Income Taxes

12 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Note 11. Income Taxes

The following table details the components of income tax expense:

	Year Ended September 30,
(in thousands)	2023		2022
Current:
Federal	$	2,997	$	5,081
State		830		540
Total current		3,827		5,621
Deferred:
Federal		1,135		1,055
State		260		735
Total deferred		1,395		1,790
Change in valuation allowance		(199)		(472)
Total income tax expense	$	5,023	$	6,939

The following table reflects a reconciliation of reported income tax expense to the amount that would result from applying the federal statutory rate of 21%:

	Year Ended September 30,
	2023				2022
			Percentage				Percentage
			of Pre-tax				of Pre-tax
(in thousands)	Amount		Earnings		Amount		Earnings
Federal income tax expense computed by applying the statutory rate to income before income taxes	$	4,239	21.0	%	$	6,404	21.0	%
State taxes, net of federal benefit		705	3.5	%		1,156	3.8	%
Salaries deduction limitation		31	0.2	%		—	—	%
Non-deductible expenses		2	—	%		(1)	—	%
Other		245	1.2	%		(148)	(0.5)	%
Change in valuation allowance		(199)	(1.0)	%		(472)	(1.5)	%
Income tax expense	$	5,023	24.9	%	$	6,939	22.8	%

The following table summarizes the composition of deferred tax assets and liabilities:

	September 30,
(in thousands)	2023		2022
Deferred tax assets:
Allowance for loan losses and other contingent liabilities	$	4,544	$	4,014
Operating lease liability		3,334		—
Net operating loss carryforwards		2,758		2,415
Compensation and related benefit obligations		1,278		1,323
Accrued SERP		1,081		1,062
Unrealized loss on securities AFS		463		170
Purchase accounting fair value adjustments		379		727
Organizational costs		12		63
Total deferred tax assets		13,849		9,774
Deferred tax liabilities:
Deferred fees and costs		(4,383)		(2,718)
Operating lease asset		(3,118)		—
Depreciation		(1,354)		(951)
Unrealized gain on derivatives		(97)		—
Mortgage servicing rights		(14)		(15)
Other		(149)		(158)
Total deferred tax liabilities		(9,115)		(3,842)
Total		4,734		5,932
Valuation allowance		(3,225)		(3,424)
Net deferred tax asset	$	1,509	$	2,508

The Company does not have net operating loss carryforwards available for federal income tax purposes as of September 30, 2023. The Company has net operating loss carryforwards available for state income tax purposes of approximately $35.1 million. For state purposes, $12.4 million expires in 2025 with the remaining balance of $22.7 million will begin to expire in 2036. The Company has net operating loss carryforwards for city income tax purposes of approximately $8.8 million, of which $0.5 million will expire in 2025 and the remaining balance of $8.3 million will begin to expire in 2037.

The Company has recorded a federal deferred tax asset as, based upon an analysis of the evidence, it is more likely than not that such federal deferred tax asset will be recoverable. In March of 2014, New York State adopted legislation that benefited small community banks with less than $8 billion in average assets. Specifically, this legislation provides for a state and city subtraction modification for which the Company qualifies. This subtraction modification causes the Company to consistently generate net operating losses for New York State and New York City purposes and it will continue to do so for the foreseeable future. Accordingly, the Company has recorded a valuation allowance against the New York State and New York City portions of the deferred tax asset, as it is not more likely than not that such deferred tax assets will be recoverable. Management reassesses the need for a valuation allowance on an annual basis, or more frequently if warranted.

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of the states of Connecticut, New Jersey and New York and the city of New York. The Company is no longer subject to examination by taxing authorities for years before 2019. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination. The Company has no unrecorded tax benefits, and the Company does not expect the total amount of unrecognized income tax benefits to significantly increase in the next twelve months.