ISBC 2017 Form 10-K & 2018 Proxy Statement

FORM 10-K Taxable Distributions and Recapture. Prior to the 1996 Act, bad debt reserves created prior to January 1, 1988 (pre-base year reserves) were subject to recapture into taxable income if Investors Bank failed to meet certain thrift asset and definitional tests. As a result of the 1996 Act, bad debt reserves accumulated after 1987 are required to be recaptured into income over a six-year period. However, all pre-base year reserves are subject to recapture if Investors Bank makes certain non-dividend distributions, repurchases any of its stock, pays dividends in excess of tax earnings and profits, or ceases to maintain a bank charter. At December 31, 2017, Investors Bank’s total federal pre-base year reserve was approximately $45.2 million. Alternative Minimum Tax. The Internal Revenue Code imposes an alternative minimum tax (“AMT”) at a rate of 20% on a base of regular taxable income plus certain tax preferences (“alternative minimum taxable income” or “AMTI”). The AMT is payable to the extent such AMTI is in excess of an exemption amount and the AMT exceeds the regular income tax. Net operating losses can offset no more than 90% of AMTI. Certain payments of AMT may be used as credits against regular tax liabilities in future years. Investors Bancorp, Inc. and its subsidiary have not been subject to the AMT and have no such amounts available as credits for carryover. On December 22, 2017, the President signed into law the Tax Act, which repealed the AMT on corporations for tax years beginning after December 31, 2017. Net Operating Loss Carryovers. A corporation may carry back net operating losses to the preceding two taxable years and forward to the succeeding 20 taxable years. As of December 31, 2017, the Company had total federal net operating loss carryforwards of $6.1 million related to prior acquisitions. On December 22, 2017, the President signed into law the Tax Act, which eliminates, with certain exceptions, the net operating loss carryback period and permits an indefinite carryforward period, subject to 80 percent of taxable income, for net operating losses generated in tax years beginning after December 31, 2017. Corporate Dividends-Received Deduction . Investors Bancorp, Inc. may exclude from its federal taxable income 100% of dividends received from Investors Bank as a wholly owned subsidiary. The corporate dividends- received deduction is 80% when the dividend is received from a corporation having at least 20% of its stock owned by the recipient corporation. A 70% dividends-received deduction is available for dividends received from a corporation having less than 20% of its stock owned by the recipient corporation. On December 22, 2017, the President signed into law the Tax Act, which reduces the 70% dividends-received deduction to 50%, and the 80% dividends-received deduction to 65%, for tax years beginning after December 31, 2017. State Taxation New Jersey State Taxation. Investors Bancorp, Inc. and its subsidiary file separate New Jersey corporate business tax returns on an unconsolidated basis. Generally, the income of corporations and savings institutions in New Jersey, which is calculated based on federal taxable income, subject to certain adjustments, is subject to New Jersey tax. On December 22, 2017, the President signed into law the Tax Act. The provisions of the New Jersey Corporation Business Tax Act continue to conform to federal taxing provisions in the same manner as prior to the enactment of the new legislation. Investors Bancorp, Inc. is required to file a New Jersey income tax return and is generally subject to a state income tax at a 9% rate. If Investors Bancorp, Inc. meets certain requirements, it may be eligible to elect to be taxed as a New Jersey Investment Company, which would allow it to be taxed at a rate of 3.6%. At December 31, 2017, Investors Bancorp, Inc. currently meets the eligibility requirements and therefore elects to be taxed as a New Jersey Investment Company. New Jersey tax law does not and has not allowed for a taxpayer to file a tax return on a combined or consolidated basis with another member of the affiliated group where there is common ownership. However, under tax legislation, if the taxpayer cannot demonstrate by clear and convincing evidence that the tax filing discloses the true earnings of the taxpayer on its business carried on in the State of New Jersey, the New Jersey Director of the Division of Taxation may, at the director’s discretion, require the taxpayer to file a consolidated return for the entire operations of the affiliated group or controlled group, including its own operations and income. 36