Note 14. Income Taxes
The components of income tax expense (benefit) are summarized as follows for the years ended June 30 (in thousands):
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current tax expense (benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
1,344 |
|
|
$ |
(6 |
) |
|
$ |
406 |
|
|
State |
|
|
(52 |
) |
|
|
(476 |
) |
|
|
(290 |
) |
|
|
|
|
1,292 |
|
|
|
(482 |
) |
|
|
116 |
|
|
Deferred tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(52 |
) |
|
|
1,216 |
|
|
|
183 |
|
|
State |
|
|
(21 |
) |
|
|
250 |
|
|
|
(53 |
) |
|
|
|
|
(73 |
) |
|
|
1,466 |
|
|
|
130 |
|
|
State tax valuation allowances, net of federal benefit |
|
|
47 |
|
|
|
149 |
|
|
|
456 |
|
|
Total |
|
$ |
1,266 |
|
|
$ |
1,133 |
|
|
$ |
702 |
|
Effective tax rates differ from federal statutory rate of 34% applied to income before income taxes due to the following (in thousands):
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Tax at federal statutory rate of 34% |
|
$ |
1,529 |
|
|
$ |
1,380 |
|
|
$ |
411 |
|
|
State Taxes, net of federal benefit |
|
|
— |
|
|
|
— |
|
|
|
229 |
|
|
Tax-exempt income |
|
|
(47 |
) |
|
|
(49 |
) |
|
|
(56 |
) |
|
BOLI income |
|
|
(211 |
) |
|
|
(156 |
) |
|
|
(101 |
) |
|
Non-deductible acquisition related costs |
|
|
— |
|
|
|
— |
|
|
|
139 |
|
|
Other, net |
|
|
(5 |
) |
|
|
(42 |
) |
|
|
80 |
|
|
Total |
|
$ |
1,266 |
|
|
$ |
1,133 |
|
|
$ |
702 |
|
Year-end deferred tax assets and liabilities were due to the following (in thousands):
|
|
|
2017 |
|
|
2016 |
|
||
|
Deferred Tax Assets: |
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses |
|
$ |
1,983 |
|
|
$ |
1,568 |
|
|
Deferred compensation |
|
|
1,071 |
|
|
|
911 |
|
|
Purchase accounting adjustments |
|
|
277 |
|
|
|
542 |
|
|
Deferred rent |
|
|
380 |
|
|
|
263 |
|
|
Other compensation loss (defined benefit plans) |
|
|
2,706 |
|
|
|
4,375 |
|
|
Depreciation of premises and equipment |
|
|
405 |
|
|
|
417 |
|
|
NOL carryforward |
|
|
602 |
|
|
|
1,066 |
|
|
Charitable contribution carryforward |
|
|
1,820 |
|
|
|
139 |
|
|
Nonaccrual loan interest |
|
|
540 |
|
|
|
661 |
|
|
Other |
|
|
104 |
|
|
|
54 |
|
|
Total deferred tax assets |
|
|
9,888 |
|
|
|
9,996 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Prepaid pension costs |
|
|
3,622 |
|
|
|
2,393 |
|
|
Deferred loan costs and fees, net |
|
|
457 |
|
|
|
463 |
|
|
Other comprehensive income (securities) |
|
|
19 |
|
|
|
269 |
|
|
Other |
|
|
368 |
|
|
|
102 |
|
|
Total deferred tax liabilities |
|
|
4,466 |
|
|
|
3,227 |
|
|
Deferred tax asset valuation allowance |
|
|
(652 |
) |
|
|
(605 |
) |
|
Net Deferred Tax Asset |
|
$ |
4,770 |
|
|
$ |
6,164 |
|
At June 30, 2017, after consideration of pre-transaction net operating losses due to the IRC section 382 limitation, the Company had federal net operating loss carryforwards of approximately $615,000, which will begin to expire in 2035. The Company has an apportioned New York State net operating loss carryforward of approximately $7.1 million which will begin to expire in 2034. In addition, the Company has approximately $4.7 million of charitable contribution carryforwards that may be carried forward up to 5 years and will begin to expire in 2019.
In 2014, New York State enacted comprehensive tax reform provisions with significant impact on financial institutions. As a result of this legislation, beginning on January 1, 2015, the Company calculated its tax obligation to New York based upon the largest of a calculated income tax liability, a tax liability based upon average equity capital or a fixed minimum fee. It is more likely than not the Company will generate New York tax losses in future years and therefore calculate its New York tax liability on the basis of average equity capital or a fixed minimum fee. Consequently, the Company recorded a valuation allowance against its net New York deferred tax asset as of June 30, 2015, as it is unlikely this deferred tax asset will impact the Company 's New York tax liability in future years.
Management has determined that it is not required to establish a valuation allowance against any other deferred tax assets in accordance with accounting principles generally accepted in the United States of America since it is more likely than not that the deferred tax assets will be fully utilized in future periods. In assessing the need for a valuation allowance, management considers the schedule reversal of the deferred tax liabilities, the level of historical taxable income, and the projected future taxable income over the periods that the temporary differences comprising the deferred tax assets will be deductible.
As a thrift institution, the Bank is subject to special provisions in the federal tax laws regarding its allowable tax bad debt deductions and related tax bad debt reserves. Tax bad debt reserves consist of a defined base-year amount, plus additional amounts (excess reserves) accumulated after the base year. Deferred tax liabilities are recognized with respect to such excess reserves, as well as any portion of the base-year amount that is expected to become taxable (or recaptured) in the foreseeable future. The Bank’s base-year tax bad debt reserves totaled $2.8 million at June 30, 2017 and 2016, respectively. Associated deferred tax liabilities of $1.0 million have not been recognized at June 30, 2017 and 2016, since the Bank does not expect that the base-year reserves will become taxable in the foreseeable future. Taxation of the base-year reserve would occur only in very limited circumstances.
The Company is subject to U.S. federal income tax as well as income tax of the state of New York. The Company’s federal and state income tax returns are subject to examination for years after December 31, 2013.
At June 30, 2017 and 2016, the Company had no unrecognized tax benefits recorded. The Company does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months.