Income Taxes

12 Months Ended

Dec. 31, 2019

12. Income Taxes

The significant components of income tax expense attributable to operations are as follows:

	Years ended December 31,
(In thousands)	2019			2018		2017
Current
Federal	$	28,475		$	15,762	$	35,839
State		7,653			5,977		6,599
Total Current	$	36,128		$	21,739	$	42,438

Deferred
Federal	$	(1,379	)	$	2,281	$	3,850
State		(338	)		416		(278	)
Total Deferred	$	(1,717	)	$	2,697	$	3,572
Total income tax expense	$	34,411		$	24,436	$	46,010

On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act includes significant changes to the U.S. corporate income tax system including: a federal corporate rate reduction from 35% to 21% and establishing other tax laws affecting years subsequent to 2017. ASC 740, Income Taxes, requires a company to record the effects of a tax law change in the period of enactment, however shortly after the enactment of the Tax Act, the SEC staff issued Staff Accounting Bulletin 118 ("SAB 118"), which allows a company to record a provisional amount when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting for the change in the tax law. The one year remeasurement period allowed under SAB 118 ended December 31, 2018 and the Company did not make any significant changes to the provisional amounts recorded.

In connection with the analysis of the impact of the Tax Act, the Company recorded a $4.4 million non-cash adjustment in the year ended December 31, 2017 for remeasurement of deferred tax assets and liabilities for the corporate rate reduction. During 2018, the Company recorded a $5.5 million benefit primarily related to changes in accounting methods approved by the Internal Revenue Services in the fourth quarter of 2018.

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

	December 31,
(In thousands)	2019			2018
Deferred tax assets:
Allowance for loan losses	$	18,535		$	18,042
Lease liability		9,331			-
Deferred compensation		8,336			7,340
Postretirement benefit obligation		1,631			1,962
Fair value adjustments from acquisitions		422			663
Unrealized losses on securities		-			4,893
Accrued liabilities		1,176			913
Stock-based compensation expense		3,032			2,821
Other		1,498			1,008
Total deferred tax assets	$	43,961		$	37,642
Deferred tax liabilities:
Pension benefits	$	13,014		$	10,782
Lease right-of-use asset		9,259			-
Amortization of intangible assets		12,202			11,525
Premises and equipment, primarily due to accelerated depreciation		5,137			4,973
Unrealized gain on securities		1,770			-
Other		45			1,567
Total deferred tax liabilities	$	41,427		$	28,847
Net deferred tax asset at year-end	$	2,534		$	8,795
Net deferred tax asset at beginning of year		8,795			7,293
(Decrease) increase in net deferred tax asset	$	(6,261	)	$	1,502

Realization of deferred tax assets is dependent upon the generation of future taxable income. A valuation allowance is recorded when it is more likely than not that some portion of the deferred tax asset will not be realized. Based on available evidence, gross deferred tax assets will ultimately be realized and a valuation allowance was not deemed necessary at December 31, 2019 and 2018.

The following is a reconciliation of the provision for income taxes to the amount computed by applying the applicable Federal statutory rate to income before taxes:

	Years ended December 31
(In thousands)	2019			2018			2017
Federal income tax at statutory rate	$	32,641		$	28,770		$	44,857
Tax exempt income		(1,233	)		(1,456	)		(2,303	)
Net increase in cash surrender value of life insurance		(927	)		(973	)		(1,780	)
Federal tax credit		(1,458	)		(1,499	)		(1,343	)
State taxes, net of federal tax benefit		5,773			5,051			4,107
Federal tax reform (Tax Act)		-			-			4,407
Accounting method changes - tax rate change impact		-			(5,326	)		-
Stock-based compensation, excess tax benefit		(342	)		(456	)		(1,619	)
Other, net		(43	)		325			(316	)
Income tax expense	$	34,411		$	24,436		$	46,010

A reconciliation of the beginning and ending balance of Federal and State gross unrecognized tax benefits ("UTBs") is as follows:

(In thousands)	2019		2018
Balance at January 1	$	641	$	665
Additions for tax positions of prior years		26		27
Reduction for tax positions of prior years		-		(159	)
Current period tax positions		112		108
Balance at December 31	$	779	$	641
Amount that would affect the effective tax rate if recognized, gross of tax	$	615	$	506

The Company recognizes interest and penalties on the income tax expense line in the accompanying consolidated statements of income. The Company monitors changes in tax statutes and regulations to determine if significant changes will occur over the next 12 months. As of December 31, 2019, no significant changes to UTBs are projected; however, tax audit examinations are possible. The Company recognized an insignificant amount of interest expense related to UTBs in the consolidated statement of income for the year ended December 31, 2019.

During the year ended December 31, 2019, the Company recognized an insignificant benefit related to the resolution of state income tax positions. The Company is no longer subject to U.S. Federal tax examination by tax authorities for years prior to 2016 and New York State for years prior to 2014. The 2014, 2015 and 2016 tax years are currently being audited by New York State.