Income Taxes

12 Months Ended

Dec. 31, 2019

INCOME TAXES

The components of income taxes are as follows:



	Years Ended December 31,
(in thousands)	2019		2018			2017

Current tax provision	$	20,418	$	30,459		$	10,565
Deferred tax expense (benefit)	2,854		(13,571		)	16,904
Total provision for income taxes	$	23,272	$	16,888		$	27,469

In July 2018, the State of New Jersey enacted changes to the tax law that were retroactive to the beginning of 2018. Included in these changes was a surcharge in addition to the corporate tax. The surcharge will be 2.5% for 2018 and 2019, 1.5% for 2020 and 2021, and will revert to no surcharge in 2022. In addition to the surcharge, New Jersey adopted the concept of combined (consolidated) tax filings under a unitary concept for corporations that are part of an affiliated group beginning in 2019. As of July 1, 2018, the Company revalued its deferred tax assets based on the additional surcharge and the combined tax filings. Based on this revaluation, the Company recorded an increase in its net deferred tax asset of $943,000 to reflect the change in the state tax rates among its subsidiaries.

The Tax Cuts and Jobs Act was enacted on December 22, 2017, resulting in changes in the U.S. corporate tax rates, business-related exclusions, deductions and credits. Enactment of the Tax Cuts and Jobs Act requires the Company to reflect the changes associated with the law's provisions in its consolidated financial statements as of and for the year ended December 31, 2017. The Company recorded an increase in its net deferred tax asset of $1.3 million to reflect the reduction in the federal corporate income tax rate from 35% to 21%.

During 2017, the Company implemented a tax planning strategy which resulted in an increase in deferred tax liabilities, a higher deferred tax provision and a $1.9 million excise tax recorded through current tax expense. Consequently, as a result of the Tax Cuts and Jobs Act being passed and the effect of the tax planning strategy, the net impact on the financial statements was $602,000 in additional tax expense.

The income tax provision reconciled to the income taxes that would have been computed at the statutory federal rate of 21% for 2019 and 2018 and 35% for 2017 is as follows:



	Years Ended December 31,
(in thousands)	2019			2018			2017

Federal income tax, at statutory rates	$	19,728		$	16,861		$	28,017
Increase (deduction) in taxes resulting from:
Tax-exempt income	(952		)	(1,096		)	(1,652		)
Excise tax on real estate investment trust ("REIT") dividend	—			—			1,945
Adjustment to net deferred tax asset for Tax Cuts and Jobs Act	—			—			(1,343		)
State income tax, net of federal income tax effect	4,322			1,880			931
Adjustment to net deferred tax asset for change in NJ tax law	—			(943		)	—
Excess tax benefits from employee share-based payments	(189		)	(318		)	(587		)
Other, net	363			504			158
Provision for income taxes	$	23,272		$	16,888		$	27,469

The net deferred tax asset consisted of the following:



	December 31,
(in thousands)	2019		2018
Deferred tax assets:
Allowance for loan losses	$	11,937	$	11,651
Stock based compensation plans	958		865
Purchase accounting fair market value adjustments	3,632		1,192
Non-accrued interest	381		256
Deferred compensation	2,444		2,142
Depreciation and amortization	—		630
Other-than-temporary impairment loss on investment securities	41		59
Federal net operating loss carryforward	875		—
Unrealized loss on pension plans	2		—
Unrealized losses on securities available for sale	—		3,162
Other, net	594		585
Gross deferred tax assets	20,864		20,542
Deferred tax liabilities:
Core deposit intangible from acquired companies	1,235		516
Undistributed income from subsidiary not consolidated for tax return purposes (REIT)	678		149
Deferred loan costs	1,461		1,418
Depreciation and amortization	750		—
Prepaid expenses	443		459
Deferred gain on securities	162		166
Unfunded pension benefits	—		17
Loss on equity securities	65		36
Unrealized gain on investment securities	884		—
Unrealized gains on hedging derivative	80		322
Other	301		270
Gross deferred tax liabilities	6,059		3,353
Net deferred tax assets	$	14,805	$	17,189

The Company recorded net deferred tax assets of $4.3 million as a result of the acquisition of Highlands.

The Company evaluates the realizability of its deferred tax assets by examining its earnings history and projected future earnings and by assessing whether it is more likely than not that carryforwards would not be realized. Based upon the majority of the Company’s deferred tax assets having no expiration date, the Company’s earnings history, and the projections of future earnings, the Company’s management believes that it is more likely than not that all of the Company’s deferred tax assets as of December 31, 2019 will be realized.

The Company evaluates tax positions that may be uncertain using a recognition threshold of more likely than not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those tax positions to be recognized in the financial statements. The Company had no unrecognized tax benefits or related interest or penalties at December 31, 2019 or 2018.

The Company is subject to U.S. federal income tax law as well as income tax of various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few significant exceptions, the Company is no longer subject to U.S. federal examinations by tax authorities for the years before 2016 or to state and local examinations by tax authorities for the years before 2016.