Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 9. Income Taxes

The provision (benefit) for income taxes for the years ended December 31, 2021, 2020, and 2019 consists of the following:

	For the Years Ended December 31,
	2021			2020			2019
	(in thousands)
Federal:
Current	$	6,107		$	2,065		$	878
Deferred		646			(839	)		(1,436	)
		6,753			1,226			(558	)
State and local:
Current		842			281			296
Deferred		1,733			(353	)		(3,002	)
		2,575			(72	)		(2,706	)
Changes in valuation allowance		(1,119	)		228			2,340
Provision (benefit) for income taxes	$	8,209		$	1,382		$	(924	)

Total income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 21% for 2021, 2020 and 2019 to income before income taxes as a result of the following:

	For the Years Ended December 31,
	2021			2020			2019
	(in thousands)
Income tax, at federal rate	$	7,195		$	1,099		$	(1,270	)
State and local tax, net of federal taxes		2,034			(57	)		(2,128	)
Valuation allowance, net of the federal benefit		(1,119	)		228			2,340
Other		99			112			134
Provision (benefit) for income taxes	$	8,209		$	1,382		$	(924	)

Management maintains a valuation allowance against its net New York State and New York City deferred tax as it is unlikely these deferred tax assets will impact the Company's tax liability in future years. In 2021 Management recorded a valuation allowance against portion of the charitable contribution carryforward that will expire in 2022 as it is unlikely this deferred tax asset will be utilized. The valuation allowance decreased by $1.1 million for the year ended December 31, 2021 and increased by $228,000 and $2.3 million for the years ended December 31, 2020 and 2019, respectively.

Note 9. Income Taxes (Continued)

Management has determined that it is not required to establish a valuation allowance against any other deferred tax assets in accordance with GAAP 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.

A financial institution may not carry back net operating losses (“NOL”) to earlier tax years. The NOL can be carried forward indefinitely. The use of NOL 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 Bank, did not generate NOLs in 2018, 2019 or 2020 so no carryback is available. At December 31, 2020, the Bank had no federal NOL carryforwards.

The state and city of New York allow for a three-year carryback period and carryforward period of twenty years on net operating losses 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 $1.3 million for New York State purposes and $528,000 for New York City purposes. Furthermore, there are post-2015 carryforwards available of $9.1 million for New York State purposes and $14.3 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 December 31, 2020, the Bank had no New Jersey net operating loss carryforwards.

At December 31, 2021 and 2020, the Company had no unrecognized tax benefits recorded. The Company does not expect the total amount of unrecognized tax benefits to 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.

On March 27, 2020, the CARES Act was signed to help individuals and businesses that have been negatively impacted by the COVID-19 pandemic. Among other provisions, the CARES Act allows net operating losses, which were modified with the Tax Cuts and Jobs Act of 2017, to be carried back five years. It also modifies the useful lives of qualified leasehold improvements, relaxing the excess loss limitations on pass-through and increasing the interest expense limitation. The Company does not expect the CARES Act to have a material tax impact on the Company's consolidated financial statements.

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 December 31, 2021 and 2020 are presented below:

	At December 31,
	2021		2020
	(in thousands)
Deferred tax assets:
Allowance for losses on loans	$	5,254	$	4,846
Deferred loan fees		214		—
Interest on nonaccrual loans		102		792
Unrealized loss on available-for-sale securities		399		—
Amortization of intangible assets		50		70
Deferred rent payable		152		120
Depreciation of premises and equipment		—		79
Net operating losses		3,280		3,990
Charitable contribution carryforward		366		1,366
Compensation and benefits		456		326
Other		264		78
Total gross deferred tax assets		10,537		11,667
Deferred tax liabilities:
Depreciation of premises and equipment		1,301		—
Deferred loan fees		—		475
Unrealized loss on available-for-sale securities		—		25
Other		63		39
Total gross deferred tax liabilities		1,364		539
Valuation allowance		5,353		6,472
Net deferred tax assets	$	3,820	$	4,656

The deferred tax expense (benefit) has been allocated between operations and equity as follows:

	For the Years Ended December 31,
	2021			2020			2019
	(in thousands)
Equity	$	(424	)	$	32		$	2,186
Operations		1,260			(964	)		(2,099	)
	$	836		$	(932	)	$	87