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.

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

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

December

31,

2018

and

2017,

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.

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.

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

uncertain tax positions recognized in the Consolidated Financial Statements. Additionally, Patriot has

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.