INCOME TAXES (Note 13)

Income tax expense for the years ended December 31, 2014, 2013, and 2012 consisted of the following:



	2014			2013		2012
	(in thousands)
Current expense (benefit):
Federal	$	25,156		$	13,203	$	35,684
State	(5,549		)	3,447		2,666
	19,607			16,650		38,350
Deferred expense:
Federal and State	11,455			30,329		28,398
Total income tax expense	$	31,062		$	46,979	$	66,748

The tax effects of temporary differences that gave rise to the significant portions of the deferred tax assets and liabilities as of December 31, 2014 and 2013 are as follows:



	2014		2013
	(in thousands)
Deferred tax assets:
Allowance for loan losses	$	42,574	$	48,042
Depreciation	15,082		13,327
Employee benefits	17,893		14,325
Investment securities, including other-than-temporary impairment losses	15,972		24,735
Net operating loss carryforwards	39,462		53,926
Purchase accounting	31,327		6,863
Other	18,138		21,063
Total deferred tax assets	180,448		182,281
Deferred tax liabilities:
Pension plans	13,081		21,774
Other investments	14,662		11,096
Other	21,127		17,811
Total deferred tax liabilities	48,870		50,681
Net deferred tax asset (included in other assets)	$	131,578	$	131,600

Valley's federal net operating loss carryforwards totaled approximately $9 million and expire during the period from 2029 through 2030 and state net operating loss carryforwards totaled approximately $835 million at December 31, 2014 and expire during the period from 2015 through 2034. Valley also has federal alternative minimum tax credit carryforwards of approximately $610 thousand at December 31, 2014, which are available to reduce future federal regular income taxes, over an indefinite period.

Based upon taxes paid and projections of future taxable income over the periods in which the net deferred tax assets are deductible, management believes that it is more likely than not that Valley will realize the benefits of these deductible differences and loss carryforwards.

Reconciliation between the reported income tax expense and the amount computed by multiplying consolidated income before taxes by the statutory federal income tax rate of 35 percent for the years ended December 31, 2014, 2013, and 2012 were as follows:



	2014			2013			2012
	(in thousands)
Federal income tax at expected statutory rate	$	51,532		$	62,629		$	73,631
(Decrease) increase due to:
Tax-exempt interest, net of interest incurred to carry tax-exempt securities	(4,406		)	(4,876		)	(4,478		)
Bank owned life insurance	(2,237		)	(2,087		)	(2,399		)
State income tax expense, net of federal tax effect	12,866			9,904			8,204
Tax credits	(20,555		)	(17,408		)	(10,070		)
Reduction in reserve for uncertainties	(6,971		)	(1,821		)	(1,105		)
Other, net	833			638			2,965
Income tax expense	$	31,062		$	46,979		$	66,748

A reconciliation of Valley’s gross unrecognized tax benefits for 2014, 2013, and 2012 are presented in the table below:



	2014			2013			2012
	(in thousands)
Beginning balance	$	30,713		$	31,052		$	33,000
Additions based on tax positions related to prior years	1,408			1,482			4,195
Settlements with taxing authorities	(9,050		)	(1,216		)	(5,038		)
Reductions due to expiration of statute of limitations	(4,424		)	(605		)	(1,105		)
Ending balance	$	18,647		$	30,713		$	31,052

The entire balance of unrecognized tax benefits, if recognized, would favorably affect our effective income tax rate. It is reasonably possible that the liability for unrecognized tax benefits could increase or decrease in the next twelve months due to completion of tax authorities’ exams or the expiration of statutes of limitations. Management estimates that the liability for unrecognized tax benefits could decrease by $16 million within the next twelve months.

Valley’s policy is to report interest and penalties, if any, related to unrecognized tax benefits in income tax expense. Valley has accrued approximately $4.5 million and $5.2 million of interest associated with Valley’s uncertain tax positions at December 31, 2014 and 2013, respectively.

Valley files income tax returns in the U.S. federal and various state jurisdictions. With few exceptions, Valley is no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2009. Valley is also currently under routine examination by various state jurisdictions, and we expect the examinations to be completed within the next twelve months. Valley has considered, for all open audits, any potential adjustments in establishing our reserve for unrecognized tax benefits as of December 31, 2014.