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Income Taxes

12 Months Ended

Jun. 30, 2022

Income Taxes

Income Taxes

Note 8: Income Taxes

​

ASC 740, “Income Taxes,” requires the affirmative evaluation that it is more likely than not, based on the technical merits of a tax position, that an enterprise is entitled to economic benefits resulting from positions taken in income tax returns. If a tax position does not meet the more-likely-than-not recognition threshold, the benefit of that position is not recognized in the financial statements. Management has determined that there were no unrecognized tax benefits to be reported in the Corporation’s consolidated financial statements for the years ended June 30, 2022 and 2021.

​

Under generally accepted accounting principles, the Corporation uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

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The Corporation’s effective tax rate may differ from the estimated statutory tax rates described above due to discrete items such as further adjustments to net deferred tax assets, excess tax benefits derived from stock option exercises and non-taxable earnings from bank owned life insurance, among other items.

​

The Corporation utilizes the asset and liability method of accounting for income taxes whereby deferred tax assets are recognized for deductible temporary differences and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.

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The provision for income taxes for the years indicated consisted of the following:

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​	​	​	​	​	​	​
​	​	Year Ended June 30,
(In Thousands)		2022			2021
​	​	​	​	​	​	​
Current:		​			​
Federal	​	$	1,781	​	$	1,547
State	​		844	​		598
​	​		2,625	​		2,145
Deferred:	​			​
Federal	​		696	​		303
State	​		444	​		178
​	​		1,140	​		481
Provision for income taxes	​	$	3,765	​	$	2,626

​

The Corporation’s tax benefit from non-qualified equity compensation recognized in the Consolidated Statements of Operations in connection with the adoption of ASU 2016-09 for fiscal 2022 and 2021 was $0 and $91,000, respectively.

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The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to net income before income taxes as a result of the following differences for the years indicated:

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​	​	​	​	​	​	​	​	​	​	​	​
​	​	Year Ended June 30,
​	​	2022				​	2021				​
(In Thousands)		Amount			Tax Rate		Amount			Tax Rate
​	​	​	​	​	​	​	​	​	​	​	​
Federal income tax at statutory rate	​	$	2,700		21.00	%	$	2,139		21.00	%
State income tax, net of federal income tax benefit	​		988		7.68	%		614		6.05	%
Changes in taxes resulting from:	​				​	​				​	​
Bank-owned life insurance	​		(39)		(0.31)	%		(40)		(0.39)	%
Non-deductible expenses	​		8		0.06	%		6		0.06	%
Non-deductible stock-based compensation	​		—		—	%		(30)		(0.30)	%
Excess tax benefit on stock-based compensation	​		—		—	%		(64)		—	%
Return to provision adjustment	​	​	107	​	0.84	%	​	—	​	—	%
Other	​		1		0.01	%		1		(0.64)	%
Effective income tax	​	$	3,765		29.28	%	$	2,626		25.78	%

​

Deferred tax assets at June 30, 2022 and 2021 by jurisdiction were as follows:

​

​	​	​	​	​	​	​
​	​	June 30,
(In Thousands)		2022			2021
​	​	​	​	​	​	​
Deferred taxes - federal	​	$	947	​	$	1,617
Deferred taxes - state	​		485	​		926
Total net deferred tax assets	​	$	1,432	​	$	2,543

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Net deferred tax assets at June 30, 2022 and 2021 were comprised of the following:

​

​	​	​	​	​	​	​
​	​	June 30,
(In Thousands)		2022			2021
​	​	​	​	​	​	​
Loss reserves	​	$	1,968	​	$	2,734
Non-accrued interest	​		199	​		392
Deferred compensation	​		2,903	​		2,512
Accrued vacation	​		178	​		197
Depreciation	​		211	​		153
State tax	​		64	​		—
Other	​		245	​		307
Total deferred tax assets	​		5,768	​		6,295
​	​	​	​	​	​	​
FHLB - San Francisco stock dividends	​		(645)	​		(645)
Prepaid expenses	​		(28)	​		(41)
Unrealized loss (gain) on investment securities	​		1	​		(27)
Unrealized gain on interest-only strips	​		(2)	​		(3)
Deferred loan costs	​		(3,662)	​		(2,974)
State tax	​		—	​		(62)
Total deferred tax liabilities	​		(4,336)	​		(3,752)
Net deferred tax assets	​	$	1,432	​	$	2,543

​

The net deferred tax assets were included in prepaid expenses and other assets in the Consolidated Statements of Financial Condition. The Corporation analyzes the deferred tax assets to determine whether a valuation allowance is required based on the more-likely-than-not criteria that such assets will be realized principally through future taxable income. This criteria takes into account the actual earnings and the estimates of future profitability. The Corporation may carryback net federal tax losses to the preceding five taxable years and forward to the succeeding 20 taxable years. At June 30, 2022 and 2021, the Corporation had no federal and state net tax loss carryforwards. Based on management’s consideration of historical and anticipated future income before income taxes, as well as the reversal period for the items giving rise to the deferred tax assets and liabilities, a valuation allowance was not considered necessary at June 30, 2022 and 2021 and management believes it is more likely than not the Corporation will realize its deferred tax asset.

​

Retained earnings at June 30, 2022 and 2021 include approximately $9.0 million (pre-1988 bad debt reserve for tax purposes) for which federal income tax of $3.1 million has not been provided. If the amounts that qualify as deductions for federal income tax purposes are later used for purposes other than for bad debt losses, including distribution in liquidation, they will be subject to federal income tax at the then-current corporate tax rate. If those amounts are not so used, they will not be subject to tax even in the event the Bank were to convert its charter from a thrift to a bank.

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The Corporation files income tax returns for the United States and California jurisdictions. The Internal Revenue Service has audited the Bank’s income tax returns through 1996 and the California Franchise Tax Board has audited the Bank through 1990. Also, the Internal Revenue Service completed a review of the Corporation’s income tax returns for fiscal 2006 and 2007; and the California Franchise Tax Board completed a review of the Corporation’s income tax returns for fiscal 2009 and 2010. Fiscal years of 2019 and thereafter remain subject to federal examination, while the California state tax returns for fiscal years 2018 and thereafter are subject to examination by state taxing authorities.

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It is the Corporation’s policy to record any penalties or interest charges arising from federal or state taxes as a component of income tax expense. For the fiscal years ended June 30, 2022 and 2021, there were no tax penalties and no interest charges arising from federal or state taxes.

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- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References

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