INCOME TAXES

12 Months Ended

Dec. 31, 2023

INCOME TAXES

INCOME TAXES

16. INCOME TAXES

The Company’s consolidated Federal, State and City income tax provisions were comprised of the following:

	Year Ended December 31,
(In thousands)	2023		2022		2021
Current expense
Federal	$	24,469	$	39,492	$	23,759
State and city		15,681		17,205		11,815
Total current expense		40,150		56,697		35,574
Deferred expense
Federal		1,393		840		5,490
State and city		(758)		1,822		3,106
Total deferred expense		635		2,662		8,596
Total	$	40,785	$	59,359	$	44,170

The preceding table excludes tax effects recorded directly to stockholders’ equity in connection with unrealized gains and losses on securities available-for-sale (including losses on such securities upon their transfer to held-to-maturity), interest rate derivatives, and adjustments to other comprehensive income relating to the minimum pension liability, unrecognized gains of pension and other postretirement obligations and changes in the non-credit component of OTTI. These tax effects are disclosed as part of the presentation of the consolidated statements of changes in stockholders’ equity and comprehensive income.

The provision for income taxes differed from that computed at the Federal statutory rate as follows:

	Year Ended December 31,
(Dollars in thousands)	2023			2022			2021
Tax at federal statutory rate	$	28,745		$	44,502		$	31,115
State and local taxes, net of federal income tax benefit		12,237			13,699			11,601
Benefit plan differences		(127)			(127)			(107)
Investment in BOLI		(2,047)			(2,173)			(1,485)
Equity based compensation		79			(141)			(301)
Salaries deduction limitation		2,381			2,054			3,419
Transaction costs		—			—			181
Other, net		(483)			1,545			(253)
Total	$	40,785		$	59,359		$	44,170
Effective tax rate		29.80	%		28.01	%		29.81	%

The increase in effective tax rate in 2023 was primarily the result of an increase in the Section 162M limitation due to executive severance. Deferred tax assets and liabilities are recorded for temporary differences between the book and tax bases of assets and liabilities. The components of Federal, State and City deferred income tax assets and liabilities were as follows:

	December 31,
(In thousands)	2023		2022
Deferred tax assets:
Allowance for credit losses and other contingent liabilities	$	26,926	$	28,175
Tax effect of other components of income on securities available-for-sale		34,745		38,140
Tax effect of other components of income on securities held-to-maturity		7,216		8,138
Operating lease liability		19,229		19,256
Other		2,603		2,074
Total deferred tax assets		90,719		95,783
Deferred tax liabilities:
Tax effect of other components of income on derivatives		2,368		5,394
Employee benefit plans		1,707		976
Tax effect of purchase accounting fair value adjustments		1,329		2,352
Difference in book and tax carrying value of fixed assets		2,230		4,261
Difference in book and tax basis of unearned loan fees		3,239		2,431
Operating lease asset		18,266		18,414
States taxes		2,166		2,801
Other		241		1,002
Total deferred tax liabilities		31,546		37,631
Net deferred tax asset (recorded in other assets)	$	59,173	$	58,152

The Company and its subsidiary are subject to U.S. federal income tax as well as income tax of the State of New York, City of New York and the State of New Jersey.

Under generally accepted accounting principles, the Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to be recovered or settled.

No valuation allowances were recognized on deferred tax assets during the years ended December 31, 2023 or 2022, since, at each period end, it was deemed more likely than not that the deferred tax assets would be fully realized.

In connection with the Merger, the Company acquired a federal net operating loss (“NOL”) carryforward subject to Internal Revenue Code Section 382. The Company recorded a deferred tax asset that it expects to realize within the carryforward period. At December 31, 2023, the remaining federal NOL carryforward was $2.2 million. At December 31, 2023, the Company had a New York State NOL carryforward of $543 thousand, and recorded a deferred tax asset that it expects to recover within the carryforward period. At December 31, 2023, the Company had a New York City NOL carryforward balance of zero. The New York State NOLs at December 31, 2023 included NOLs acquired in connection with the Merger.

At December 31, 2023 and 2022, the Bank had accumulated bad debt reserves totaling $15.1 million for which no provision for income tax was required to be recorded. These bad debt reserves could be subject to recapture into taxable income under certain circumstances, including a distribution of the bad debt benefits to the Holding Company or the failure of the Bank to qualify as a bank for federal income tax purposes. Should the reserves as of December 31, 2023 be fully recaptured, the Bank would recognize $4.8 million in additional income tax expense. The Company expects to take no action in the foreseeable future that would require the establishment of a tax liability associated with these bad debt reserves.

The Company is subject to regular examination by various tax authorities in jurisdictions in which it conducts significant business operations. The Company regularly assesses the likelihood of additional examinations in each of the tax jurisdictions resulting from ongoing assessments.

Under current accounting rules, all tax positions adopted are subjected to two levels of evaluation. Initially, a determination is made, based on the technical merits of the position, as to whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes. In conducting this evaluation, management is required to presume that the position will be examined by the appropriate taxing authority possessing full knowledge of all relevant information. The second level of evaluation is the measurement of a tax position that satisfies the more-likely-than-not recognition threshold. This measurement is performed in order to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement. The Company had no unrecognized tax benefits as

of December 31, 2023 or 2022. The Company does not anticipate any material change to unrecognized tax benefits during the year ended December 31, 2024.

As of December 31, 2023, the tax years ended December 31, 2023, 2022, 2021, and 2020, remained subject to examination by all of the Company's relevant tax jurisdictions. The Company is currently not under audit in any taxing jurisdictions.