Income Taxes

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

Income Taxes

Note 12 - Income Taxes

The current and deferred amounts of income tax expense for 2018, 2017 and 2016 are as follows (dollars in thousands): 

	2018		2017		2016
Current:
Federal	$	8,902	$	21,090	$	10,173
State		954		505		(366)
Subtotal		9,856		21,595		9,807
Deferred:
Federal		2,455		3,876		2,682
State		(1,529)		(177)		(713)
Subtotal		926		3,699		1,969
Income tax expense	$	10,782	$	25,294	$	11,776

The Tax Cuts and Jobs Act of 2017 (“the Act”) was signed into law on December 22, 2017. As a result of the Act, the Company recorded a net tax charge of $4.8 million primarily due to a re-measurement of deferred tax assets and liabilities.

On July 1, 2018 New Jersey Governor Phil Murphy signed Assembly Bill 4202 (“the Bill”) into law. The legislation imposes a temporary surtax on corporations earning New Jersey allocated income in excess of $1 million of 2.5% for tax years beginning on or after January 1, 2018 through December 31, 2019, and of 1.5% for tax years beginning on or after January 1, 2020 through December 31, 2021. The legislation also requires combined filing for members of an affiliated group for tax years beginning on or after January 1, 2019, changing New Jersey’s current status as a separate return state, and limits the deductibility of dividends received. These changes are not temporary. Although regulations implementing the legislative changes have not yet been issued, it is possible that the Company will lose the benefit of at least certain of its tax management strategies, and, if so, our total tax expense will likely increase. As a result of the Bill the Company recorded a net tax benefit of $0.6 million primarily due to a re-measurement of deferred tax assets and liabilities.

Actual income tax expense differs from the tax computed based on pre-tax income and the applicable statutory federal tax rate for the following reasons (dollars in thousands):

	2018			2017			2016
Income before income tax expense	$	71,134		$	68,514		$	42,858
Federal statutory rate		21	%		35	%		35	%
Computed “expected” Federal income tax expense		14,938			23,980			15,000
State tax, net of federal tax benefit		1,104			213			(701)
Impact of “the Act”		(790)			5,623			-
Impact of “the Bill”		(618)			-			-
Bank owned life insurance		(650)			(1,113)			(896)
Tax-exempt interest and dividends		(1,521)			(2,123)			(1,714)
Tax benefits from stock based compensation		(1,100)			(348)			-
Other, net		(581)			(938)			87
Income tax expense	$	10,782		$	25,294		$	11,776

The tax effects of temporary differences that give rise to significant portions of the deferred tax asset and deferred tax liability at December 31, 2018 and 2017 are presented in the following table:

	2018		2017
	(dollars in thousands)
Deferred tax assets
Allowance for loan losses		10,358		8,848
Purchase accounting		307		2,310
Pension actuarial losses		2,203		1,647
New Jersey net operating loss		2,796		1,310
Deferred compensation		1,234		1,184
Unrealized losses on securities and swaps		1,620		483
Deferred loan costs, net of fees		19		474
Accrued rent		426		459
Capital lease		232		211
Nonaccrual interest		95		158
Other		-		7
Total deferred tax assets	$	19,290	$	17,091
Deferred tax liabilities
Employee benefit plans	$	(2,167)	$	(1,501)
Depreciation		(512)		(434)
Prepaid expenses		(185)		(174)
Market discount accretion		(414)		(60)
Unrealized gains on securities and swaps		(366)		(224)
Other		(198)		(28)
Total deferred tax liabilities		(3,842)		(2,421)
Net deferred tax assets	$	15,448	$	14,670

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets for state purposes is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible, while for Federal purposes the deferred tax assets can also be realized through tax carrybacks. Management considers the scheduled reversal of deferred tax liabilities, the projected future taxable income, and tax planning strategies in making this assessment. During 2018 and 2017, based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, the Company believes the net deferred tax assets are more likely than not to be realized. There are no unrecorded tax benefits and the Company does not expect the total amount of unrecognized income tax benefits to significantly increase in the next twelve months. 

The Company’s federal income tax returns are open and subject to examination from the 2015 tax return year and forward. The Company’s state income tax returns are generally open from the 2014 and later tax return years based on individual state statutes of limitations.