Note

10.

Income Taxes

Following is a summary of

the components of the federal and state income tax expense (benefit) for each of the years in the

three

-year period ended

December

31,

2017.

(In thousands)	Year ended December 31,
	2017		2016		2015
Current:
Federal	$	252		12		313
State		365		84		(38	)
		617		96		275
Deferred:
Federal		2,067		983		789
State		191		128		294
		2,258		1,111		1,083

Income tax expense	$	2,875		1,207		1,358

or each of the years in the

three

-year period ended

December

31,

2017,

the difference between the federal statutory income tax rate and Patriot’s effective income tax rate reconciles as follows:

(In thousands)	Year ended December 31,
	2017			2016			2015

Income taxes at statutory Federal rate	$	2,387			1,066			1,190
State taxes, net of Federal benefit		377			140			169
Nondeductible expenses		11			10			10
Deferred tax adjustment resulting from tax rate change		2,809			-			-
Benefit of change in Sec 382 classification		(2,774	)		-			-
Other		65			(9	)		(11	)
Income tax expense	$	2,875			1,207			1,358

The effective tax rate for each of the years in the

three

-year period ended

December

31,

2017

was

41.1%,

38.5%,

and

38.8%,

respectively.

The effective tax rate for the year ended

December 31, 2017

was

impacted by

two

significant and mostly offsetting items:

The provision increased by

$2.8

million as a result of a reduction in value of the Company

’s deferred tax asset due to a change in the Federal corporate tax rate to

21%

enacted in

December 2017.

In the same period, the income tax provision was reduced by

$2.8

million, as a result of the recognition of deferred tax benefits due to a change in the classification of certain net operating loss carryforwards that were previously deemed to have been subject to IRC section

382

limitations. The change in treatment from

one

acceptable tax method to another more beneficial tax method was recognized in the

fourth

quarter of

2017

in conjunction with the filing of amended tax returns for the

two

preceding years, and the completion of a

third

party study, which concluded it is more likely than

not

that the tax method change is in accordance with IRS regulations.

Deferred Tax Assets and Liabilities

The significant

components of Patriot’s net deferred tax assets at

December

31,

2017

and

2016

are presented below.

(In thousands)	Year ended December 31,
	2017			2016
Deferred tax assets (liabilities):
Federal NOL Carryforward Benefit	$	7,810			15,590
NOL Write-off for Sec 382 Limit		(4,698	)		(10,382	)
State NOL Carryforward Benefit		3,566			3,199
Allowance for Loan Loss		1,695			1,821
Non-accrual Interest		1,089			1,560
Share Based Compensation		157			200
Accrued Expenses		233			173
Federal AMT benefit		360			166
Depreciation of Premises and Equipment		52			161
Unrealized Loss AFS		68			76
OREO Write-down		41			63
Other		24			5

Net deferred tax assets	$	10,397			12,632

December

31,

2017,

the Bank had

$37.2

million of Federal net operating loss carryforwards (“NOLs”) and

$60.4

million of State NOLs to offset future taxable income. The NOLs expire over various periods beginning with tax year

2029

through tax year

2032.

Valuation Allowance against net Deferred Tax Assets

December 31, 2017

and

2016,

there was

need for a valuation allowance. Patriot management believes

valuation allowance is needed based on consideration of various factors including improvements in and historical and prospective results of operations, improvements in quality of the loan portfolio, general financial, economic and market data, and the period over which the NOLs are available to offset taxable income. Management continues to monitor circumstances to determine if it is more likely than

not

to realize the NOL benefits or if the valuation allowance

may

be required to be increased.