13. Income taxes

The components of income tax expense were as follows:


	Year Ended December 31
	2015		2014		2013
	(In thousands)
Current
Federal	$	130,349	$	378,978	$	371,249
State and city		21,549		50,790		68,035

Total current		151,898		429,768		439,284

Deferred
Federal		324,317		65,503		106,537
State and city		72,279		27,345		33,248

Total deferred		396,596		92,848		139,785

Amortization of investments in qualified affordable housing projects		46,531		53,383		48,019

Total income taxes applicable to pre-tax income	$	595,025	$	575,999	$	627,088

The Company files a consolidated federal income tax return reflecting taxable income earned by all domestic subsidiaries. In prior years, applicable federal tax law allowed certain financial institutions the option of deducting as bad debt expense for tax purposes amounts in excess of actual losses. In accordance with GAAP, such financial institutions were not required to provide deferred income taxes on such excess. Recapture of the excess tax bad debt reserve established under the previously allowed method will result in taxable income if M&T Bank fails to maintain bank status as defined in the Internal Revenue Code or charges are made to the reserve for other than bad debt losses. At December 31, 2015, M&T Bank’s tax bad debt reserve for which no federal income taxes have been provided was $137,121,000. No actions are planned that would cause this reserve to become wholly or partially taxable.

Income taxes attributable to gains or losses on bank investment securities were an expense of $18,313,000 in 2013. There were no significant gains or losses on bank investment securities in 2014 or 2015. No alternative minimum tax expense was recognized in 2015, 2014 or 2013.

Total income taxes differed from the amount computed by applying the statutory federal income tax rate to pre-tax income as follows:


	Year Ended December 31
	2015			2014			2013
	(In thousands)
Income taxes at statutory federal income tax rate	$	586,142		$	574,786		$	617,949
Increase (decrease) in taxes:
Tax-exempt income		(33,102	)		(31,752	)		(34,747	)
State and city income taxes, net of federal income tax effect		60,988			50,788			65,834
Qualified affordable housing project federal tax credits, net		(15,297	)		(14,827	)		(17,994	)
Other		(3,706	)		(2,996	)		(3,954	)

	$	595,025		$	575,999		$	627,088

Deferred tax assets (liabilities) were comprised of the following at December 31:


	2015			2014			2013
	(In thousands)
Losses on loans and other assets	$	637,955		$	605,273		$	645,713
Postretirement and other employee benefits		55,962			34,052			30,023
Incentive and other compensation plans		60,337			36,450			37,772
Interest on loans		57,640			79,147			100,725
Retirement benefits		148,722			120,222			—
Stock-based compensation		72,090			64,017			63,101
Depreciation and amortization		—			3,527			1,404
Other		162,086			100,999			121,561

Gross deferred tax assets		1,194,792			1,043,687			1,000,299

Leasing transactions		(285,074	)		(280,596	)		(284,370	)
Unrealized investment gains		(31,121	)		(82,065	)		(21,779	)
Capitalized servicing rights		(59,171	)		(46,393	)		(46,041	)
Interest on subordinated note exchange		—			(3,125	)		(6,075	)
Retirement benefits		—			—			(9,397	)
Depreciation and amortization		(56,731	)		—			—
Other		(55,611	)		(63,814	)		(49,450	)

Gross deferred tax liabilities		(487,708	)		(475,993	)		(417,112	)

Net deferred tax asset	$	707,084		$	567,694		$	583,187

The Company believes that it is more likely than not that the deferred tax assets will be realized through taxable earnings or alternative tax strategies.

The income tax credits shown in the statement of income of M&T in note 25 arise principally from operating losses before dividends from subsidiaries.

A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:


	Federal, State and Local Tax			Accrued Interest			Unrecognized Income Tax Benefits
	(In thousands)
Gross unrecognized tax benefits at January 1, 2013	$	16,548		$	12,379		$	28,927
Increases in unrecognized tax benefits as a result of tax positions taken during 2013		2,267			—			2,267
Increases in unrecognized tax benefits as a result of tax positions taken in prior years		—			4,429			4,429
Decreases in unrecognized tax benefits as a result of settlements with taxing authorities		(1,854	)		(487	)		(2,341	)
Decreases in unrecognized tax benefits because applicable returns are no longer subject to examination		(2,350	)		(1,625	)		(3,975	)

Gross unrecognized tax benefits at December 31, 2013		14,611			14,696			29,307
Increases in unrecognized tax benefits as a result of tax positions taken during 2014		769			—			769
Increases in unrecognized tax benefits as a result of tax positions taken in prior years		—			453			453
Decreases in unrecognized tax benefits as a result of settlements with taxing authorities		(4,668	)		(11,280	)		(15,948	)

Gross unrecognized tax benefits at December 31, 2014		10,712			3,869			14,581
Increases in unrecognized tax benefits as a result of tax positions taken during 2015		8,108			—			8,108
Increases in unrecognized tax benefits as a result of tax positions taken in prior years		—			807			807
Decreases in unrecognized tax benefits as a result of settlements with taxing authorities		(1,515	)		(274	)		(1,789	)
Unrealized tax benefits acquired in a business combination		7,232			3,567			10,799

Gross unrecognized tax benefits at December 31, 2015	$	24,537		$	7,969			32,506

Less: Federal, state and local income tax benefits								(11,377	)

Net unrecognized tax benefits at December 31, 2015 that, if recognized, would impact the effective income tax rate							$	21,129

The Company’s policy is to recognize interest and penalties, if any, related to unrecognized tax benefits in income taxes in the consolidated statement of income. The balance of accrued interest at December 31, 2015 is included in the table above. The Company’s federal, state and local income tax returns are routinely subject to examinations from various governmental taxing authorities. Such examinations may result in challenges to the tax return treatment applied by the Company to specific transactions. Management believes that the assumptions and judgment used to record tax-related assets or liabilities have been appropriate. Should determinations rendered by tax authorities ultimately indicate that management’s assumptions were inappropriate, the result and adjustments required could have a material effect on the Company’s results of operations. Examinations by the Internal Revenue Service of the Company’s federal income tax returns have been largely concluded through 2014, although under statute the income tax returns from 2010 through 2014 could be adjusted. The Company also files income tax returns in over forty states and numerous local jurisdictions. Substantially all material state and local matters have been concluded for years through 2011. It is not reasonably possible to estimate when examinations for any subsequent years will be completed.