Income Taxes

9 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Note 10. Income Taxes

The provision (benefit) for income taxes for the three and nine months ended September 30, 2023 and 2022 consists of the following:

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2023			2022			2023			2022
	(in thousands)
Federal:
Current	$	783		$	2,265		$	380		$	370
Deferred		312			(2,750	)		344			(4,047	)
		1,095			(485	)		724			(3,677	)
State and local:
Current		232			274			1,085			847
Deferred		1,818			(2,963	)		1,091			(5,487	)
		2,050			(2,689	)		2,176			(4,640	)
Valuation allowance		(1,417	)		2,354			(841	)		4,061
Provision (benefit) for income taxes	$	1,728		$	(820	)	$	2,059		$	(4,256	)

Total income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 21% for the three and nine months ended September 30, 2023 and 2022, respectively, to income before income taxes as a result of the following:

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2023			2022			2023			2022
	(in thousands)
Income tax, at federal rate	$	906		$	(3,267	)	$	1,027		$	(5,259	)
State and local tax, net of federal taxes		1,619			(2,125	)		1,719			(3,666	)
Valuation allowance, net of the federal benefit		(1,417	)		2,354			(841	)		4,061
Other		620			2,218			154			608
	$	1,728		$	(820	)	$	2,059		$	(4,256	)

Management maintains a valuation allowance against its net New York State and New York City deferred tax assets as it is unlikely these deferred tax assets will be utilized to reduce the Company's tax liability in future years. For the nine months ended September 30, 2023 and 2022, the valuation allowance decreased by $0.8 million and increased by $4.1 million, respectively. In 2022, the Company generated large net operating losses in New York State and New York City which in turn increased the 2022 valuation allowance.

Management has determined that it is not required to establish a valuation allowance against any other deferred tax assets since it is more likely than not that the deferred tax assets will be fully utilized in future periods. 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 that the temporary differences comprising the deferred tax assets will be deductible.

For federal income tax purposes, a financial institution may carry net operating losses (“NOLs”) to forward tax years indefinitely. The use of NOLs to offset income is limited to 80%. At September 30, 2023, the Bank had a federal NOL carryforward of $6.7 million.

The state and city of New York allow for a three-year carryback period and carryforward period of twenty years on NOLs generated on or after tax year 2015. For tax years prior to 2015, no carryback period is allowed. Ponce De Leon Federal Bank, the predecessor of Ponce Bank, has pre-2015 carryforwards of $0.6 million for New York State purposes and $0.5 million for New York City purposes. Furthermore, there are post-2015 carryforwards available of $58.9 million for New York State purposes and $29.7 million for New York City purposes. Finally, for New Jersey purposes, losses may only be carried forward 20 years, with no allowable carryback period. At September 30, 2023, the Bank had a New Jersey NOL carryforward of $0.1 million.

At September 30, 2023 and December 31, 2022, the Company had no unrecognized tax benefits recorded. The Company does not expect that the total amount of unrecognized tax benefits will significantly increase in the next twelve months.

The Company is subject to U.S. federal income tax, New York State income tax, Connecticut income tax, New Jersey income tax, Florida income tax, Pennsylvania income tax and New York City income tax. The Company is no longer subject to examination by taxing authorities for years before 2020.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at September 30, 2023 and December 31, 2022 are presented below:

	September 30,		December 31,
	2023		2022
	(in thousands)
Deferred tax assets:
Allowance for loan losses	$	8,509	$	11,324
Interest on nonaccrual loans		730		317
Unrealized loss on available-for-sale securities		5,533		4,777
Amortization of intangible assets		16		32
Operating lease liabilities		10,386		11,304
Net operating losses		7,348		9,119
Charitable contribution carryforward		1,647		1,859
Compensation and benefits		1,087		562
Other		2,025		478
Total gross deferred tax assets		37,281		39,772
Deferred tax liabilities:
Depreciation of premises and equipment		996		1,049
Right of use assets		9,967		10,941
Deferred loan fees		215		671
Other		15		29
Total gross deferred tax liabilities		11,193		12,690
Valuation allowance		10,104		10,945
Net deferred tax assets	$	15,984	$	16,137