Income Taxes

12 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Income tax expense for the years ended September 30, 2023, 2022, and 2021 consisted of the following:

	2023		2022		2021
	(Dollars in thousands)
Current:
Federal	$	6,789	$	17,105	$	17,586
State	1,435		3,598		4,028
	8,224		20,703		21,614
Deferred:
Federal	(39,209)		1,632		(1,405)
State	(6,311)		415		(263)
	(45,520)		2,047		(1,668)
	$	(37,296)	$	22,750	$	19,946

The Company's effective tax rates were 26.8%, 21.2%, and 20.8% for the years ended September 30, 2023, 2022, and 2021, respectively. The differences between such effective rates and the statutory Federal income tax rate computed on income before income tax expense resulted from the following:

	2023				2022				2021
	Amount		%		Amount		%		Amount		%
	(Dollars in thousands)
Federal income tax expense
computed at statutory Federal rate	$	(29,180)	21.0	%	$	22,513	21.0	%	$	20,166	21.0	%
Increases (decreases) in taxes resulting from:
State taxes, net of Federal tax effect	(5,412)		3.9		3,399		3.2		3,102		3.2
Low income housing tax credits, net	(2,303)		1.6		(2,238)		(2.1)		(2,085)		(2.1)
ESOP related expenses, net	(652)		0.5		(641)		(0.6)		(662)		(0.7)
Other	251		(0.2)		(283)		(0.3)		(575)		(0.6)
	$	(37,296)	26.8	%	$	22,750	21.2	%	$	19,946	20.8	%

The components of the net deferred income tax assets (liabilities) as of September 30, 2023 and 2022 were as follows:

	2023		2022
	(Dollars in thousands)
Deferred income tax assets:
Net loss on securities transactions	$	47,006	$	—
ACL	4,989		3,438
Lease liabilities	2,835		2,883
ESOP compensation	1,510		1,472
Salaries, deferred compensation and employee benefits	1,269		2,044
Reserve for off-balance sheet credit exposures	999		1,159
Unrealized loss on AFS securities	368		50,064
Net purchase discounts related to acquired loans	149		102
Low income housing partnerships	92		337
Other	912		891
Gross deferred income tax assets	60,129		62,390
Valuation allowance	(30)		(80)
Gross deferred income tax asset, net of valuation allowance	60,099		62,310
Deferred income tax liabilities:
FHLB stock dividends	17,547		14,590
Unrealized gain on interest rate swaps	3,176		3,061
Premises and equipment	3,164		3,614
ACL	2,936		3,145
Lease right-of-use assets	2,748		2,821
Deposit intangible	411		692
Other	512		503
Gross deferred income tax liabilities	30,494		28,426
Net deferred tax assets	$	29,605	$	33,884

The State of Kansas allows for a bad debt deduction on savings and loan institutions' privilege tax returns of up to 5% of Kansas taxable income.  Due to the low level of net loan charge-offs experienced by the Bank historically, at times, the Bank's bad debt deduction on the Kansas privilege tax return has been in excess of actual net charge-offs, resulting in a state deferred tax liability, which is presented separately from the federal deferred tax asset related to ACL.

The Company assesses the available positive and negative evidence surrounding the recoverability of its deferred tax assets and applies its judgment in estimating the amount of valuation allowance necessary under the circumstances.  At September 30, 2023 and 2022, the Company had a valuation allowance of $30 thousand and $80 thousand, respectively, related to the net operating losses generated by the Company's consolidated Kansas corporate income tax return as management believes there will not be sufficient taxable income to fully utilize these deferred tax assets. For this reason, a valuation allowance was recorded for the related amounts at September 30, 2023 and 2022. No additional valuation allowances were recorded for the Company's other deferred tax assets as management believes it is more likely than not that these amounts will be realized through the reversal of the Company's existing taxable temporary differences and projected future taxable income.

ASC 740 Income Taxes prescribes a process by which a tax position taken, or expected to be taken, on an income tax return is determined based upon the technical merits of the position, along with whether the tax position meets a more-likely-than-not-recognition threshold, to determine the amount, if any, of unrecognized tax benefits to recognize in the financial statements. Estimated penalties and interest related to unrecognized tax benefits are included in income tax expense in the consolidated statements of income. For the years ended September 30, 2023, 2022, and 2021 the Company had no unrecognized tax benefits.

The Company files income tax returns in the U.S. federal jurisdiction and the state of Kansas, as well as other states where it has either established nexus under an economic nexus theory or has exceeded enumerated nexus thresholds based on the amount of interest income derived from sources within a given state. With few exceptions, the Company is no longer subject to U.S. federal and state examinations by tax authorities for fiscal years ending before 2020.