Note 10 – Income Taxes

Income tax expense for the years ended December 31 is as follows:


	2024			2023
	(In thousands)
Current tax expense:
Federal	$	2,688		$	2,943
State		693			1,427

Total current		3,381			4,370
Deferred income tax benefit:
Federal		(540	)		341
State		(267	)		(141	)

Total deferred		(807	)		200

	$	2,574		$	4,570

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows as of December 31:


	2024			2023
	(In thousands)
Deferred tax assets:
Allowance for credit losses	$	6,724		$	5,252
Net operating loss carry-forward		5,651			2,406
Other		1,279			1,383
Core deposit intangible		466			460
Acquisition accounting adjustments		5,728			1,966
Lease liability		6,520			6,895
SERP liability		418			307
Unrealized loss on securities		3,546			3,007

Total deferred tax assets		30,332			21,676

Deferred tax liabilities:
Depreciation		(682	)		(1,455	)
Deferred loan costs		(975	)		(853	)
ROU		(6,225	)		(6,645	)
Goodwill amortization		(937	)		(768	)
Other		(1,237	)		(443	)
Total deferred tax liabilities		(10,056	)		(10,164	)

Net deferred tax asset	$	20,276		$	11,512

Total income taxes differed from the amount computed by applying the statutory federal income tax rate to

pre-tax

income as follows:


	2024						2023
	Amount			Rate			Amount			Rate
	(Dollars in thousands)
Federal income tax expense at statutory rate	$	2,691			21.0	%	$	6,370			21.0	%
Increase (reduction) in taxes resulting from:
State income taxes, net of federal benefit		337			2.6	%		1,016			3.4	%
Tax-exempt income, net		(402	)		-3.1	%		(413	)		-1.4	%
Income from bank-owned life insurance		(351	)		-2.7	%		(272	)		-0.9	%
Non-deductible expenses		236			1.7	%		107			0.4	%
Bargain purchase gain		—			0.0	%		(2,036	)		-6.7	%
Other		63			0.6	%		(202	)		-0.7	%

Total income taxes applicable to pre-tax income	$	2,574			20.1	%	$	4,570			15.1	%

The Company had available federal net operating loss carry-forwards of approximately $14.2 million and $3.8 million at December 31, 2024 and 2023, respectively, which begin to expire in 2028. The federal net operating loss carry-forwards are amounts that were generated by MoreBank, which the Bank acquired on September 30, 2010 and Noah Bank, which the Company acquired on May 19, 2023, and Cornerstone Financial, which the Bank acquired on August 23, 2024. These net operating losses are subject to an annual Internal Revenue Code Section 382 limitation of approximately $222 thousand for MoreBank net operating losses and $773 thousand for Noah Bank net operating losses, and $685 thousand for Cornerstone Financial net operating losses.

The Company had available New Jersey net operating loss carry-forwards of approximately $18.6 million, New York state net operating loss carry-forwards of $13.8 million and New York City net operating loss carry-forwards of $6.2 million at December 31, 2024, which expire between 2035 and 2043. The state and city net operating loss carry-forwards are amount that were generated by Noah Bank, which the Bank acquired on May 19, 2023 and Cornerstone Financial acquired on August 23, 2024.

Based on projections of future taxable income over periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences.

The Company follows applicable accounting guidance which prescribes a threshold for the financial statement recognition of income taxes and provides criteria for the measurement of tax positions taken or expected to be taken in a tax return. This also includes guidance on derecognition, classification, interest and penalties, accounting in interim periods, and disclosure of income taxes. The Company did not recognize or accrue any interest or penalties related to income taxes during the years ended December 31, 2024, or 2023. The Company does not have an accrual for uncertain tax positions as of December 31, 2024, or 2023, as deductions taken or benefits accrued are based on widely understood administrative practices and procedures and are based on clear and unambiguous tax law. Tax returns for all years 2021 and thereafter are subject to examination by tax authorities.

About Income Taxes Disclosures

The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.

Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.

Princeton Bancorp, Inc. Income Taxes Disclosure

About Income Taxes Disclosures

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