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INCOME TAXES
 12 Months Ended
Sep. 30, 2020
Income Tax Disclosure [Abstract]  
INCOME TAXES

NOTE L - INCOME TAXES

 

The Company’s income tax expense is comprised of the following components for the years ended September 30, 2020 and 2019:

   September 30, 
   2020   2019 
   (In thousands) 
         
         
Income tax expense at the statutory federal tax rate of 21%          
 for the year ended September 30, 2020 and 2019, respectively  $653   $895 
State tax expense   323    397 
Other   (55)   (27)
Income tax expense  $921   $1,265 

 

A reconciliation of income tax at the statutory tax rate to the effective income tax expense for the years ended September 30, 2020 and 2019 is as follows:

 

   September 30, 
   2020   2019 
   (In thousands) 
         
Income tax expense at statutory rate  $653   $895 
Increase (decrease) resulting from:          
State income taxes, net of federal income tax benefit   323    397 
Tax-exempt income, net   (68)   (64)
Nondeductible expenses   18    26 
Employee stock ownership plan   (5)   2 
Other, net   —    9 
Total income tax expense  $921   $1,265 

 

The major sources of temporary differences and their deferred tax effect at September 30, 2020 and 2019 are as follows:

 

   September 30, 
   2020   2019 
   (In thousands) 
         
Allowance for loan losses  $1,799   $1,374 
Deferred loan fees   731    76 
Unrealized loss, minimum pension liability   620    537 
OREO   73    424 
Straight line rent   110    118 
Gross deferred tax asset   3,333    2,529 
           
Depreciation   (872)   (931)
Discount accretion on investments   (61)   (89)
Employee benefits   (37)   (107)
Net unrealized gain, investment securities available-for-sale   —    (17)
Mortgage servicing rights   (3)   (7)
Gross deferred tax liability   (973)   (1,151)
Net deferred tax asset   2,360    1,378 

 

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, 2020 and 2019. 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 July 1, 2018, the State of New Jersey's Assembly signed into law a new bill, effective January 1, 2018, that imposed a temporary surtax on corporations earning New Jersey allocated income in excess of $1 million. The surtax was set at a rate of 2.5% for tax years beginning on or after January 1, 2018 through December 31, 2019, and at a rate of 1.5% for years beginning on or after January 1, 2020, through December 31, 2021. On September 29, 2020, the State of New Jersey's Assembly repealed the scheduled reduction in surtax and extended the temporary 2.5% surtax rate through December 31, 2023. Accordingly, the Company is using an 11.5% State tax rate for the calculation of its State income tax expense the year ended September 30, 2020.