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INCOME TAXES

12 Months Ended

Sep. 30, 2018

Income Tax Disclosure [Abstract]

NOTE L - INCOME TAXES

The income tax expense is comprised of the following components for the years ended September 30, 2018 and 2017:

		September 30,
		2018				2017
		(In thousands)

Income tax expense at the statutory federal tax rate of
24% for the year ended September 30, 2018 and
34% for the year ended September 30, 2017		$	839			$	822
State tax expense			240				141
Reduction of deferred tax asset from tax legislation			410				—
Other			(18	)			31
Income tax expense		$	1,471			$	994

A reconciliation of income tax at the statutory tax rate to the effective income tax expense for the years ended September 30, 2018 and 2017 is as follows:

		September 30,
		2018				2017
		(In thousands)

Income tax expense at statutory rate		$	839			$	822
Increase (decrease) resulting from:
State income taxes, net of federal income tax benefit			244				141
Tax-exempt income, net			(70	)			(95	)
Nondeductible expenses			32				4
Employee stock ownership plan			5				7
Increase (decrease) in valuation allowance			—				115
Increase due to change in tax law			410				—
Other, net			11				—
Total income tax expense		$	1,471			$	994

The major sources of temporary differences and their deferred tax effect at September 30, 2018 and 2017 are as follows:

		September 30,
		2018				2017
		(In thousands)

Allowance for loan losses		$	1,181			$	1,388
Deferred loan fees			—				1
Net operating losses			—				431
Alternative minimum tax credit			—				311
Unrealized loss, minimum pension liability			363				597
Net unrealized loss, investment securities available-for-sale			213				61
OREO			410				382
Straight line rent			125				177
Gross deferred tax asset			2,292				3,348

Depreciation			(964	)			(1,370	)
Discount accretion on investments			(87	)			(119	)
Employee benefits			(66	)			(39	)
Deferred loan fees			(19	)			—
Mortgage servicing rights			(13	)			(28	)
Gross deferred tax liability			(1,149	)			(1,556	)


Net deferred tax asset, included in other assets		$	1,143			$	1,792

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible and carry forwards are available.

There were no valuation allowances for the year ended September 30, 2018 and 2017. The Company has considered future market growth, forecasted earnings, future taxable income, feasible and permissible tax planning strategies in determining the realizability of deferred tax assets. If the Company was to determine that it would not be able to realize a portion of its net deferred tax asset in the future for which there is currently no valuation allowance, an adjustment to the net deferred tax asset would be charged to earnings in the period such determination was made.

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. ASC 740 (Income Taxes) requires the recognition of the effect of changes in tax laws or rates in the period in which the legislation is enacted. The changes in the deferred tax assets and liabilities remeasured at the new 21% federal tax rate are reflected in income tax expense for the year ended September 30, 2018. The Company expensed $410,000 due to the impact of the lower corporate tax rates on the deferred tax assets and liabilities.