Income Taxes

12 Months Ended

Dec. 31, 2019

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 for the three months ended December 2017.

(14) Income Taxes (continued)

The current and deferred amounts of income tax expense (benefit) for the years ended December 31, 2019 and 2018, September 30, 2017, and the three months ended December 31, 2017 are as follows:



	Years Ended December 31,						Three Months Ended December 31,			Year Ended September 30,
	2019			2018			2017			2017
	(In thousands)
Current:
Federal	$	5,933		$	11,284		$	630		$	16,198
State	2,905			5,129			862			1,236
Total current	8,838			16,413			1,492			17,434

Deferred:
Federal	8,275			(4,901		)	7,530			(1,454		)
State	(748		)	(589		)	(39		)	28
Total deferred	7,527			(5,490		)	7,491			(1,426		)
Total income tax expense	$	16,365		$	10,923		$	8,983		$	16,008

The Company reported deferred tax expense (benefit) of $(5.5) million, $1.4 million, $6.4 million and $(119,000) for the years ended December 31, 2019 and 2018, September 30, 2017, 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 $779,000, $(530,000), $(4.2) million and $(94,000), respectively, related to the reclassification adjustment of actuarial net (loss) gain on employee benefit obligations, which is reported in accumulated other comprehensive income, net of tax. Deferred tax expense for the year ended December 31, 2019 also includes $2.3 million in expense recorded for purchase accounting adjustments related to the Stewardship acquisition.

A reconciliation between the amount of reported total income tax expense and the amount computed by multiplying the applicable statutory federal income tax rate (21% for the 2019 and 2018 periods, and 35% for the 2017 periods) is as follows:



	Years Ended December 31,						Three Months Ended December 31,			Year Ended September 30,
	2019			2018			2017			2017
	(In thousands)

Tax expense at applicable statutory rate	$	14,927		$	7,067		$	4,431		$	16,478
Increase (decrease) in taxes resulting from:
State tax, net of federal income tax benefit	1,704			3,587			535			822
ESOP fair market value adjustment	272			202			—			—
Tax exempt interest income	(6		)	(4		)	(2		)	(50		)
Income from Bank-owned life insurance	(1,246		)	(812		)	(381		)	(1,589		)
Dividend received deduction	(8		)	(16		)	(10		)	(40		)
Non-deductible merger-related expenses	222			—			—			—
Non-deductible compensation expense	398			—			—			—
Impact of tax reform	—			—			4,700			—
Other, net	102			899			(290		)	387
Total income tax expense	$	16,365		$	10,923		$	8,983		$	16,008

(14) Income Taxes (continued)

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, 2019 and 2018 are as follows:



	At December 31,
	2019			2018
	(In thousands)
Deferred tax assets:
Allowance for loan losses	$	13,114		$	13,251
Post-retirement benefits	4,089			3,720
Deferred compensation	2,085			2,228
Depreciation	1,002			1,042
Retirement Income Maintenance plan	1,725			1,602
ESOP	301			128
Stock-based compensation	788			35
Reserve for uncollected interest	54			24
Net unrealized losses on debt securities and defined benefit plans	18,374			19,060
Federal and State NOLs	8,333			2,063
Alternative minimum assessment carryforwards	2,156			2,156
Charitable contribution carryforward	5,981			6,085
Purchase accounting	665			—
Other items	332			670
Gross deferred tax assets	58,999			52,064
Valuation allowance	(7,442		)	(2,388		)
	51,557			49,676
Deferred tax liabilities:
Pension expense	33,856			26,071
Deferred loan costs	5,911			5,736
Intangible assets	1,215			1,621
Other items	266			34
Total gross deferred tax liabilities	41,248			33,462
Net deferred tax asset	$	10,309		$	16,214

Retained earnings at December 31, 2019 and 2018 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, 2019 and 2018, the Company's valuation allowance totaled $7.4 million and $2.4 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.

(14) Income Taxes (continued)

The Company had federal net operating losses from the acquisition of Stewardship of $5.8 million as of December 31, 2019. These net operating losses are subject to a $2.3 million annual limitation under Code Section 382 and will not expire.

The Company had New Jersey net operating loss carryforwards of $70.9 million and $24.0 million, respectively, available to offset future taxable income as of December 31, 2019 and 2018, respectively. If not utilized, these carryforwards will expire periodically through 2038. As of December 31, 2019 and 2018, the Company had approximately $2.2 million of New Jersey AMA Tax Credits. These credits do not expire. As of December 31, 2019 and 2018, the Company had New Jersey NOLs of $28.9 million. 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, 2019, the Company is no longer subject to federal income tax examination for the years prior to 2015. Columbia Bank MHC and its subsidiaries' New York returns are currently under audit for the tax years 2016 and 2017. The Company is open for examination by the State of New Jersey for years after 2014 and the States of Pennsylvania and New York for years after 2015.