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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes

Note 10 – Income Taxes

The current and deferred amounts of income tax expense for December 2021, 2020 and 2019 are as follows (dollars in thousands):

 

 

2021

 

 

2020

 

 

2019

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

32,364

 

 

$

19,590

 

 

$

15,509

 

State

 

 

12,325

 

 

 

7,006

 

 

 

5,018

 

Subtotal

 

 

44,689

 

 

 

26,596

 

 

 

20,527

 

Deferred:

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

 

(110

)

 

 

(3,881

)

 

 

916

 

State

 

 

126

 

 

(3,614

)

 

 

(812

)

Subtotal

 

 

16

 

 

(7,495

)

 

 

104

 

Income tax expense

 

$

44,705

 

 

$

19,101

 

 

$

20,631

 

On July 1, 2018 New Jersey Governor Phil Murphy signed Assembly Bill 4202 (“the Bill”) into law. The legislation imposes a temporary surtax on corporations earning New Jersey allocated income in excess of $1 million of 2.5% for tax years beginning on or after January 1, 2018 through December 31, 2019, and of 1.5% for tax years beginning on or after January 1, 2020 through December 31, 2021. However, in 2020, this surtax was extended through December 31, 2023, at the 2.5% level. The legislation also requires combined filing for members of an affiliated group for tax years beginning on or after January 1, 2019, changing New Jersey’s current status as a separate return state, and limits the deductibility of dividends received.

Actual income tax expense differs from the tax computed based on pre-tax income and the applicable statutory federal tax rate for the following reasons (dollars in thousands) December 31,

 

 

2021

 

 

2020

 

 

2019

 

Income before income tax expense

 

$

175,058

 

 

$

90,390

 

 

$

94,026

 

Federal statutory rate

 

 

21

%

 

 

21

%

 

 

21

%

Computed “expected” Federal income tax expense

 

 

36,762

 

 

 

18,982

 

 

 

19,745

 

State tax, net of federal tax benefit

 

 

9,127

 

 

 

1,913

 

 

 

3,436

 

Bank owned life insurance

 

 

(1,001

)

 

 

(1,052

)

 

 

(732

)

Tax-exempt interest and dividends

 

 

(1,405

)

 

 

(1,491

)

 

 

(2,519

)

Tax benefits from stock-based compensation

 

 

(261

)

 

 

157

 

 

 

(27

)

Other, net

 

 

1,483

 

 

 

592

 

 

 

728

 

Income tax expense

 

$

44,705

 

 

$

19,101

 

 

$

20,631

 

- 86 -

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10 – Income Taxes – (continued)

The tax effects of temporary differences that give rise to significant portions of the deferred tax asset and deferred tax liability as of December 31, 2021 and 2020 are presented in the following table:

 

 

2021

 

 

2020

 

 

 

(dollars in thousands)

 

Deferred tax assets

 

 

 

 

 

 

 

 

Allowance for credit losses

 

$

23,955

 

 

$

23,399

 

Depreciation

 

 

205

 

 

 

-

 

Pension actuarial losses

 

 

1,301

 

 

 

1,385

 

New Jersey net operating loss

 

 

3,609

 

 

 

4,370

 

Deferred compensation

 

 

2,786

 

 

 

1,835

 

Unrealized loss on AFS

 

 

191

 

 

 

-

 

Deferred loan costs, net of fees

 

 

2,163

 

 

 

357

 

Capital lease

 

 

222

 

 

 

225

 

Nonaccrual interest

 

 

62

 

 

 

51

 

Other

 

 

3,703

 

 

 

4,519

 

Total deferred tax assets

 

$

38,197

 

 

$

36,141

 

Deferred tax liabilities

 

 

 

 

 

 

 

 

Employee benefit plans

 

$

(2,289

)

 

$

(2,161

)

Purchase accounting

 

 

(925

)

 

 

(1,821

)

Depreciation

 

 

-

 

 

(187

)

Prepaid expenses

 

 

(288

)

 

 

(201

)

Market discount accretion

 

 

(437

)

 

 

(428

)

Unrealized gains on securities and swaps

 

 

(941

)

 

 

(2,171

)

Other

 

 

(1,562

)

 

 

-

 

Total deferred tax liabilities

 

 

(6,442

)

 

 

(6,969

)

Net deferred tax assets

 

$

31,755

 

 

$

29,172

 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred tax assets will not be realized. The ultimate realization of deferred tax assets for state purposes is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible, while for Federal purposes the deferred tax assets can also be realized through tax carrybacks. Management considers the scheduled reversal of deferred tax liabilities, the projected future taxable income, and tax planning strategies in making this assessment. During 2021 and 2020, based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, the Company believes the net deferred tax assets are more likely than not to be realized. There are no unrecorded tax benefits and the Company does not expect the total amount of unrecognized income tax benefits to significantly increase in the next twelve months.

The Company’s federal income tax returns are open and subject to examination from the 2018 tax return year and forward. The Company’s state income tax returns are generally open from the 2016 and later tax return years based on individual state statutes of limitations.