Federal, State And Local Taxes

12 Months Ended

Dec. 31, 2019

Federal, State & Local Taxes

NOTE 10: FEDERAL, STATE, AND LOCAL TAXES

The following table summarizes the components of the Company’s net deferred tax asset (liability) at December 31, 2019 and 2018:

	December 31,
(in thousands)	2019			2018
Deferred Tax Assets:
Allowance for loan losses	$	40,584		$	45,611
Compensation and related benefit obligations		19,401			19,693
Acquisition accounting and fair value adjustments on securities (including OTTI)		—			6,728
Non-accrual interest		624			431
Net operating loss carryforwards		19,750			—
Other		12,169			11,349
Gross deferred tax assets		92,528			83,812
Valuation allowance		—			—
Deferred tax asset after valuation allowance	$	92,528		$	83,812
Deferred Tax Liabilities:
Amortizable intangibles	$	(2,480	)	$	(2,263	)
Acquisition accounting and fair value adjustments on securities (including OTTI)		(9,742	)		—
Mortgage servicing rights		—			(223	)
Premises and equipment		(7,578	)		(11,242	)
Prepaid pension cost		(22,739	)		(19,135	)
Leases		(237,429	)		(115,259	)
Other		(13,991	)		(14,800	)
Gross deferred tax liabilities	$	(293,959	)	$	(162,922	)
Net deferred tax liability	$	(201,431	)	$	(79,110	)

The deferred tax liability represents the anticipated federal, state, and local tax expenses or benefits that are expected to be realized in future years upon the utilization of the underlying tax attributes comprising said balances. The net deferred tax liability is included in “Other liabilities” in the Consolidated Statements of Condition at December 31, 2019 and 2018.

At December 31, 2019, the Company had a federal net operating loss (“NOL”) carry forward of $94.0 million, which was available to offset future federal taxable income. The NOL may be carried forward to any future calendar tax year after 2019 and is not subject to expiration.

The Company has determined that all deductible temporary differences and net operating loss carryforwards are more likely than not to provide a benefit in reducing future federal, state, and local tax liabilities, as applicable. The Company has reached this determination based on its history of reporting positive taxable income in all relevant tax jurisdictions, the length of time available to utilize the net operating loss carryforwards, and the recognition of taxable income in future periods from taxable temporary differences.

The following table summarizes the Company’s income tax expense for the years ended December 31, 2019, 2018, and 2017:

	December 31,
(in thousands)	2019			2018			2017
Federal – current	$	4,069		$	89,187		$	153,587
State and local – current		23,382			22,868			26,983
Total current		27,451			112,055			180,570
Federal – deferred		100,971			13,058			3,498
State and local – deferred		(158	)		10,139			17,946
Total deferred		100,813			23,197			21,444
Income tax expense reported in net income		128,264			135,252			202,014
Income tax expense reported in stockholders’ equity related to:
Securities available-for-sale		16,142			(32,162	)		28,495
Pension liability adjustments		5,033			4,897			2,234
Cash Flow Hedge		333			—			—
Non-credit portion of OTTI losses		—			821			13
Total income taxes	$	149,772		$	108,808		$	232,756

The following table presents a reconciliation of statutory federal income tax expense (benefit) to combined actual income tax expense (benefit) reported in net income for the years ended December 31, 2019, 2018, and 2017:

	December 31,
(in thousands)	2019			2018			2017
Statutory federal income tax at 21%, 21% and 35%, respectively	$	109,894		$	117,111		$	233,875
State and local income taxes, net of federal income tax effect		18,346			24,451			29,204
Effect of tax law changes		—			1,625			(41,943	)
Non-deductible FDIC deposit insurance premiums		6,938			8,852			—
Effect of tax deductibility of ESOP		(3,163	)		(3,116	)		(5,083	)
Non-taxable income and expense of BOLI		(5,981	)		(5,957	)		(9,529	)
Federal tax credits		(750	)		(531	)		(1,386	)
Adjustments relating to prior tax years		373			(7,246	)		144
Other, net		2,607			63			(3,268	)
Total income tax expense	$	128,264		$	135,252		$	202,014

GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted. As a result of the Tax Reform Act of 2017, the Company recorded a tax benefit of $42.0 million for the period ended December 31, 2017 due to the net impact of remeasurement of tax attributes affected by the enactment of the Tax Reform Act. Due to changes to the New Jersey tax laws enacted in 2018, a tax expense of $2.1 million for the year-ended December 31, 2018 was recorded.

