What are the tax implications for shareholders choosing the cash vs. stock payout, and how might that influence the vote outcome?

Short answer –

- Cash option ($13 per PVBC share) – taxed immediately as ordinary income (or as a dividend/return‑of‑capital depending on the company’s balance‑sheet treatment). The shareholder must report the $13 × number of shares in the year the deal closes and pay federal (and any state) income tax at his or her marginal rate.

- Stock option (0.691 NBBK shares per PVBC share) – generally treated as a “tax‑free exchange” in a merger‑type transaction, so the receipt of the new shares is not a taxable event today. The shareholder’s tax basis in the NBBK shares is the prorated portion of the PVBC basis that is attributable to the stock portion of the consideration. The tax liability is deferred until the NBBK shares are sold, at which point any gain (or loss) is subject to capital‑gains tax rates (short‑ or long‑term depending on holding period).

Because the two alternatives have very different timing and rates of tax, the tax profile can be a decisive factor in how shareholders vote on the merger.

1. What the tax code says about each choice

• Cash – The $13 per share is a cash‑in‑exchange‑for‑stock distribution. In most M&A structures the IRS treats it as a dividend (if the company has earnings and profits) or a return‑of‑capital (if the distribution exceeds earnings). Either way the amount is taxable in the year of receipt. The shareholder must include it in ordinary income (or dividend) on the 2025 tax return, paying his/her marginal federal rate (e.g., 22 %–37 % for most individuals) plus any applicable state tax (Louisiana, New York, etc.). No basis is generated for future tax deferral.

• Stock – The receipt of 0.691 NBBK shares per PVBC share is usually treated as a tax‑free exchange under the “reorganization” rules (IRC §368). The transaction is not a taxable event at the moment of receipt; instead the shareholder’s tax basis in the new NBBK shares is the portion of the PVBC basis that is attributable to the stock side of the consideration. The basis is calculated as:

[
\text{Basis in NBBK shares} = \frac{\text{Fair‑market value of NBBK shares received}}{\text{Total consideration (cash + stock)}} \times \text{PVBC original basis}
]

The cash component ($13) is taxed immediately (as above); the stock component is deferred until the NBBK shares are sold. When sold, the gain/loss is subject to capital‑gains tax rates (0 %, 15 %, or 20 % for most individuals, depending on income and holding period). If the shareholder holds the NBBK shares for more than a year, the long‑term capital‑gain rate applies, which is typically lower than ordinary income rates.

2. How the tax differences can shape the shareholder vote

| Factor | Cash‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑** |

1. Immediate cash‑tax hit vs. deferral

• Cash‑payout: The $13 per share is taxed right away. For a shareholder with a 35 % marginal tax rate, the after‑tax cash received is roughly $8.45 per share. The tax cost is irrecoverable.
• Stock‑payout: The stock portion is not taxed now. The shareholder can keep the full market value of the 0.691 NBBK shares in the portfolio and only pays tax when those shares are sold. If the shares are held for a long period and the eventual capital‑gain rate is 15 %, the effective tax on the same $13 value would be about $2.00 (instead of $4.55 if taxed as ordinary income). The tax deferral can be a strong incentive to vote for the merger.

2. Liquidity needs

• Some shareholders (e.g., retirees, investors needing cash for other purposes) may value the certainty of cash now, even though it is taxed at a higher rate. Their vote may therefore lean toward the cash option, especially if they anticipate a lower tax‑rate environment in the near future (e.g., expecting a tax‑cut bill before the cash is received).
• Institutional investors or high‑net‑worth individuals who can absorb a cash‑tax hit and are more focused on portfolio growth may prefer the stock option because it preserves capital for future appreciation and offers a lower long‑term tax rate.

3. Anticipated future performance of NB Bancorp (NBBK)

• If shareholders expect NBBK’s share price to rise after the merger, the stock option becomes even more attractive: they can lock in a larger upside with a lower tax cost (capital‑gain tax on the eventual sale). A bullish outlook on NBBK therefore pushes the vote toward the stock side.
• Conversely, if the market is skeptical about NBBK’s prospects (e.g., concerns about integration costs, over‑valuation, or the “adequacy of price” investigation mentioned in the news), cash may look safer despite the tax hit, because it guarantees a known value now.

4. State‑tax considerations

• The investigation is being led by the Former Attorney General of Louisiana; Louisiana’s top marginal personal income tax rate is 6 % (as of 2025). A Louisiana resident who receives cash will add the state tax to the federal liability, further widening the cash‑tax gap. The same resident would only face state tax on the capital‑gain when the NBBK shares are sold, which is generally lower than the state tax on ordinary income.
• New York residents (where NB Bancorp is headquartered) also have a high state marginal rate (up to ~10 %). For NY shareholders, the cash option could be taxed at ~50 % total (federal + state), while the stock option would be taxed at ~30 % total on the eventual gain. This disparity can tilt NY shareholders toward the stock side.

5. Timing of the merger and tax‑planning windows

• The merger is slated for 2025‑08‑06. Taxpayers can still harvest losses or adjust their tax‑loss carryforwards for the 2025 tax year to offset the cash‑payout tax. Those with sufficient losses may be more comfortable taking cash.
• If a shareholder expects to be in a lower tax bracket in 2026 (e.g., due to anticipated income reduction, retirement, or a change in filing status), the cash‑payout may be less painful, nudging the vote toward cash.

6. Potential impact of the “adequacy of price and process” investigation

• The news notes that Kahn Swick & Foti (“KSF”) are scrutinizing whether the $13 cash price is fair. If the investigation uncovers that the cash price is under‑valued, shareholders may feel that the stock option offers a better chance of recouping true value (since the market will price NBBK shares based on fundamentals). A perception that cash is “lowball” can push more votes toward the stock side.
• Conversely, if KSF finds the cash price reasonable and the stock side over‑priced (e.g., the implied value of 0.691 NBBK shares exceeds $13), cash‑payers may be encouraged to stick with cash, reinforcing the cash‑vote.

3. Bottom‑line: How tax considerations could swing the vote

Expected net effect on the merger vote

• If a majority of the shareholder base are institutional or high‑net‑worth investors (typical for a Nasdaq‑listed regional bank), the stock option is likely to dominate because the tax deferral and potential upside outweigh the immediate cash benefit.
• If the shareholder base includes a sizable proportion of retail investors with modest incomes or strong cash needs, the cash option could capture a meaningful slice of the vote, especially if the $13 cash price is perceived as “fair” by the investigation.
• The ongoing KSF investigation may also influence perception: any public finding that the cash price is “low” will likely push more shareholders toward the stock side, while a finding that the cash price is “fair” could bolster the cash side.

Bottom line:

- Cash payout = immediate ordinary‑income tax (higher total tax burden).

- Stock payout = no tax now; basis is carried forward; eventual tax at capital‑gain rates (generally lower).

- Tax considerations, combined with liquidity needs, income level, state‑tax environment, and expectations for NBBK’s post‑merger performance, will be a primary driver of how shareholders cast their votes. The side that aligns best with a shareholder’s tax profile and financial objectives is the one that will most likely receive their support.