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Note 11 - Income Taxes | 12 Months Ended
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Dec. 31, 2018
Notes to Financial Statements |
Income Tax Disclosure [Text Block] |
Note 11. | 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, 2018.
(In thousands) |  | Year ended December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 447 |  |  |  | 252 |  |  |  | 12 |
State |  |  | 708 |  |  |  | 365 |  |  |  | 84 |
|  |  | 1,155 |  |  |  | 617 |  |  |  | 96 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 148 |  |  |  | 2,067 |  |  |  | 983 |
State |  |  | (413 | ) |  |  | 191 |  |  |  | 128 |
|  |  | (265 | ) |  |  | 2,258 |  |  |  | 1,111 |
Income tax expense (benefit) |  | $ | 890 |  |  |  | 2,875 |  |  |  | 1,207 |
For each of the years in the three -year period ended December 31, 2018, 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, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Income taxes at statutory Federal rate |  | $ | 858 |  |  |  | 2,387 |  |  |  | 1,066 |
State taxes, net of Federal benefit |  |  | 233 |  |  |  | 377 |  |  |  | 140 |
Nondeductible expenses |  |  | 15 |  |  |  | 11 |  |  |  | 10 |
Benefit of change in Sec 382 classification |  |  | (500 | ) |  |  | (2,774 | ) |  |  | - |
Deferred tax adjustment resulting from tax rate change |  |  | 198 |  |  |  | 2,809 |  |  |  | - |
Other |  |  | 86 |  |  |  | 65 |  |  |  | (9 | )
Income tax expense |  | $ | 890 |  |  |  | 2,875 |  |  |  | 1,207 |
The effective tax rate for the years ended December 31, 2018, 2017 and 2016 was 21.8%, 41.1%, and 38.5%, respectively. The effective tax rate for 2018 was impacted by the reduction in the statutory Federal corporate tax rate to 21% from 34% that was effective January 1, 2018. 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 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 2017, 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, 2018 and 2017 are presented below.
|  | Year ended December 31, |
(In thousands) |  | 2018 |  |  | 2017 |
Deferred tax assets (liabilities): |  |  |  |  |  |  |  |
Federal NOL Carryforward Benefit |  | $ | 4,119 |  |  |  | 7,810 |
NOL Write-off for Sec 382 Limit |  |  | (3,258 | ) |  |  | (4,698 | )
Capitalized Costs |  |  | 4,239 |  |  |  | - |
UTP (NOLs) |  |  | (1,132 | ) |  |  | - |
State NOL Carryforward Benefit |  |  | 3,025 |  |  |  | 3,566 |
Allowance for loan and lease losses |  |  | 2,048 |  |  |  | 1,695 |
Federal AMT benefit |  |  | 707 |  |  |  | 360 |
Merger and acquisition |  |  | 357 |  |  |  | - |
Unrealized Losses AFS securities |  |  | 257 |  |  |  | 68 |
Accrued Expenses |  |  | 178 |  |  |  | 233 |
Non-accrual Interest |  |  | 170 |  |  |  | 1,089 |
Share Based Compensation |  |  | 109 |  |  |  | 157 |
Depreciation of Premises and Equipment |  |  | (3 | ) |  |  | 52 |
Goodwill and intangible |  |  | (16 | ) |  |  | - |
OREO Write-down |  |  | - |  |  |  | 41 |
Other |  |  | 51 |  |  |  | 24 |
|  |  | 10,851 |  |  |  | 10,397 |
At December 31, 2018, the Bank had $19.6 million of Federal net operating loss carryforwards (“NOLs”) and $51.6 million of State NOLs to offset future taxable income. The NOLs expire over various periods beginning with tax year 2029 through tax year 2033. Valuation Allowance against net Deferred Tax Assets At December 31, 2018 and 2017, there was no need for a valuation allowance. Patriot management believes no 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. Unrecognized tax benefits Patriot recognizes a benefit from its tax positions only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the Consolidated Financial Statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Patriot’s returns for tax years 2015 through 2017 are subject to examination by the Internal Revenue Service (“IRS”) for U.S. Federal tax purposes and, for State tax purposes, by the Department of Revenue Services for the State of Connecticut and the State of New York Department of Taxation and Finance. In 2018, the Bank recorded an uncertain tax position of $1.1 million related to the utilization of certain federal net operating losses. At December 31, 2017, there were no uncertain tax positions recognized in the Consolidated Financial Statements. Additionally, Patriot has no pending or on-going audits in any tax jurisdiction. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|  | In thousands |
Balance as of January 1, 2018 |  | $ | - |
Increases due to tax positions related to the current year |  |  | - |
Increases due to tax positions related to a prior year |  |  | 1,132 |
Decreases to tax positions related to settlements |  |  | - |
Decreases to tax positions as a result of a lapse of statute |  |  | - |
Balance as of December 31, 2018 |  | $ | 1,132 |
The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. At December 31, 2018, the Company has not accrued any interest and penalties related to income tax matters into income tax expense.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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