Income Taxes

On December 22, 2017, the President signed into law the Tax Act. The new law reduces the federal corporate income tax rate from 35% to 21% effective January 1, 2018. Under ASC 740, "Income Taxes", companies are required to recognize the effect of tax law changes in the period of enactment; therefore, the Company re-measured its deferred tax assets and liabilities at the enacted tax rate expected to apply when its temporary differences are expected to be realized or settled. As a result of the enactment of the Act, the

Company recognized an additional tax expense of $11.7 million in December 2017. In 2017, the Company estimated the accounting for the effects of the 2017 Act. In 2018, under Staff Accounting Bulletin No. 118 ("SAB 118”), we finalized the accounting for the Act and our financial statements for the year ended December 31, 2018 and the three months ended December 31, 2017 reflect these changes.

(12) Income Taxes (continued)

The current and deferred amounts of income tax expense (benefit) for the years ended December 31, 2018, September 30, 2017 and 2016, and the three months ended December 31, 2017 are as follows:



	Year ended December 31,			Three Months Ended December 31,			Years Ended September 30,
	2018			2017			2017			2016
	(In thousands)
Current:
Federal	$	11,284		$	630		$	16,198		$	13,209
State	5,129			862			1,236			664
Total current	16,413			1,492			17,434			13,873

Deferred:
Federal	(4,901		)	7,530			(1,454		)	2,743
State	(589		)	(39		)	28			187
Total deferred	(5,490		)	7,491			(1,426		)	2,930
	$	10,923		$	8,983		$	16,008		$	16,803

The Company reported deferred tax expense (benefit) of $1.4 million, $6.4 million, $(2.6) million and $(119,000) for the years ended December 31, 2018, September 30, 2017 and 2016, and the three months ended December 31, 2017, respectively, related to the unrealized gains (losses) on securities available for sale, which is reported in accumulated other comprehensive income (loss), net of tax. Additionally, the Company recorded a deferred tax (benefit) expense of $(530,000), $(4.2) million, $(3.3) million and $(94,000), respectively, related to the amortization of post-retirement benefit obligations, which is reported in accumulated other comprehensive income, net of tax.

A reconciliation between the amount of reported total income tax expense and the amount computed by multiplying the applicable statutory income tax rate (35% for the 2017 and 2016 periods presented below, and 21% for the 2018 period) is as follows:



	Year ended December 31,			Three Months Ended December 31,			September 30,
	2018			2017			2017			2016
	(In thousands)

Tax expense at applicable statutory rate	$	7,067		$	4,431		$	16,478		$	17,415
Increase (decrease) in taxes resulting from:
State tax, net of federal income tax benefit	3,587			535			822			553
ESOP fair market value adjustment	202			—			—			—
Tax exempt interest income	(4		)	(2		)	(50		)	(28		)
Income from Bank-owned life insurance	(812		)	(381		)	(1,589		)	(1,405		)
Dividend received deduction	(16		)	(10		)	(40		)	(39		)
Impact of tax reform	—			4,700			—			—
Other, net	899			(290		)	387			307
	$	10,923		$	8,983		$	16,008		$	16,803

The net deferred tax asset is included in other assets in the Consolidated Statements of Financial Condition. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2018 and 2017 are as follows:

(12) Income Taxes (continued)



	At December 31,
	2018			2017
	(In thousands)
Deferred tax assets:
Allowance for loan losses	$	13,251		$	12,584
Post retirement benefit	3,720			3,414
Deferred compensation	2,228			1,939
Depreciation	1,042			949
Retirement income maintenance plan	1,602			1,455
ESOP	128			—
Stock-based compensation	35			—
Reserve for uncollected interest	24			62
Net unrealized losses on securities and defined benefit plans	19,060			18,221
State NOL	2,063			2,476
Alternative minimum assessment carryforwards	2,156			2,156
Charitable contribution carryforward	6,085			—
Other items	670			1,595
Gross deferred tax assets	52,064			44,851
Valuation allowance	(2,388		)	(2,786		)
	49,676			42,065
Deferred tax liabilities:
Pension expense	26,071			26,234
Deferred loan costs	5,736			4,257
Intangible assets	1,621			1,642
Other items	34			48
Total gross deferred tax liabilities	33,462			32,181
Net deferred tax asset	$	16,214		$	9,884

Retained earnings at December 31, 2018 and 2017 includes approximately $21.5 million for which no provision for income tax has been made. This amount represents an allocation of income to bad debt deductions for tax purposes only. Events that would result in taxation of these reserves include the failure to qualify as a bank for tax purposes, distributions in complete or partial liquidation, stock redemptions and excess distributions to stockholders.

Management believes that not all existing net deductible temporary differences that comprise the net deferred tax asset will reverse during periods in which the Company generates sufficient net taxable income. Accordingly, management has established a valuation allowance. Significant changes in the Company's operations and or economic conditions could affect the benefits of the recognized net deferred tax asset. Based on all available evidence, a valuation allowance was established for the portion of the state tax benefit that is not more likely than not to be realized. At December 31, 2018 and 2017, the Company's valuation allowance totaled $2.4 million and $2.8 million, respectively. Based upon projections of future taxable income and the ability to carryforward net operating losses indefinitely, management believes it is more likely than not the Company will realize the remaining deferred tax asset.

The Company had New Jersey net operating loss carryforwards of $2.1 million and $2.5 million, respectively, available to offset future taxable income as of December 31, 2018 and 2017, respectively. If not utilized, these carryforwards will expire periodically through 2038.

The Company files income tax returns in the United States federal jurisdiction and in the states of New Jersey, New York and Pennsylvania. As of December 31, 2018, the Company is no longer subject to federal income tax examination for the years prior to 2014. Columbia Bank MHC and its subsidiaries' federal return is currently under audit for the tax year 2014. The Company is open for examination by the State of New Jersey for 2014, 2015, 2016 and 2017 and the States of New York and Pennsylvania for 2016 and 2017.