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Income Taxes
12 Months Ended
Jun. 30, 2021
Income Tax Disclosure [Abstract]  
Income Taxes

Note 16 – Income Taxes

The components of income taxes are as follows:

 

 

Years Ended June 30,

 

 

 

2021

 

 

 

2020

 

 

 

2019

 

 

(In Thousands)

 

Current income tax expense:

 

 

 

 

 

 

 

 

 

 

 

Federal

$

12,051

 

 

$

6,745

 

 

$

5,656

 

State

 

5,058

 

 

 

4,877

 

 

 

3,733

 

 

 

17,109

 

 

 

11,622

 

 

 

9,389

 

Deferred income tax expense:

 

 

 

 

 

 

 

 

 

 

 

Federal

 

2,673

 

 

 

1,153

 

 

 

3,842

 

State

 

2,016

 

 

 

235

 

 

 

368

 

 

 

4,689

 

 

 

1,388

 

 

 

4,210

 

Valuation allowance

 

(535

)

 

 

(723

)

 

 

328

 

 

 

 

 

 

 

 

 

 

 

 

 

Total income tax expense

$

21,263

 

 

$

12,287

 

 

$

13,927

 

 

The following table presents a reconciliation between the reported income taxes for the periods presented and the income taxes which would be computed by applying the federal income tax rates applicable to those periods. The federal income tax rate of 21% was applicable for the years ended June 30, 2021, 2020 and 2019.

Note 16 – Income Taxes (continued)

 

 

 

Years Ended June 30,

 

 

 

2021

 

 

 

2020

 

 

 

2019

 

 

(Dollars In Thousands)

 

Income before income taxes

$

84,496

 

 

$

57,252

 

 

$

56,069

 

Statutory federal tax rate

 

21

%

 

 

21

%

 

 

21

%

Federal income tax expense at statutory rate

$

17,744

 

 

$

12,023

 

 

$

11,774

 

(Reduction) increases in income taxes resulting from:

 

 

 

 

 

 

 

 

 

 

 

Tax exempt interest

 

(345

)

 

 

(497

)

 

 

(589

)

State tax, net of federal tax effect

 

5,464

 

 

 

3,914

 

 

 

3,510

 

Incentive stock options compensation expense

 

85

 

 

 

78

 

 

 

88

 

Income from bank-owned life insurance

 

(1,255

)

 

 

(1,314

)

 

 

(1,329

)

Disqualifying disposition on incentive stock

  options

 

(33

)

 

 

-

 

 

 

(24

)

Non-deductible merger-related expenses

 

49

 

 

 

148

 

 

 

-

 

Bargain purchase gain

 

(641

)

 

 

-

 

 

 

-

 

Tax benefit arising from the adoption of the CARES

  Act provisions

 

-

 

 

 

(1,624

)

 

 

-

 

Other items, net

 

730

 

 

 

282

 

 

 

169

 

 

 

21,798

 

 

 

13,010

 

 

 

13,599

 

Valuation allowance

 

(535

)

 

 

(723

)

 

 

328

 

 

 

 

 

 

 

 

 

 

 

 

 

Total income tax expense

$

21,263

 

 

$

12,287

 

 

$

13,927

 

Effective income tax rate

 

25.16

%

 

 

21.46

%

 

 

24.84

%

 

 

The effective income tax rate represents total income tax expense divided by income before income taxes. Retained earnings at June 30, 2021, includes approximately $38.4 million of bad debt allowance, pursuant to the IRC, for which income taxes have not been provided.  If such amount is used for purposes other than to absorb bad debts, including distributions in liquidation, it will be subject to income tax at the then current rate.

A tax position is recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation process, if any. A tax position that meets the more likely than not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more likely than not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment.

Realization of deferred tax assets is dependent upon the generation of future taxable income or the existence of sufficient taxable income within the carryover period. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. In assessing the need for a valuation allowance, management considers the scheduled reversal of the deferred tax liabilities, the level of historical taxable income, and the projected future taxable income over the periods in which the temporary differences comprising the deferred tax assets will be deductible. Based on its assessment, management determined the following related to June 30, 2021 and 2020:

In the year ended June 30, 2020, the valuation allowance against the charitable contribution carryover was reversed as it became more likely than not that the charitable contribution would be realized. In addition, the Company maintained a valuation allowance during the year ended June 30, 2020, against a portion of the deferred tax asset arising from fair value adjustments on investment securities acquired in a prior acquisition.

Note 16 – Income Taxes (continued)

In the year ended June 30, 2020, the Company also recorded a valuation allowance against capital losses generated in the current year. Management determined that it was more likely than not that the Company will not generate capital gains in the carryover period to offset the capital losses. During the year ended June 30, 2021, the Company reversed a valuation allowance totaling $535,000 which was associated with the realization of a capital loss carryforward.

It is more likely than not that all other deferred tax assets will be realized.

 

The tax effects of existing temporary differences that give rise to deferred income tax assets and liabilities are as follows:

 

 

 

 

June 30,

 

 

 

 

 

2021

 

 

 

2020

 

 

 

 

(In Thousands)

 

Deferred income tax assets:

 

 

 

 

 

 

 

 

 

Purchase accounting

 

 

$

8,417

 

 

$

11,668

 

Accumulated other comprehensive income

 

 

 

 

 

 

 

 

 

Defined benefit plans

 

 

 

326

 

 

 

416

 

Derivatives

 

 

 

94

 

 

 

5,730

 

Allowance for credit losses

 

 

 

17,376

 

 

 

11,047

 

Benefit plans

 

 

 

2,432

 

 

 

2,290

 

Compensation

 

 

 

1,616

 

 

 

1,287

 

Stock-based compensation

 

 

 

2,937

 

 

 

2,482

 

Uncollected interest

 

 

 

1,484

 

 

 

1,362

 

Depreciation

 

 

 

1,691

 

 

 

268

 

Net operating loss carryover

 

 

 

5

 

 

 

6

 

Capital loss carryforward

 

 

 

313

 

 

 

329

 

Other items

 

 

 

1,048

 

 

 

1,049

 

 

 

 

 

37,739

 

 

 

37,934

 

Valuation allowance

 

 

 

-

 

 

 

(535

)

 

 

 

 

37,739

 

 

 

37,399

 

Deferred income tax liabilities:

 

 

 

 

 

 

 

 

 

Deferred loan fees and costs

 

 

 

620

 

 

 

-

 

Accumulated other comprehensive income

 

 

 

 

 

 

 

 

 

Unrealized gain on securities available for sale

 

 

 

2,882

 

 

 

6,541

 

Goodwill

 

 

 

4,560

 

 

 

4,655

 

Other items

 

 

 

354

 

 

 

723

 

 

 

 

 

8,416

 

 

 

11,919

 

Net deferred income tax asset

 

 

$

29,323

 

 

$

25,480

 

 

The Company has various state and local NOL carryforwards which will begin to expire in the year ending June 30, 2025.

The Company and its subsidiaries are subject to U.S. federal income tax, as well as income tax of the state of New Jersey and various other states.  The Company is generally no longer subject to examination by federal, state and local taxing authorities for tax years prior to June 30, 2018.