Income Taxes

12 Months Ended

Dec. 31, 2019

NOTE G – INCOME TAXES

The Corporation, the Bank and the Bank’s subsidiaries, except for the REIT, file a consolidated federal income tax return. Income taxes charged to earnings in 2019, 2018 and 2017 had effective tax rates of 16.5%, 10.9% and 22.0%, respectively. The following table sets forth a reconciliation of the statutory federal income tax rate to the Corporation’s effective tax rate.



	Year Ended December 31,
	2019		2018		2017
Statutory federal income tax rate	21.0	%	21.0	%	35.0	%
State and local income taxes, net of federal income tax benefit	0.5		(0.8)		2.0
Tax-exempt income, net of disallowed cost of funding	(4.6)		(5.8)		(10.2)
BOLI income	(0.9)		(1.2)		(1.2)
Excess tax benefit of stock-based compensation	(0.1)		(0.9)		(1.7)
Non-deductible officer compensation	0.5		—		—
Impact of cost segregation study	—		(1.5)		—
Impact of federal tax reform on deferred taxes	—		—		(2.0)
Other	0.1		0.1		0.1
	16.5	%	10.9	%	22.0	%

During 2018, the Corporation completed a cost segregation study which enabled the acceleration of tax depreciation and resulted in a credit to income tax expense of $717,000.

Upon enactment of the Tax Cuts and Jobs Act on December 22, 2017, the Corporation recorded a $909,000 credit to income tax expense to reflect a decrease in its net deferred tax liability.

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Provision for Income Taxes. The following table sets forth the components of the provision for income taxes.



	Year Ended December 31,
(in thousands)	2019		2018		2017
Current:
Federal	$	8,799	$	5,975	$	8,139
State and local		641		688		636
		9,440		6,663		8,775
Deferred:
Federal		(876)		(458)		335
State and local		(336)		(1,143)		779
		(1,212)		(1,601)		1,114
	$	8,228	$	5,062	$	9,889

Net Deferred Tax Asset. The following table sets forth the components of the Corporation’s net deferred tax asset.



	December 31,
(in thousands)	2019		2018
Deferred tax assets:
Allowance for loan losses and off-balance-sheet credit exposure	$	8,803	$	9,312
Operating lease liability		4,547		239
Unrealized loss on interest rate swaps		1,323		341
Stock-based compensation		1,317		1,384
Accrued bonuses and severance		1,308		686
Contract incentive		719		680
Asset writedown		121		80
Net operating loss carryforwards		77		371
Retirement expense		60		81
Interest on nonperforming loans		20		16
Unrealized losses on available-for-sale securities		—		1,274
		18,295		14,464
Valuation allowance		—		—
		18,295		14,464
Deferred tax liabilities:
Prepaid pension		5,462		4,545
Right-of-use asset		4,285		—
Deferred loan costs		4,138		5,462
Unrealized gains on available-for-sale securities		2,967		—
Depreciation		1,050		951
Prepaid expenses		76		59
		17,978		11,017
Net deferred tax asset	$	317	$	3,447

The Corporation had no material unrecognized tax benefits at December 31, 2019, 2018 or 2017. The Corporation has not taken any tax positions for which it is reasonably possible that unrecognized tax benefits will significantly increase within the next twelve months.

The Corporation is subject to Federal, New York State, New York City, New Jersey and Connecticut income taxes. The Corporation did not incur any amounts for interest and penalties due taxing authorities for calendar years 2019, 2018 or 2017. The Corporation’s 2016, 2017, and 2018 New York State income tax returns are currently under examination. During 2018, the Internal Revenue Service completed an examination of the Corporation’s 2015 federal income tax return with no changes.