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Income Taxes

12 Months Ended

Dec. 31, 2020

11. Income Taxes

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

	Years Ended December 31,
(In thousands)	2020			2019			2018
Current
Federal	$	36,358		$	28,475		$	15,762
State		9,768			7,653			5,977
Total Current	$	46,126		$	36,128		$	21,739

Deferred
Federal	$	(14,021	)	$	(1,379	)	$	2,281
State		(3,406	)		(338	)		416
Total Deferred	$	(17,427	)	$	(1,717	)	$	2,697
Total income tax expense	$	28,699		$	34,411		$	24,436

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)	2020		2019
Deferred tax assets:
Allowance for loan losses	$	27,282	$	18,535
Lease liability		8,141		9,331
Deferred compensation		11,602		8,336
Postretirement benefit obligation		1,511		1,631
Fair value adjustments from acquisitions		259		422
Loan fees		5,400		1,384
Accrued liabilities		1,307		1,176
Stock-based compensation expense		3,213		3,032
Other		3,558		1,498
Total deferred tax assets	$	62,273	$	45,345
Deferred tax liabilities:
Pension benefits	$	14,406	$	13,014
Lease right-of-use asset		6,567		9,259
Amortization of intangible assets		12,725		12,202
Premises and equipment, primarily due to accelerated depreciation		4,774		5,137
Unrealized gain on securities		7,732		1,770
Other		952		1,429
Total deferred tax liabilities	$	47,156	$	42,811
Net deferred tax asset at year-end	$	15,117	$	2,534
Net deferred tax asset at beginning of year		2,534		8,795
Increase (decrease) in net deferred tax asset	$	12,583	$	(6,261	)

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, 2020 and 2019.

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)	2020			2019			2018
Federal income tax at statutory rate	$	27,948		$	32,641		$	28,770
Tax exempt income		(981	)		(1,233	)		(1,456	)
Net increase in cash surrender value of life insurance		(1,135	)		(927	)		(973	)
Federal tax credit		(1,705	)		(1,458	)		(1,499	)
State taxes, net of federal tax benefit		5,026			5,773			5,051
Accounting method changes - tax rate change impact		-			-			(5,326	)
Stock-based compensation, excess tax benefit		(152	)		(342	)		(456	)
Other, net		(302	)		(43	)		325
Income tax expense	$	28,699		$	34,411		$	24,436

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

(In thousands)	2020		2019
Balance at January 1	$	779	$	641
Additions for tax positions of prior years		254		26
Current period tax positions		145		112
Balance at December 31	$	1,178	$	779
Amount that would affect the effective tax rate if recognized, gross of tax	$	931	$	615

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, 2020, no significant changes to UTBs are projected; however, tax audit examinations are possible, but it is not reasonably possible to estimate when examinations in subsequent years will be completed. The Company recognized an insignificant amount of interest expense related to UTBs in the consolidated statement of income for the year ended December 31, 2020.

As of December 31, 2020, 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 2015. The tax years 2015 to 2019 are currently being audited by New York State.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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