Income Taxes

3 Months Ended

Mar. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Note 9. Income Taxes

The provision (benefit) for income taxes for the three months ended March 31, 2022 and 2021 consists of the following:  

	For the Three Months Ended  March 31,
	2022			2021
	(in thousands)
Federal:
Current	$	(1,053	)	$	560
Deferred		(1,715	)		36
		(2,768	)		596
State and local:
Current		195			68
Deferred		(543	)		310
		(348	)		378
Valuation allowance		168			(242	)
(Benefit) provision for income taxes	$	(2,948	)	$	732

Note 9.Income Taxes (Continued)

Total income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 21% for the three months ended March 31, 2022 and 2021, respectively, to income before income taxes as a result of the following:

	For the Three Months Ended  March 31,
	2022			2021
	(in thousands)
Income tax, at federal rate	$	(2,051	)	$	669
State and local tax, net of federal taxes		(275	)		299
Valuation allowance, net of the federal benefit		168			(242	)
Other		(790	)		6
	$	(2,948	)	$	732

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. The valuation allowance increased by $168,000 for the three months ended March 31, 2022 and decreased by $242,000 for the three months ended March 31, 2021.  

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%. The CARES Act allows NOLs generated in 2018, 2019 and 2020 to be carried back to each of the five preceding tax years. The Company did not generate NOLs in 2018, 2019 or 2020 so no carryback is available. At March 31, 2022, the Company had no federal NOLs carryforwards.

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 $572,000 for New York State purposes and $528,000 for New York City purposes. Furthermore, there are post-2015 carryforwards available of $34.9 million for New York State purposes and $15.0 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 March 31, 2022, the Bank had a federal NOLs carryforward of $5.7 million and no New Jersey NOLs carryforwards.

At March 31, 2022 and December 31, 2021, 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 2018.

Note 9.Income Taxes (Continued)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31, 2022 and December 31, 2021 are presented below:

	March 31,		December 31,
	2022		2021
	(in thousands)
Deferred tax assets:
Allowance for loan losses	$	5,428	$	5,254
Deferred loan fees		—		214
Interest on nonaccrual loans		154		102
Unrealized loss on available-for-sale securities		1,929		399
Amortization of intangible assets		45		50
Deferred rent payable		181		152
Net operating losses		4,557		3,280
Charitable contribution carryforward		1,621		366
Compensation and benefits		666		456
Other		259		264
Total gross deferred tax assets		14,840		10,537
Deferred tax liabilities:
Depreciation of premises and equipment		1,301		1,301
Deferred loan fees		515		—
Other		63		63
Total gross deferred tax liabilities		1,879		1,364
Valuation allowance		5,521		5,353
Net deferred tax assets	$	7,440	$	3,820