NB Bancorp, Inc. Income Taxes Disclosure
Note 11 – Income Taxes
The components of income tax expense for the years ended December 31 are as follows:
2025 | 2024 | 2023 | |||||||
(in thousands) | |||||||||
Current tax expense | |||||||||
Federal | $ | 10,704 | $ | 21,694 | $ | 5,216 | |||
State | 6,795 | 5,030 | 4,523 | ||||||
17,499 | 26,724 | 9,739 | |||||||
Deferred tax expense (benefits) | |||||||||
Federal | 2,971 | (9,768) | (5,704) | ||||||
State | 359 | (487) | (2,016) | ||||||
3,330 | (10,255) | (7,720) | |||||||
Total income tax expense | $ | 20,829 | $ | 16,469 | $ | 2,019 | |||
The Company’s effective tax rate differs from that computed at the statutory federal income tax rate for the years ended December 31 as follows:
2025 | 2024 | 2023 | ||||||||||||||||
Amount | Rate | Amount | Rate | Amount | Rate | |||||||||||||
Statutory federal taxes | $ | 14,938 | 21.0% | $ | 12,310 | 21.0% | $ | 2,487 | 21.0% | |||||||||
Increase (decrease) resulting from: | ||||||||||||||||||
State taxes, net of federal tax benefit | 5,619 | 7.9% | 3,634 | 6.2% | 805 | 6.8% | ||||||||||||
Tax credit investments | (10,741) | (15.1)% | (17,410) | (29.7)% | (4,714) | (39.8)% | ||||||||||||
Tax exempt income | (71) | (0.1)% | (6) | 0.0% | (83) | (0.7)% | ||||||||||||
Disallowed compensation under 162(m) | 782 | 1.1% | 528 | 0.9% | 3,683 | 31.1% | ||||||||||||
Partnership amortization | 8,322 | 11.7% | 16,472 | 28.1% | — | 0.0% | ||||||||||||
Income from bank-owned life insurance | (711) | (1.0)% | (469) | (0.8)% | (426) | (3.6)% | ||||||||||||
BOLI surrender tax and managed endowment contract penalty | 1,992 | 2.8% | 1,348 | 2.3% | — | 0.0% | ||||||||||||
Other, net | 699 | 1.0% | 62 | 0.1% | 267 | 2.2% | ||||||||||||
$ | 20,829 | 29.3% | $ | 16,469 | 28.1% | $ | 2,019 | 17.0% | ||||||||||
The state taxes, net of federal tax benefit reconciling category in the table above primarily reflects taxes in Massachusetts, which in aggregate comprises the majority of the state and local income tax effect on the effective tax rate reconciliation.
The tax credit investments reconciling category in the table includes tax credits and the amortization of and projected tax losses from tax credit investments.
During the years ended December 31, 2025 and 2024, the Company recognized $10.8 million and $17.3 million in investment tax credits, respectively, and $9.1 million and $18.5 million in proportional amortization expense of its carrying basis in non-public investments, both of which are included in income tax expense in the consolidated statements of income. During the year ended December 31, 2023, the Company recognized $5.1 million in investment tax credits and no proportional amortization expense of its carrying basis in non-public investments.
The Company’s deferred income tax assets and liabilities at December 31 consist of the following:
2025 | 2024 | |||||
(in thousands) | ||||||
Deferred income tax assets: | ||||||
Allowance for credit loss on loans | $ | 24,571 | $ | 10,891 | ||
Reserve for off balance sheet commitments | 935 | 900 | ||||
Loan impairment charges | 451 | 464 | ||||
Director retirement plans | 1,354 | 1,305 | ||||
Deferred compensation | 3,408 | 3,204 | ||||
Unrealized loss on securities available for sale | 962 | 2,567 | ||||
Unrecognized pension cost on director pension plan | 569 | 304 | ||||
Non-accrual interest on loans | 545 | 291 | ||||
Stock-based compensation | 596 | — | ||||
ESOP | 690 | 356 | ||||
Charitable contributions | 1,871 | 3,797 | ||||
Tax credits | 8,587 | 8,897 | ||||
Net operating loss carryover | 2,498 | — | ||||
Purchase accounting adjustments | 9,097 | — | ||||
Other | 1,101 | 52 | ||||
Gross deferred income tax assets | 57,235 | 33,028 | ||||
Deferred income tax liabilities: | ||||||
Mortgage servicing rights | (517) | (583) | ||||
Depreciation | (2,141) | (1,839) | ||||
Core deposit intangible | (5,426) | — | ||||
Unrealized gain on cash flow hedges | (320) | — | ||||
Bargain purchase gain | — | (307) | ||||
Gross deferred income tax liabilities | (8,404) | (2,729) | ||||
Net deferred income tax asset | $ | 48,831 | $ | 30,299 | ||
Based on the Company’s projected pretax earnings, management believes it is more likely than not that the Company will realize the gross deferred tax assets existing as of December 31, 2025. Therefore, no valuation allowance has been provided. The primary sources of recovery of the gross federal and state deferred tax assets is the expectation that the existing net deductible temporary differences will reverse during periods in which the Company generates net taxable income. There can be no assurance, however, that the Company will generate any earnings or any specific level of continuing earnings. It should be noted, however, that factors beyond management’s control, such as the general state of the economy and real estate values, can affect future levels of taxable income, and that no assurance can be given that sufficient taxable income will be generated to fully absorb gross deductible temporary differences.
In the past, the Internal Revenue Code provisions permitted co-operative banks a special bad debt deduction, irrespective of the amounts provided for financial reporting purposes. As a result, the Company's total pre-1988 bad debt reserve for federal income tax purposes approximates $13,806,000 as of December 31, 2025, for which no deferred income tax liabilities have been recognized. Reduction of this amount for purposes other than to absorb bad debt losses would be subject to income taxes.
The Company has not identified any uncertain tax positions requiring accrual or disclosure as of December 31, 2025 and 2024. The Company’s income tax returns are subject to review and examination by federal and state taxing authorities; however, there are currently no examinations for any tax periods in progress. Management of the Company believes it is no longer subject to examination for tax years prior to 2022.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 3, 2026 | Showing above |
| 2024 | Mar 7, 2025 | |
| 2023 | Mar 28, 2024 | |
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.