RBB Bancorp Income Taxes Disclosure

NOTE 12 - INCOME TAXES

 

The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

 

The table below presents income before income tax expense between domestic and foreign for the years indicated:

 

		For the Year Ended December 31,
		2025				2024				2023
		(dollars in thousands)
United States		$	42,134			$	35,679			$	60,246
Foreign			—				—				—
Income before income taxes			42,134				35,679				60,246

 

The table below presents the components of income tax expense for the years indicated:

 

			For the Year Ended December 31,
		2025				2024				2023
Current: (1)		(dollars in thousands)
Federal		$	7,897			$	6,539			$	10,804
State			2,930				5,393				6,761
Total Current			10,827				11,932				17,565
Deferred: (1)
Federal			(1,146	)			(1,646	)			(288	)
State			505				(1,272	)			504
Total Deferred			(641	)			(2,918	)			216
Total income tax expense (1)		$	10,186			$	9,014			$	17,781

(1) The Company has no foreign operations or foreign taxes for all years presented.

 

The following table presents a comparison of the federal statutory income tax rates to the Company's effective income tax rates for the years indicated (as reported under ASU 2023-09 on a retrospective basis):

 

		For the Year Ended December 31,
		2025								2024								2023
		Amount				Rate				Amount				Rate				Amount				Rate
		(dollars in thousands)
US federal statutory tax rate		$	8,848				21.0	%		$	7,493				21.0	%		$	12,652				21.0	%
State and local income tax, net of federal income tax effect (1)			2,671				6.4	%			2,782				7.8	%			5,697				9.5	%
Tax credits
Low income housing tax credits			(1,725	)			(4.1	)%			(1,195	)			(3.3	)%			(1,017	)			(1.7	)%
Transferrable energy tax credits			(957	)			(2.3	)%			(901	)			(2.5	)%			—				0.0	%
Nondeductible and nontaxable			(364	)			(0.9	)%			(375	)			(1.1	)%			(367	)			(0.6	)%
Other items, net
Low income housing tax credit amortization			2,097				5.0	%			1,336				3.7	%			1,128				1.9	%
Tax benefits from low income housing losses			(436	)			(1.0	)%			(218	)			(0.6	)%			(173	)			(0.3	)%
Other			52				0.1	%			92				0.3	%			(139	)			(0.2	)%
Total income tax expense		$	10,186				24.2	%		$	9,014				25.3	%		$	17,781				29.5	%

(1) State taxes in California, New York, and New York City comprised the majority (greater than 50 percent) of the tax effect in this category.

 

Deferred taxes are a result of differences between income tax accounting and GAAP with respect to income and expense recognition. The following is a summary of the components of the net deferred tax asset accounts recognized in the accompanying balance sheets as of  December 31:

 

			2025				2024
Deferred tax assets:		(dollars in thousands)
Credit carryforwards		$	1,799			$	—
Allowance for credit losses			13,302				14,889
Stock-based compensation			182				244
Operating loss carryforwards			4				4
Unrealized loss on AFS securities			5,678				8,980
Lease liability			7,434				9,127
State tax			540				944
Other			1,550				1,424
			30,489				35,612
Deferred tax liabilities:
Depreciation			(61	)			(425	)
Deferred loan costs			(3,350	)			(3,127	)
Acquisition accounting fair value adjustments			(2,237	)			(2,536	)
Mortgage servicing rights			(1,427	)			(1,738	)
Right of use asset			(6,903	)			(8,618	)
Other			(164	)			(113	)
			(14,142	)			(16,557	)
Net deferred tax assets		$	16,347			$	19,055

 

Income taxes paid for the years ended December 31, 2025, 2024, and 2023 were $18.7 million, $6.2 million, and $21.4 million. Income taxes paid in the following jurisdictions exceed 5% of total income taxes paid for the years indicated:

 

		For the Year Ended December 31,
		2025				2024				2023
		(dollars in thousands)
Federal (1)		$	14,359			$	1,700			$	12,954
State and local :
California			1,856				2,975				5,410
New York			1,023				535				1,570
New York City			661				675				1,340
Other			822				340				115
Total state and local			4,362				4,525				8,435
Total income taxes paid		$	18,721			$	6,225			$	21,389

(1) Federal taxes paid in 2025 includes $12.6 million for the purchase of federal tax credits for assets placed in service in 2024.

 

At December 31, 2025, we have federal tax credit carryforwards of $1.8 million for federal income tax purposes. Tax credit carryforwards, to the extent not used, will begin to expire in 2045. At December 31, 2025, we have usable net operating loss carryforwards from acquisitions of $16,000 for federal and $6,000 for California income tax purposes. Net operating loss carryforwards, to the extent not used, will begin to expire in 2028. The net operating loss carryforwards were generated through acquisitions, and as a result, are substantially limited by Section 382 of the Internal Revenue Code. Benefits not expected to be realized due to the limitation have been excluded from the deferred tax asset and net operating loss carryforward amounts noted above. Based on management's assessment, we concluded that no valuation allowance was necessary for the deferred tax assets as of December 31, 2025. 

 

We file income tax returns in federal and various state jurisdictions. We are subject to examinations in federal jurisdiction for the years ended after December 31, 2021. The statutes of limitations for state income tax returns remain open for tax years in accordance with each state's statutes. We are currently under examination by the California Franchise Tax Board for the 2020 tax period resulting from a refund claim in the amount of $256,000. Our liability related to uncertain tax positions was $395,000 at December 31, 2025, and $1.1 million at December 31, 2024. We recognized no material interest or penalties as part of income taxes for the years ended December 31, 2025, 2024, and 2023.

 

Purchased Federal Transferable Tax Credits

 

On September 13, 2024, we entered into a Purchase and Sale Agreement ("PSA") for the purchase of federal transferable tax credits to be generated by four projects to be placed in service in 2024 and 2025. Two of the projects were placed in service in 2025 and generated approximately $11.3 million of federal tax credits for the year ended December 31, 2025. The other two projects were placed in service in 2024 and generated $13.6 million of federal tax credits. The discounted purchase price for the projects placed in service in 2025 will be paid by us to the seller, an independent third party, upon the achievement of certain benchmarks outlined in the PSA. The discounted purchase price for the projects placed in service in 2024 was paid by us to the seller in 2025. We will fully utilize the purchased tax credits to offset amounts that otherwise would be due and payable to the IRS for the years ended 2025 and 2024 and for tax years ended 2021 and 2022 through tax credit carryback filings. The ultimate tax benefit to the Company is the difference between the amount of the tax credits purchased and the discounted purchase price.