Income Taxes

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



	For the Year Ended December 31,
(In Thousands)	2016		2015			2014
Current:
Federal	$	29,882	$	30,410		$	17,435
State and local	3,592		2,075			4,033
Total current	33,474		32,485			21,468
Deferred:
Federal	1,330		13,573			27,452
State and local	5,924		(16,259		)	(22,641		)
Total deferred	7,254		(2,686		)	4,811
Total income tax expense	$	40,728	$	29,799		$	26,279

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)	2016			2015			2014
Expected income tax expense at statutory federal rate	$	39,290		$	41,256		$	42,768
State and local taxes, net of federal tax effect	6,038			(9,220		)	(12,096		)
Tax exempt income (principally on BOLI)	(3,213		)	(3,107		)	(2,970		)
Low income housing tax credit	(916		)	(1,036		)	(1,676		)
Other, net	(471		)	1,906			253
Total income tax expense	$	40,728		$	29,799		$	26,279

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)	2016			2015
Deferred tax assets:
Allowances for losses	$	36,084		$	41,924
Compensation and benefits (principally pension and other postretirement benefit plans)	40,759			40,072
Mortgage loans (principally deferred loan origination costs)	2,871			2,548
Net unrealized loss on securities available-for-sale	577			194
State and local net operating loss carryforwards	13,467			16,341
Other deductible temporary differences	4,320			4,568
Total gross deferred tax assets	98,078			105,647
Less valuation allowance	—			—
Deferred tax assets, net of valuation allowance	98,078			105,647
Deferred tax liabilities:
Premises and equipment	(3,465		)	(3,665		)
MSR	(1,534		)	(438		)
Total gross deferred tax liabilities	(4,999		)	(4,103		)
Net deferred tax assets (included in other assets)	$	93,079		$	101,544

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.

New York State, or NY State, income tax reform legislation, or the 2014 NY State legislation, was enacted on March 31, 2014 and generally became effective in 2015. Prior to the effective date of the 2014 NY State legislation, we were subject to taxation in NY State under an alternative taxation method based on assets. The 2014 NY State legislation, among other things, removed that alternative method and required that we be taxed in a manner that resulted in an increase in our NY State income tax expense beginning in 2015. The impact of the 2014 NY State legislation, including the effects of a 2014 fourth quarter resolution of an income tax matter with NY State, 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. As was the case with NY State, for New York City we had 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, we established a full valuation allowance and no deferred tax assets were recognized for New York City purposes at December 31, 2014.

On April 13, 2015, a package of additional legislation, or the 2015 NY State legislation, was signed into law in NY State that, among other things, largely conformed New York City, or NY City, banking income tax laws to the 2014 NY State legislation. The 2015 NY State legislation was effective retroactively to tax years beginning on or after January 1, 2015. In addition, on June 30, 2015, the State of Connecticut enacted tax legislation that changed the method for calculating Connecticut income taxes, resulting in the recognition of certain deferred tax assets. Under GAAP, the effects of changes in tax law on current and deferred taxes are accounted for in the period that includes the enactment date of the change, which means that we recorded the impacts of the legislation in the second quarter of 2015.

The tax law changes effective in 2015 resulted in a reduction in income tax expense of $11.4 million in the 2015 second quarter comprised of (i) the elimination of our valuation allowance totaling $7.2 million, which previously offset certain deferred tax assets, and (ii) the recognition of additional deferred tax assets totaling $4.2 million, primarily related to NY City taxation.

At December 31, 2016, we have available a NY State net operating loss carryforward of $171.9 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. In addition, we have available New York City net operating loss carryforwards of $46.6 million, which expire in various years from 2026 through 2034.

We file income tax returns in the United States federal jurisdiction and in NY State 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 2013.

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)	2016			2015			2014
Unrecognized tax benefits at beginning of year	$	1,485		$	2,155		$	4,009
Additions as a result of a tax position taken during the current period	15			830			675
Reductions relating to settlement with taxing authorities	(88		)	(1,500		)	(2,529		)
Unrecognized tax benefits at end of year	$	1,412		$	1,485		$	2,155

If realized, all of our unrecognized tax benefits at December 31, 2016 would affect our effective income tax rate. After the related federal tax effects, realization of those benefits would reduce income tax expense by $926,000.

In addition to the above unrecognized tax benefits, we have accrued liabilities for interest and penalties related to uncertain tax positions totaling $462,000 at December 31, 2016, $437,000 at December 31, 2015 and $469,000 at December 31, 2014. 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 $71,000 during the year ended December 31, 2016, $194,000 during the year ended December 31, 2015 and $247,000 during the year ended December 31, 2014. Realization of all of our unrecognized tax benefits would result in a further reduction in income tax expense of $345,000 for the reversal of accrued interest and penalties, net of the related federal tax effects.

Astoria Bank’s retained earnings at December 31, 2016 and 2015 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.