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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 20222021 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.