Note 10 - Income Taxes

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note 10 – Income Taxes

The current and deferred amounts of income tax expense for December 2022, 2021 and 2020 are as follows (dollars in thousands):

	2022			2021			2020
Current:
Federal	$	33,169		$	32,364		$	19,590
State		13,247			12,325			7,006
Subtotal		46,416			44,689			26,596
Deferred:
Federal		(3,353	)		(110	)		(3,881	)
State		2,950			126			(3,614	)
Subtotal		(403	)		16			(7,495	)
Income tax expense	$	46,013		$	44,705		$	19,101

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. However, in 2020, this surtax was extended through December 31, 2023, at the 2.5% level. 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.

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) December 31,

	2022			2021			2020
Income before income tax expense	$	171,224		$	175,058		$	90,390
Federal statutory rate		21	%		21	%		21	%
Computed “expected” Federal income tax expense		35,957			36,762			18,982
State tax, net of federal tax benefit		13,314			9,127			1,913
162M adjustment		777			-			-
Bank owned life insurance		(1,175	)		(1,001	)		(1,052	)
Tax-exempt interest and dividends		(1,969	)		(1,405	)		(1,491	)
Tax benefits from stock-based compensation		(417	)		(261	)		157
Other, net		(474	)		1,483			592
Income tax expense	$	46,013		$	44,705		$	19,101

The tax effects of temporary differences that give rise to significant portions of the deferred tax asset and deferred tax liability as of December 31, 2022 and 2021 are presented in the following table:

	2022			2021
	(dollars in thousands)
Deferred tax assets
Allowance for credit losses	$	26,901		$	23,955
Depreciation		-			205
Pension actuarial losses		1,269			1,301
New Jersey net operating loss		156			3,609
Deferred compensation		3,784			2,786
Unrealized losses on available-for-sale securities		25,141			191
Deferred loan costs, net of fees		2,664			2,163
Finance lease		212			222
Nonaccrual interest		168			62
Operating lease liability		3,424			3,747
Other		4,172			3,703
Total deferred tax assets	$	67,891		$	41,944
Deferred tax liabilities
Employee benefit plans	$	(2,452	)	$	(2,289	)
Purchase accounting		(1,458	)		(925	)
Depreciation		(381	)		-
Prepaid expenses		(1,011	)		(288	)
Market discount accretion		-			(437	)
Unrealized gains on swaps		(13,704	)		(941	)
Right of use asset		(3,059	)		(3,325	)
Other		(1,681	)		(1,984	)
Total deferred tax liabilities		(23,746	)		(10,189	)
Net deferred tax assets	$	44,145		$	31,755

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, the projected future taxable income, and tax planning strategies in making this assessment. During 2022 and 2021, 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 2019 tax return year and forward. The Company’s state income tax returns are generally open from the 2018 and later tax return years based on individual state statutes of limitations.

As of December 31, 2022, the Company has $1.7 million in New Jersey net operating loss (NOL).  The NOL is set to expire on December 31, 2040.