(11) Income Taxes

Income tax expense (benefit) for the years ended June 30, 2017, 2016 and 2015 consists of the following:

 

A reconciliation between the provision for income taxes and the expected amount (computed by multiplying income before provision for income taxes times the applicable statutory federal income tax rate) for the years ended June 30, 2017, 2016 and 2015 is as follows:

The effective tax rates for the years ended June 30, 2017, 2016 and 2015 were 34.93%, 35.30% and 35.85%, respectively.  The Company adopted ASU 2016-09 during the quarter ended June 30, 2016, retroactively effective July 1, 2015.  As a result of the new guidance, excess tax benefits from exercise or vesting of share-based awards are now included as a reduction in income tax expense, as discrete items, in the period in which the exercise or vesting occurs.  This impacts the effective tax rate in each reporting period; however, these discrete items are not included in the projected annual effective tax rate calculation.  Previously, excess tax benefits and certain tax deficiencies were recorded in additional paid-in capital.  For further discussion, see Note 1, "Summary of Significant Accounting Policies—Employee Benefit Plans.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at June 30, 2017 and 2016 are as follows:

Sources of deferred taxes for the years ended June 30, 2017 and 2016 were due primarily to the difference in recognizing income and expenses for book purposes and tax purposes for various deferred loan fees, unrealized gains and losses on financial assets, uncollected interest on loans, accrued benefit costs, book and tax depreciation, nonallowable reserves and capital loss carryforwards.

At June 30, 2017, there are approximately $6.4 million of state net operating loss carryforwards available to offset future taxable income.  If not utilized, these carryforwards will expire in 2036.  Based upon projections of future taxable income over the periods in which the net deferred tax assets are deductible, management believes that it is more likely than not that the Company will realize the benefits of these deductible differences and loss carryforwards.

At June 30, 2017, retained earnings includes approximately $15.1 million for which no provision for income tax has been made.  This amount represents an allocation of income to bad debt deductions for tax purposes only.  Under ASC 740, this amount is treated as a permanent difference and deferred taxes are not recognized unless it appears that it will be reduced and result in taxable income in the foreseeable future. Events that would result in taxation of these reserves include failure to qualify as a bank for tax purposes, distributions in complete or partial liquidation, stock redemptions and excess distributions to shareholders.  At June 30, 2017, the Company had an unrecognized tax liability of $5.3 million with respect to this reserve.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits, where applicable, in income tax expense.  The Company did not have any uncertain tax positions for the years ended June 30, 2017 and 2016.

The Company files income tax returns in the United States federal jurisdiction and in New Jersey, and New York city and state jurisdictions.  The Company is no longer subject to federal and state income tax examinations by tax authorities for years prior to 2013. The Company's federal return for the tax year ended December 31, 2012 was audited during fiscal year 2016.  Currently, the Company is not under examination by any taxing authority.