INCOME TAXES
The components of the income tax provision are as follows:
|
| | | | | | | | | | | |
| Year Ended September 30, |
| 2017 | | 2016 | | 2015 |
Current tax expense: | | | | | |
Federal | $ | 39,794 |
| | $ | 29,833 |
| | $ | 27,056 |
|
State | 1,121 |
| | 878 |
| | 564 |
|
Deferred tax expense (benefit): | | | | | |
Federal | 3,634 |
| | 11,045 |
| | 9,605 |
|
State | (85 | ) | | 54 |
| | (421 | ) |
Income tax provision | $ | 44,464 |
| | $ | 41,810 |
| | $ | 36,804 |
|
Reconciliation from tax at the statutory rate to the income tax provision is as follows:
|
| | | | | | | | |
| Year Ended September 30, |
| 2017 | | 2016 | | 2015 |
Tax at statutory rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
State tax, net | 0.5 |
| | 0.5 |
| | 0.1 |
|
Non-taxable income from bank owned life insurance contracts | (1.7 | ) | | (2.1 | ) | | (2.4 | ) |
Other, net | (0.5 | ) | | 0.8 |
| | 0.9 |
|
Income tax provision | 33.3 | % | | 34.2 | % | | 33.6 | % |
Temporary differences between the financial statement carrying amounts and tax basis of assets and liabilities that gave rise to significant portions of net deferred taxes relate to the following:
|
| | | | | | | |
| September 30, |
| 2017 | | 2016 |
Deferred tax assets: | | | |
Loan loss reserve | $ | 26,690 |
| | $ | 30,240 |
|
Deferred compensation | 12,280 |
| | 11,796 |
|
Pension | 2,696 |
| | 5,790 |
|
Property, equipment and software basis difference | 2,180 |
| | 1,759 |
|
Other | 2,482 |
| | 3,234 |
|
Total deferred tax assets | 46,328 |
| | 52,819 |
|
Deferred tax liabilities: | | | |
FHLB stock basis difference | 7,999 |
| | 7,826 |
|
Mortgage servicing rights | 1,583 |
| | 1,322 |
|
Goodwill | 3,473 |
| | 3,434 |
|
Deferred loan costs, net of fees | 15,288 |
| | 11,131 |
|
Other | 1,994 |
| | 3,033 |
|
Total deferred tax liabilities | 30,337 |
| | 26,746 |
|
Net deferred tax asset | $ | 15,991 |
| | $ | 26,073 |
|
In the accompanying Consolidated Statements of Condition the net deferred tax asset is included in Other assets.
A valuation allowance is established to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. There was no valuation allowance required at September 30, 2017 or 2016.
Retained earnings at September 30, 2017 and 2016 included approximately $104,861 for which no provision for federal or state income tax has been made. This amount represents allocations of income during years prior to 1988 to bad debt deductions for tax purposes only. These qualifying and nonqualifying base year reserves and supplemental reserves will be recaptured into income in the event of certain distributions and redemptions. Such recapture would create income for tax purposes only, which would be subject to the then current corporate income tax rate. However, recapture would not occur upon the reorganization, merger, or acquisition of the Association, nor if the Association is merged or liquidated tax-free into a bank or undergoes a charter change. If the Association fails to qualify as a bank or merges into a nonbank entity, these reserves will be recaptured into income.
The provisions of Accounting for Uncertainty in Income Taxes, codified within FASB ASC 740 “Income Taxes,” prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement for a tax position taken or expected to be taken in a tax return. FASB ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Tax positions must meet a more-likely-than-not recognition threshold in order for the related tax benefit to be recognized or continue to be recognized. As of September 30, 2017, 2016 and 2015, the Company had no unrecognized tax benefits. The Company does not anticipate the total amount of unrecognized tax benefits to significantly change within the next 12 months.
The Company recognizes interest and penalties on income tax assessments or income tax refunds, where applicable, in the financial statements as a component of its provision for income taxes. The Company recognized no interest expense or penalties on income tax assessments during the years ended September 30, 2017, 2016 and 2015. Total interest accrued was $0 at September 30, 2017 and 2016.
The Company’s effective income tax rate was 33.3%, 34.2% and 33.6% for the years ending September 30, 2017, 2016 and 2015, respectively. The decrease in the effective rate for the year ended September 30, 2017 compared to the same periods during fiscal 2016 and 2015 is primarily due to how excess tax benefits on share-based payment awards are recognized pursuant to the adoption of ASU 2016-09. This change is described more fully in Note 21, Recent Accounting Pronouncements.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and city jurisdictions. With few exceptions, the Company is no longer subject to income tax examinations in its major jurisdictions for tax years prior to 2014.
The Company makes certain investments in limited partnerships which invest in affordable housing projects that qualify for the Low Income Housing Tax Credit. The Company acts as a limited partner in these investments and does not exert control
over the operating or financial policies of the partnership. The Company accounts for its interests in LIHTCs using the
proportional amortization method. The impact of the Company's investments in tax credit entities on the provision for income
taxes was not material at September 30, 2017, 2016 and 2015.