
	December 31,
(dollars in thousands)	2020		2019
Deferred tax assets:
Loan and lease loss reserve	$	11,838	$	5,128
Other reserves	3,089		3,619
Net operating loss carry-forward	6,485		8,107
Alternative minimum tax credits	559		833

Operating lease liabilities	8,747		10,030
Defined benefit plans	1,527		1,505
RBPI Merger Fair Values	102		647
Total deferred tax asset	$	32,347	$	29,869
Deferred tax liabilities:
Intangibles and other amortizing fair value adjustments	$	5,167	$	5,154
Originated MSRs	570		969
Unrealized appreciation of available for sale securities	2,912		1,040
Operating lease right-of-use assets	7,536		8,948
Deferred loan costs	717		909
Other reserves	1,144		1,166
Total deferred tax liability	$	18,046	$	18,186
Total net deferred tax asset	$	14,301	$	11,683

Not included in the table above are deferred tax assets for state net operating losses and unrealized capital losses for partnership investments and their respective valuation allowance of $515 thousand and $606 thousand. The state net operating losses of our leasing subsidiary as of December 31, 2020 will expire between 2025 and 2037.


(dollars in thousands)	2020		Tax Rate		2019		Tax Rate		2018		Tax Rate
Computed tax expense at statutory federal rate	$	8,684	21.0	%	$	15,711	21.0	%	$	16,371	21.0	%
Tax-exempt income	(384)		(0.9)	%	(562)		(0.8)	%	(470)		(0.6)	%
State tax (net of federal tax benefit)	808		1.9	%	1,045		1.4	%	874		1.1	%

Excess tax benefit – stock based compensation	114		0.3	%	(144)		(0.2)	%	(848)		(1.1)	%
Adjustment to net deferred tax assets for enacted changes in tax laws, rates and return to provision adjustments	—		—	%	—		—	%	(1,895)		(2.4)	%
Other, net	(366)		(0.9)	%	(443)		(0.5)	%	133		0.2	%
Total income tax expense	$	8,856	21.4	%	$	15,607	20.9	%	$	14,165	18.2	%

With the enactment of the Tax Cuts and Jobs Act (“Tax Reform” or the “Tax Act”) on December 22, 2017, the federal corporate income tax rate was reduced from 35% to 21% effective January 1, 2018. During 2018, we recorded certain tax provision to tax return true-up adjustments associated with items that were finalized as part of our 2017 tax return filing. We recorded a $2.5 million tax benefit in 2018, primarily for deferred tax temporary difference items that were claimed on the 2017 tax return at a 35% federal tax rate that were recorded at December 31, 2017 as anticipating being deducted at a 21% federal tax rate. Also during 2018, as a result of additional purchase accounting adjustments during the year, $611 thousand of such purchase accounting adjustments were charged to income tax expense as a result of reducing their original 35% tax benefit to the new 21% tax rate in effect for 2018. There were no remaining provisional items as of December 31, 2018.

Under ASC 740, Income Taxes, the effect of income tax law changes on deferred taxes should be recognized as a component of income tax expense related to continuing operations in the period in which the law is enacted. This requirement applies not only to items initially recognized in continuing operations, but also to items initially recognized in other comprehensive income. The income tax expense recognized as a result of Tax Reform is as follows:


	Year Ended December 31,
(dollars in thousands)	2020		2019		2018
Deferred taxes related to items recognized in continuing operations	$	—	$	—	$	(1,895)
Deferred taxes on net actuarial loss on defined benefit post-retirement benefit plans	—		—		—
Deferred taxes on net unrealized losses on available for sale investment securities	—		—		—
Total income tax (benefit) / expense related to Tax Reform	$	—	$	—	$	(1,895)

The CARES Act grants potential tax relief and liquidity to businesses, including corporate tax provisions that: temporarily allow for the carryback of net operating losses and remove limitations on the use of loss carryforwards, increase interest expense deduction limitations, and allow accelerated depreciation deductions on certain asset improvements. The tax relief under the CARES Act had no material impact to our Consolidated Financial Statements and related disclosures.

In accordance with the provisions of ASC 740, “Accounting for Uncertainty in Income Taxes”, management recognizes the financial statement benefit of a tax position only after determining that the Corporation would more likely than not sustain the position following an examination. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon settlement with the relevant tax authority. Management applied these criteria to tax positions for which the statute of limitations remained open.

The Corporation is subject to income taxes in the U.S. federal jurisdiction, and in multiple state jurisdictions. The Corporation is no longer subject to U.S. federal income tax examination by tax authorities for the years before 2017.

As a result of the adoption of ASC 326 on January 1, 2020, the tax impact relating to the incremental provision for expected credit losses from financial assets held at amortized cost has been reflected as a credit to retained earnings to reflect the tax impact of increased credit reserves. Accordingly, $745 thousand of such impact has been reflected as an income tax credit and deferred tax asset on the Corporation's Consolidated Statements of Financial Condition. For further information on the adoption of ASC 326, see Note 2, “Recent Accounting Pronouncements,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

As of December 31, 2020, the Corporation has net operating loss (“NOL”) carry-forwards for federal income tax purposes of $30.9 million, all of which relate to the RBPI Merger which are subject to an annual usage limitation of approximately $2.7 million. Management estimates it will be able to utilize an additional $5.0 million per year of the NOLs acquired in the RBPI Merger for a five-year period subsequent to December 15, 2017 due to the existence of net unrealized built-in gains (“NUBIG”) under IRC Section 382, these NOLs will begin to expire in 2030. In addition, the Corporation has alternative minimum tax (“AMT”) credits of $559 thousand, approximately $532 thousand of which are related to the RBPI Merger. The credit amounts

do not expire. The amount of AMT credits that can be used per year are limited under IRC section 383. The Corporation has determined that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax asset related to these amounts.

As a result of the July 1, 2010 merger with FKF, the Corporation succeeded to $2.5 million of tax bad debt reserves that existed at FKF as of June 30, 2010. As of December 31, 2020, the Corporation has not recognized a deferred income tax liability with respect to these reserves. These reserves could be recognized as taxable income and create a current and/or deferred tax liability at the income tax rates then in effect if one of the following conditions occurs: (1) the Bank’s retained earnings represented by this reserve are used for distributions, in liquidation, or for any other purpose other than to absorb losses from bad debts; (2) the Bank fails to qualify as a bank, as provided by the Internal Revenue Code; or (3) there is a change in federal tax law.