(11) Income Taxes

Income tax expense is summarized as follows:

	For the Year Ended December 31,
(In Thousands)	2013	2012		2011
Current:
Federal	$ 24,524	$ (29,202	)	$ 20,752
State and local	3,722	3,201		3,862
Total current	28,246	(26,001	)	24,614
Deferred:
Federal	9,496	52,969		14,305
State and local	7	912		(204	)
Total deferred	9,503	53,881		14,101
Total income tax expense	$ 37,749	$ 27,880		$ 38,715

Total income tax expense differed from the amounts computed by applying the federal income tax rate to income before income tax expense as a result of the following:

	For the Year Ended December 31,
(In Thousands)	2013		2012		2011
Expected income tax expense at statutory federal rate	$ 36,520		$28,340		$ 37,073
State and local taxes, net of federal tax effect	2,424		2,673		2,378
Tax exempt income (principally on BOLI)	(2,945	)	(3,356	)	(3,672	)
Non-deductible ESOP compensation	2,613		2,187		3,936
Low income housing tax credit	(1,676	)	(1,727	)	(1,885	)
Other, net	813		(237	)	885
Total income tax expense	$ 37,749		$27,880		$ 38,715

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:

	At December 31,
(In Thousands)	2013		2012
Deferred tax assets:
Allowances for losses	$ 54,511		$ 55,057
Compensation and benefits (principally pension and other postretirement benefit plans)	21,955		53,167
Mortgage loans (principally deferred loan origination costs)	7,524		9,029
Net unrealized loss on securities available-for-sale	4,010		-
Effect of unrecognized tax benefits, related accrued interest and other deductible temporary differences	5,489		7,238
Total gross deferred tax assets	93,489		124,491
Deferred tax liabilities:
Premises and equipment	(3,882	)	(3,124	)
Net unrealized gain on securities available-for-sale	-		(2,432	)
Total gross deferred tax liabilities	(3,882	)	(5,556	)
Net deferred tax assets (included in other assets)	$ 89,607		$ 118,935

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

We file income tax returns in the United States federal jurisdiction and in New York State and City jurisdictions. Certain of our subsidiaries also file income tax returns in various other state jurisdictions. With few exceptions, we are no longer subject to federal, state and local income tax examinations by tax authorities for years prior to 2008.

The following is a reconciliation of the beginning and ending amounts of gross unrecognized tax benefits for the periods 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)		2013		2012
Unrecognized tax benefits at beginning of year		$ 3,428		$ 3,856
Additions as a result of a tax position taken during the current period		600		630
Reductions as a result of tax positions taken during a prior period		(19	)	-
Reductions relating to settlement with taxing authorities		-		(1,058	)
Unrecognized tax benefits at end of year		$ 4,009		$ 3,428

If realized, all of our unrecognized tax benefits at December 31, 2013 would affect our effective income tax rate. After the related federal tax effects, realization of those benefits would reduce income tax expense by $2.6 million.

In addition to the above unrecognized tax benefits, we have accrued liabilities for interest and penalties related to uncertain tax positions totaling $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 $224,000 during the year ended December 31, 2013, $316,000 during the year ended December 31, 2012 and $271,000 during the year ended December 31, 2011. Realization of all of our unrecognized tax benefits would result in a further reduction in income tax expense of $726,000 for the reversal of accrued interest and penalties, net of the related federal tax effects.

Astoria Federal’s retained earnings at December 31, 2013 and 2012 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 Federal (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.