Income Taxes

The following table summarizes income tax expense for the years indicated.



	For the Year Ended December 31,
(In Thousands)	2014			2013		2012
Current:
Federal	$	17,435		$	24,524	$	(29,202	)
State and local	4,033			3,722		3,201
Total current	21,468			28,246		(26,001		)
Deferred:
Federal	27,452			9,496		52,969
State and local	(22,641		)	7		912
Total deferred	4,811			9,503		53,881
Total income tax expense	$	26,279		$	37,749	$	27,880

The following is a reconciliation of income tax expense computed by applying the federal income tax rate to income before income tax expense to income tax expense included in the consolidated statements of income for the years indicated.



	For the Year Ended December 31,
(In Thousands)	2014			2013			2012
Expected income tax expense at statutory federal rate	$	42,768		$	36,520		$	28,340
State and local taxes, net of federal tax effect (1)	(12,096		)	2,424			2,673
Tax exempt income (principally on BOLI)	(2,970		)	(2,945		)	(3,356		)
Non-deductible ESOP compensation	—			2,613			2,187
Low income housing tax credit	(1,676		)	(1,676		)	(1,727		)
Other, net	253			813			(237		)
Total income tax expense	$	26,279		$	37,749		$	27,880


(1)	Includes net tax benefits of $15.7 million, net of federal tax effects, for the year ended December 31, 2014 related to the impact of the changes in New York State, or NYS, income tax legislation enacted on March 31, 2014.

The following table summarizes the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at the dates indicated.



	At December 31,
(In Thousands)	2014			2013
Deferred tax assets:
Allowances for losses	$	48,243		$	54,511
Compensation and benefits (principally pension and other postretirement benefit plans)	45,849			21,955
Mortgage loans (principally deferred loan origination costs)	981			7,524
Net unrealized loss on securities available-for-sale	—			4,010
State and local net operating loss carryforwards	16,122			—
Other deductible temporary differences	4,540			5,558
Total gross deferred tax assets	115,735			93,558
Less valuation allowance	(7,220		)	—
Deferred tax assets, net of valuation allowance	108,515			93,558
Deferred tax liabilities:
Premises and equipment	(3,102		)	(3,882		)
Net unrealized gain on securities available-for-sale	(1,035		)	—
MSR	(910		)	(69		)
Total gross deferred tax liabilities	(5,047		)	(3,951		)
Net deferred tax assets (included in other assets)	$	103,468		$	89,607

We believe that our historical and future results of operations, and tax planning strategies which could be employed, will more likely than not generate sufficient taxable income to enable us to realize our net deferred tax assets.

NYS income tax legislation was enacted on March 31, 2014 in connection with the approval of the NYS 2014-2015 budget. Portions of the new legislation result in significant changes in the calculation of income taxes imposed on banks and thrifts operating in NYS, including changes to (1) future period NYS tax rates, (2) rules related to sourcing of revenue for NYS tax purposes and (3) the NYS taxation of entities within one corporate structure, among other provisions. In recent years, we have been subject to taxation in NYS under an alternative taxation method based on assets. Deferred tax items related to net operating loss carryforwards and temporary differences could not be utilized under the alternative taxation method and were not anticipated to become utilizable in the future. As such, no deferred tax assets were previously established for these items. The new legislation, among other things, removes that alternative method. Further, the new law (1) requires that we will be taxed in a manner that we believe may result in an increase in our tax expense beginning in 2015 and (2) caused us to recognize temporary differences and net operating loss carryforward benefits in 2014 which we were unable to recognize previously. The impact of the 2014 changes in the NYS income tax legislation, including the effects of a 2014 fourth quarter resolution of an income tax matter with NYS, was an increase in our net deferred tax asset in the statement of financial condition with a corresponding reduction in income tax expense of $15.7 million in 2014.

At December 31, 2014, we have available a NYS net operating loss carryforward of $199.2 million which expires in 2035. Utilization of this net operating loss carryforward, and the ability to carryover any remaining unused amount to subsequent years, is subject to certain limitations as well as elections that may be made by us.

As was the case with NYS, for New York City we have been subject to income taxes on an alternative method based on assets through December 31, 2014 which similarly precluded recognition of deferred tax items. As such, no deferred tax assets were previously established for New York City purposes. Consistent with the establishment of our net deferred tax asset for NYS during 2014, we established a deferred tax asset, net of federal tax effects, of $7.2 million at December 31, 2014 reflecting the benefit of New York City net operating loss carryforwards of $85.3 million, which expire in various years from 2026 through 2034, and other temporary differences. However, under currently existing New York City income tax regulations, future realization of the net deferred tax asset related to New York City is not more likely than not and a valuation allowance in an amount equal to this portion of our net deferred tax asset was established as of December 31, 2014.

We file income tax returns in the United States federal jurisdiction and in NYS and New York City jurisdictions, as well as various other state jurisdictions in which we do business. With few exceptions, we are no longer subject to federal, state and local income tax examinations by tax authorities for years prior to 2011.

The following is a reconciliation of the beginning and ending amounts of gross unrecognized tax benefits for the years indicated. The amounts have not been reduced by the federal deferred tax effects of unrecognized state tax benefits.



	For the Year Ended December 31,
(In Thousands)	2014			2013			2012
Unrecognized tax benefits at beginning of year	$	4,009		$	3,428		$	3,856
Additions as a result of a tax position taken during the current period	675			600			630
Reductions as a result of tax positions taken during a prior period	—			(19		)	—
Reductions relating to settlement with taxing authorities	(2,529		)	—			(1,058		)
Unrecognized tax benefits at end of year	$	2,155		$	4,009		$	3,428

If realized, all of our unrecognized tax benefits at December 31, 2014 would affect our effective income tax rate. After the related federal tax effects, realization of those benefits would reduce income tax expense by $1.4 million.

In addition to the above unrecognized tax benefits, we have accrued liabilities for interest and penalties related to uncertain tax positions totaling $469,000 at December 31, 2014, $1.1 million at December 31, 2013 and $730,000 at December 31, 2012. We accrued interest and penalties on uncertain tax positions as an element of our income tax expense, net of the related federal tax effects, totaling $247,000 during the year ended December 31, 2014, $224,000 during the year ended December 31, 2013 and $316,000 during the year ended December 31, 2012. Realization of all of our unrecognized tax benefits would result in a further reduction in income tax expense of $341,000 for the reversal of accrued interest and penalties, net of the related federal tax effects.

Astoria Bank’s retained earnings at December 31, 2014 and 2013 includes base-year bad debt reserves, created for tax purposes prior to 1988, totaling $165.8 million. A related deferred federal income tax liability of $58.0 million has not been recognized. Base-year reserves are subject to recapture in the unlikely event that Astoria Bank (1) makes distributions in excess of current and accumulated earnings and profits, as calculated for federal income tax purposes, (2) redeems its stock, or (3) liquidates.