Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes

Income Taxes

16.  Income Taxes

On July 1, 2018, New Jersey’s Assembly Bill 4202 was signed into law. The bill, effective January 1, 2018, imposed a temporary surtax on corporations earning New Jersey allocated taxable income in excess of $1 million at a rate of 2.5 percent for tax years beginning on or after January 1, 2018, through December 31, 2019, and at 1.5 percent for tax years beginning on or after January 1, 2020, through December 31, 2021. In addition, New Jersey adopted mandatory unitary combined reporting for its Corporation Business Tax.

On September 29, 2020, New Jersey’s Assembly Bill 4721 was signed into law. The bill, retroactively effective January 1, 2020, extends the 2.5% corporate income surtax until December 31, 2023.

The components of the provision for income taxes for the past three years are as follows:

	For the years ended December 31,
(In thousands)	2021		2020		2019
Federal - current provision	$	9,837	$	7,828	$	5,478
Federal - deferred benefit		(944)		(2,043)		(285)
Total federal provision		8,893		5,785		5,193
State - current provision		3,630		2,737		1,483
State - deferred benefit		(512)		(1,047)		(14)
Total state provision		3,118		1,690		1,469
Total provision for income taxes	$	12,011	$	7,475	$	6,662

Reconciliation between the reported income tax provision and the amount computed by multiplying income before taxes by the statutory Federal income tax rate for the past three years is as follows:

	For the years ended December 31,
(In thousands, except percentages)	2021			2020			2019
Federal income tax provision at statutory rate	$	10,107		$	6,535		$	6,366
Increases (decreases) resulting from:
Stock option and restricted stock		(173)			(93)			(185)
Bank owned life insurance		(145)			(129)			(123)
Tax-exempt interest		(6)			(13)			(22)
Meals and entertainment		7			9			19
Captive insurance premium		(262)			(193)			(209)
State income taxes, net of federal income tax effect		2,463			1,335			1,161
Other, net		20			24			(345)
Provision for income taxes	$	12,011		$	7,475		$	6,662
Effective tax rate		25.0	%		24.0	%		22.0	%

Deferred income taxes are provided for temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. The components of the net deferred tax asset at December 31, 2021 and 2020 are as follows:

(In thousands)	December 31, 2021		December 31, 2020
Deferred tax assets:
Allowance for loan losses	$	6,299	$	6,540
SERP		1,277		1,088
Stock-based compensation		1,010		811
Deferred compensation		912		737
Depreciation		451		408
Deferred loan costs		443		—
Interest rate swaps		—		290
State net operating loss		—		209
EVP retirement plan		153		155
Net unrealized security losses		—		90
Commitment reserve		113		82
Net other deferred tax assets		525		410
Gross deferred tax assets		11,183		10,820
Valuation allowance		—		(209)
Total deferred tax assets		11,183		10,611
Deferred tax liabilities:
Goodwill		428		429
Prepaid insurance		474		357
Deferred loan costs		—		289
Deferred servicing fees		99		275
Net unrealized securities gains		9		—
Bond Accretion		17		19
Interest rate swaps		116		—
Net other deferred tax liabilities		—		59
Total deferred tax liabilities		1,143		1,428
Net deferred tax asset	$	10,040	$	9,183

The Company computes deferred income taxes under the asset and liability method. Deferred income taxes are recognized for tax consequences of “temporary differences” by applying enacted statutory tax rates to differences between the financial reporting and the tax basis of existing assets and liabilities. A deferred tax liability is recognized for all temporary differences that will result in future taxable income. A deferred tax asset is recognized for all temporary differences that will result in future tax deductions subject to reduction of the asset by a valuation allowance.

The Company had no valuation allowance for deferred tax assets related to its state net operating loss carry-forward deferred tax asset at December 31, 2021, compared to $209 thousand at December 31, 2020. The Company had no state net operating loss carry-forwards at December 31, 2021, compared to $2.6 million at December 31, 2020.

Included as a component of deferred tax assets is an income tax expense (benefit) related to unrealized gains (losses) on securities available for sale, a supplemental retirement plan (“SERP”) and interest rate swaps. The after-tax component of each of these is included in other comprehensive income (loss) in shareholders’ equity. The after-tax component related to securities available for sale was an unrealized gain of $29 thousand for 2021, compared to an unrealized loss of $215 thousand in 2020. The after-tax component related to the SERP was no unrealized gain or loss for 2021, compared to an unrealized loss of $238 thousand in 2020. The after-tax component related to the interest rate swaps was an unrealized gain of $293 thousand for 2021, compared to an unrealized loss of $736 thousand in the prior year.

The Company follows FASB ASC Topic 740, “Income Taxes,” which prescribes a threshold for the financial statement recognition of income taxes and provides criteria for the measurement of tax positions taken or expected to be taken in a tax return. ASC 740 also includes guidance on derecognition, classification, interest and penalties, accounting in interim

periods, disclosure and transition of income taxes. The Company did not recognize or accrue any interest or penalties related to income taxes during the years ended December 31, 2021 and 2020. The Company does not have an accrual for uncertain tax positions as of December 31, 2021 or 2020, as deductions taken and benefits accrued are based on widely understood administrative practices and procedures and are based on clear and unambiguous tax law. Tax returns for all years 2018 and thereafter are subject to future examination by tax authorities.