INCOME TAXES

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

11.  INCOME TAXES

The income tax expense included in the consolidated financial statements for the years ended December 31 is allocated as follows:

(In thousands)	2020			2019		2018
Federal:
Current (benefit)/expense	$	(4,741	)	$	5,647	$	(7,046	)
Deferred expense		10,161			6,087		16,908
State:
Current expense		2,327			3,028		3,554
Deferred (benefit)/expense		(1,936	)		3,926		134
Total income tax expense	$	5,811		$	18,688	$	13,550

Total income tax expense differed from the amounts computed by applying the U.S. Federal income tax rate of 21 percent for 2020, 2019, and   2018, respectively, to income before taxes as a result of the following:

(In thousands)	2020			2019			2018
Computed “expected” tax expense	$	6,721		$	13,886		$	12,121
(Decrease)/increase in taxes resulting from:
Tax-exempt income		(287	)		(431	)		(402	)
State income taxes, net of Federal benefit		1,813			2,540			2,942
Impact of state tax reform, net of Federal benefit		—			2,954			—
Bank owned life insurance income		(267	)		(277	)		(290	)
Life insurance expense		225			234			148
Gain on death benefit		—			—			(630	)
Interest disallowance		66			146			115
Meals and entertainment expense		40			40			25
Stock-based compensation		569			(46	)		(481	)
Impact of CARES Act		(3,009	)		—			—
Other		(60	)		(358	)		2
Total income tax expense	$	5,811		$	18,688		$	13,550

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31 are as follows:

(In thousands)	2020			2019
Deferred tax assets:
Allowance for loan losses	$	18,044		$	11,369
Tax net operating loss carryforward		3,476			6,163
Organization costs		12			13
Cash flow hedge		2,703			925
Unrealized loss on equity security		—			43
Stock option expense		2,131			2,874
Nonaccrual interest		24			74
Accrued compensation		4,058			2,956
Accrued expenses		1,420			1,402
Lease liabilities		2,610			3,234
Finance lease		762			768
Other		52			188
Total gross deferred tax assets	$	35,292		$	30,009
Deferred tax liabilities:
Lease financing	$	55,823		$	44,841
Unrealized gain on securities available for sale		1,772			330
Unrealized gain on equity security		31			—
Deferred loan origination costs and fees		1,175			1,355
Deferred income		5,205			5,329
Amortization of intangible assets		1,738			239
Purchase accounting		—			908
Lease right-of-use asset		2,526			3,158
Total gross deferred tax liabilities		68,270			56,160
Net deferred tax liability	$	(32,978	)	$	(26,151	)

Based upon taxes paid and projected future taxable income, Management believes that it is more likely than not that the Company’s gross deferred tax assets will be realized. However, there can be no assurance that such assets will be realized if circumstances change.

At December 31, 2020 and 2019, the Company had no unrecognized tax benefits. The Company does not expect the amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months.  The Company recognizes interest accrued related to uncertain tax positions and penalties as income tax expense.

On July 1, 2018, the 2019 New Jersey Budget was passed, which established a 2.5 percent surtax on businesses that have New Jersey allocated net income in excess of $1.0 million.  The surtax was effective as of January 1, 2018 and continued through 2020. In September 2020, New Jersey extended the surtax through December 31, 2023.  In addition, effective for taxable years beginning on or after January 1, 2019, banks will be required to file combined reports of taxable income including their parent holding company. New Jersey requires entities to report their real estate investment trust, registered investment company and investment company on a separate entity basis.  The Bank made an adjustment to income tax expense and deferred tax assets/liabilities to reflect the new state tax rate.     

The CARES Act was signed into law on March 27, 2020 and subsequently has been amended several times. Among other provisions the CARES Act allowed a five-year carryback of any NOL generated in a taxable year beginning after December 31, 2017 and before January 1, 2021. The tax benefit recorded in 2020 was primarily due to a $3.0 million Federal income tax benefit that resulted from the federal NOL carryback. The Company had a $23 million operating loss for tax purposes in 2018 (when the Federal tax rate was 21 percent) resulting from accelerated tax depreciation. The Company carried back all eligible NOLs and has no federal NOLs remaining.

The Company is subject to U.S. Federal income tax as well as income tax of various state jurisdictions. The Company is no longer subject to federal examination for tax years prior to 2017. The tax years of 2017, 2018 and 2019 remain open to federal examination.