Income Taxes

12 Months Ended

Sep. 30, 2020

On December 22, 2017, the federal government enacted the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act significantly revised the future ongoing federal corporate income tax by, among other things, decreasing the federal corporate income tax rate to 21.0% from 35.0% effective January 1, 2018. As the Company has a September 30 fiscal year-end, the lower corporate income tax rate was phased in, resulting in a blended federal income tax rate of approximately 24.5% for the Company's fiscal year ended September 30, 2018, and 21.0% for subsequent fiscal years. In addition, the reduction of the corporate federal income tax rate required the Company to revalue its deferred tax assets and liabilities based on the lower federal income tax rate of 21.0%.

As a result of the Tax Act, during the year ended September 30, 2018, the Company recorded a one-time income tax expense of $548,000 in conjunction with remeasuring its net deferred tax assets. The impact of using the 24.5% blended federal income tax rate for the year ended September 30, 2018 versus a 35.0% rate reduced the provision for income taxes by approximately $2.21 million, which was partially offset by the $548,000 one-time net deferred tax asset remeasurement.

The components of the provision for income taxes for the years ended September 30, 2020, 2019 and 2018 were as follows (dollars in thousands):


	2020		2019		2018
Current:
Federal	$	5,962	$	5,198	$	4,900
State	—		—		4
Deferred	76		703		797
Provision for income taxes	$	6,038	$	5,901	$	5,701

At September 30, 2020, the Company had income taxes receivable of $781,000, which is included in other assets in the accompanying 2020 consolidated balance sheet. At September 30, 2019, the Company had income taxes receivable of $1,210,000, which is included in other assets in the accompanying 2019 consolidated balance sheet.

The components of the Company’s deferred tax assets and liabilities at September 30, 2020 and 2019 were as follows (dollars in thousands):


	2020		2019
Deferred Tax Assets
Allowance for loan losses	$	2,440	$	1,550
Allowance for OREO losses	171		218


OTTI credit impairment on investment securities	64		97


Accrued interest on loans	8		76

Deferred compensation and bonuses	372		520
Reserve for loan commitments	81		51
Lease liability	552		—
Other	69		82
Total deferred tax assets	3,757		2,594



Deferred Tax Liabilities
Goodwill	1,187		1,187
Servicing rights	650		506
Depreciation	778		494
Loan fees/costs	428		267
FHLB stock dividends	81		82
Prepaid expenses	98		70
Purchase accounting adjustment	207		110
Net unrealized gains on investment securities and investments in equity securities	23		15
Right of use asset	543		—

Total deferred tax liabilities	3,995		2,731



Net deferred tax assets (liabilities)	$	(238)	$	(137)

Deferred tax liabilities are included in other liabilities on the consolidated balance sheet.

The provision for income taxes for the years ended September 30, 2020, 2019 and 2018 differs from that computed at the federal statutory corporate tax rate as follows (dollars in thousands):


	2020		2019		2018
Expected federal income tax provision at statutory rate	$	6,365	$	6,283	$	5,500
Net impact of the Tax Act	—		—		548
BOLI income	(124)		(345)		(134)

Dividends on ESOP	(75)		(73)		(71)
Stock options tax effect	(33)		(87)		(157)
Other, net	(95)		123		15
Provision for income taxes	$	6,038	$	5,901	$	5,701

No valuation allowance for deferred tax assets was recorded as of September 30, 2020 and 2019, as management believes that it is more likely than not that all of the deferred tax assets will be realized based on management's expectations of future taxable income.