The Company invests in affordable housing projects through limited partnerships that generate federal Low Income Housing Tax Credits. The balances of these investments, which are included in “Other assets” in the Consolidated Statements of Condition, were $57.1 million and $62.3 million, respectively, at December 31, 2019 and 2018, and included commitments of $29.1 million and $37.2 million that are expected to be funded over the next two years. The Company elected to apply the proportional amortization method to these investments. Recognized in the determination of income tax (benefit) expense from operations for the years ended December 31, 2019, 2018, and 2017 were $5.9 million, $5.2 million, and $4.5 million, respectively, of affordable housing tax credits and other tax benefits, and an offsetting $5.2 million, $4.7 million, and $3.1 million, respectively, for the amortization of the related investments. No impairment losses were recognized in relation to these investments for the years ended December 31, 2019, 2018, and 2017.

GAAP prescribes a recognition threshold and measurement attribute for use in connection with the obligation of a company to recognize, measure, present, and disclose in its financial statements uncertain tax positions that the Company has taken or expects to take on a tax return. As of December 31, 2019, the Company had $35.7 million of unrecognized gross tax benefits. Gross tax benefits do not reflect the federal tax effect associated with state tax amounts. The total amount of net unrecognized tax benefits at December 31, 2019 that would have affected the effective tax rate, if recognized, was $28.2 million.

Interest and penalties (if any) related to the underpayment of income taxes are classified as a component of income tax expense in the Consolidated Statements of Income and Comprehensive Income. During the years ended December 31, 2019, 2018, and 2017, the Company recognized income tax expense attributed to interest and penalties of $2.5 million, $1.7 million, and $1.8 million, respectively. Accrued interest and penalties on tax liabilities were $14.5 million and $11.3 million, respectively, at December 31, 2019 and 2018.

The following table summarizes changes in the liability for unrecognized gross tax benefits for the years ended December 31, 2019, 2018, and 2017:

	December 31,
(in thousands)	2019			2018			2017
Uncertain tax positions at beginning of year	$	33,357		$	33,681		$	33,487
Additions for tax positions relating to current-year operations		925			—			4,332
Additions for tax positions relating to prior tax years		2,036			1,660			1,398
Subtractions for tax positions relating to prior tax years		(569	)		(1,984	)		(5,101	)
Reductions in balance due to settlements		—			—			(435	)
Uncertain tax positions at end of year	$	35,749		$	33,357		$	33,681

The Company and its subsidiaries have filed tax returns in many states. The following are the more significant tax filings that are open for examination:

• Federal tax filings for tax years 2016 through the present;

• New York State tax filings for tax years 2010 through the present;

• New York City tax filings for tax years 2011 through the present; and

• New Jersey tax filings for tax years 2015 through the present.

In addition to other state audits, the Company is currently under examination by the following taxing jurisdictions of significance to the Company:

• New York State for the tax years 2010 through 2014; and

• New York City for the tax years 2011 and 2014.

It is reasonably possible that there will be developments within the next twelve months that would necessitate an adjustment to the balance of unrecognized tax benefits, including decreases of up to $21 million due to completion of tax authorities’ exams and the expiration of statutes of limitations.

As a savings institution, the Bank is subject to a special federal tax provision regarding its frozen tax bad debt reserve. At December 31, 2019, the Bank’s federal tax bad debt base-year reserve was $61.5 million, with a related federal deferred tax liability of $12.9 million, which has not been recognized since the Bank does not expect that this reserve will become taxable in the foreseeable future. Events that would result in taxation of this reserve include redemptions of the Bank’s stock or certain excess distributions by the Bank to the Company.