10: Income Taxes

The provision (benefit) for income taxes for the years ended December 31, 2016, 2015 and 2014 consists of the following (in thousands):



	Years Ended December 31,
	2016		2015		2014
Current:
Federal	$	6,259	$	8,378	$	9,525
State	96		1,064		1,004
Total current	6,355		9,442		10,529
Deferred:
Federal	5,798		1,349		9
State	—		92		73
Total deferred	5,798		1,441		82
	$	12,153	$	10,883	$	10,611

Included in other comprehensive income is income tax expense (benefit) attributable to net unrealized gains (losses) on securities available-for-sale arising during the year in the amount of $423,000, $600,000, and $(338,000) for the years ended December 31, 2016, 2015 and 2014, respectively. Included in stockholders’ equity is income tax benefit (expense) attributable to stock plans in the amount of $62,000, $32,000, and $51,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

A reconciliation between the provision for income taxes and the expected amount computed by multiplying income before the provision for income taxes times the applicable statutory Federal income tax rate for the years ended December 31, 2016, 2015 and 2014 is as follows (in thousands):



	Years Ended December 31,
	2016			2015			2014
Income before provision for income taxes	$	35,199		$	31,205		$	30,531
Applicable statutory Federal income tax rate	35.0		%	35.0		%	35.0		%
Computed “expected” Federal income tax expense	$	12,320		$	10,922		$	10,686
Increase (decrease) in Federal income tax expense resulting from:
Tax exempt interest	(390		)	(291		)	(109		)
ESOP fair market value adjustment	131			111			99
ESOP dividends	(223		)	(234		)	(229		)
Earnings on BOLI	(781		)	(525		)	(517		)
Merger related expenses	1,005			132			—
State income taxes net of Federal benefit	62			751			695
Other items, net	29			17			(14		)
	$	12,153		$	10,883		$	10,611

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2016 and 2015 are presented in the following table (in thousands):



	December 31,
	2016			2015
Deferred tax assets:
Allowance for loan losses	$	6,269		$	6,847
Reserve for repurchased loans	346			403
Reserve for uncollected interest	70			382
Incentive compensation	1,695			1,245
Deferred compensation	1,549			644
Other reserves	375			95
Stock plans	2,151			1,894
ESOP	224			198
Fair value adjustments related to acquisition	16,905			508
Net operating loss carryforward related to acquisition	5,829			2,177
Other real estate owned	26			128
Unrealized loss on securities	5,118			4,311
Federal alternative minimum tax	1,060			—
State alternative minimum tax	1,160			1,160
Total gross deferred tax assets	42,777			19,992
Deferred tax liabilities:
Excess servicing on sale of mortgage loans	(76		)	(99		)
Investments, discount accretion	(434		)	(444		)
Deferred loan and commitment costs, net	(1,261		)	(1,224		)
Premises and equipment, differences in depreciation	(52		)	(237		)
Undistributed REIT income	(2,167		)	(1,181		)
Total gross deferred tax liabilities	(3,990		)	(3,185		)
Net deferred tax assets	$	38,787		$	16,807

The 2016 deferred tax expense does not equal the change in net deferred tax assets as a result of deferred taxes recorded in connection with the Cape and Ocean Shore acquisitions of $26.6 million.

The Company has Federal Net Operating Losses from the acquisitions of Colonial and Cape. As of December 31, 2016 and 2015, the net operating losses from Colonial were $5.9 million and $6.2 million, respectively. These net operating losses are subject to annual limitation under Code Section 382 in the amount of approximately $330,000 and will expire between 2029 and 2034. As of December 31, 2016, the net operating losses from Cape were $10.8 million. These net operating losses are subject to annual limitation under Code Section 382 of approximately $4.5 million, and will expire between 2020-2023.

As of December 31, 2016 and 2015, the Company had $1.8 million of New Jersey AMA Tax Credits. These credits do not expire. As of December 31, 2016, the Company had $1.0 million of AMT Tax Credits that were part of the Cape acquisition. These credits are subject to the same Code Section 382 limitation as indicated above but do not expire.

At December 31, 2016, 2015 and 2014, the Company determined that it is not required to establish a valuation reserve for the remaining net deferred tax assets since it is “more likely than not” that the net deferred tax assets will be realized through future reversals of existing taxable temporary differences, future taxable income and tax planning strategies. The conclusion that it is “more likely than not” that the remaining net deferred tax assets will be realized is based on the history of earnings and the prospects for continued growth. Management will continue to review the tax criteria related to the recognition of deferred tax assets.

Retained earnings at December 31, 2016 includes approximately $10.8 million for which no provision for income tax has been made. This amount represents an allocation of income to bad debt deductions for tax purposes only. Events that would result in taxation of these reserves include failure to qualify as a bank for tax purposes, distributions in complete or partial liquidation, stock redemptions and excess distributions to stockholders. At December 31, 2016, the Company had an unrecognized deferred tax liability of $4.4 million with respect to this reserve.

There were no unrecognized tax benefits for the years ended December 31, 2016, 2015 and 2014. The tax years that remain subject to examination by the Federal government include the year ended December 31, 2013 and forward. The tax years that remain subject to examination by the States of New Jersey and New York include the years ended December 31, 2012 and forward.