		$	324
Additions for tax provisions related to prior year	299			17			316
Reduction for tax positions related to prior year due closed tax years	—			—			—
Reduction for tax positions related to prior tax years	(134		)	—			(134		)
Balance at December 31, 2015	$	470		$	36		$	506
Components of Reserve:
State income tax exposure	$	470		$	36		$	506
Balance at December 31, 2015	$	470		$	36		$	506

(In thousands)	Federal and State Tax			Accrued Interest and Penalties			Gross Unrecognized Income Tax Benefits
Balance as of January 1, 2014	$	1,003		$	262		$	1,265
Additions for tax provisions related to prior year	798			14			812
Reduction for tax positions related to prior year due closed tax years	(31		)	(3		)	(34		)
Reduction for tax positions related to prior tax years	(1,465		)	(254		)	(1,719		)
Balance at December 31, 2014	$	305		$	19		$	324
Components of Reserve:
State income tax exposure	$	305		$	19		$	324
Balance at December 31, 2014	$	305		$	19		$	324

The Corporation recognized accrued interest and penalties, as appropriate, related to UTBs, in the effective tax rate. The balance of accrued interest and penalties at the reporting periods is presented in the table above. The reserve of uncertain tax positions is recorded in accrued taxes, expenses and other liabilities on the Consolidated Balance Sheet.

The Corporation is routinely examined by various taxing authorities. With few exceptions, the Corporation is no longer subject to federal, state and local tax examinations by tax authorities for years before 2012. The expiration of statutes of limitation for various jurisdictions is expected to reduce the UTB balance by approximately $50 thousand within the next twelve months. Management anticipates that the UTB balance will increase by $0.2 million as a result of the 2015 tax filings in the next twelve months. If the total amount of UTBs were recognized the effective tax rate would decrease by 0.15 to 29.71% at December 31, 2015.

Management monitors changes in tax statutes and regulations and the issuance of judicial decisions to determine the potential impact to uncertain income tax positions. As of December 31, 2015, Management had identified no other potential U.S. Treasury regulations or legislative initiatives that could have a significant impact on the UTB balance within the next twelve months.