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Note 14 - Income Taxes | 12 Months Ended
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Dec. 31, 2021
Notes to Financial Statements |
Income Tax Disclosure [Text Block] |
Note 14. | 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, 2021.
(In thousands) |  | Year Ended December 31, |
|  | 2021 |  |  | 2020 |  |  | 2019 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | - |  |  | $ | (100 | ) |  | $ | 88 |
State |  |  | 180 |  |  |  | 86 |  |  |  | 149 |
|  |  | 180 |  |  |  | (14 | ) |  |  | 237 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 1,860 |  |  |  | (2,448 | ) |  |  | (698 | )
State |  |  | (2,121 | ) |  |  | 2,125 |  |  |  | (438 | )
|  |  | (261 | ) |  |  | (323 | ) |  |  | (1,136 | )
Income tax benefit |  | $ | (81 | ) |  | $ | (337 | ) |  | $ | (899 | )
For each of the years in the three-year period ended December 31, 2021, 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, |
|  | 2021 |  |  | 2020 |  |  | 2019 |
Income taxes at statutory Federal rate |  | $ | 1,053 |  |  | $ | (873 | ) |  | $ | (780 | )
State taxes, net of Federal benefit |  |  | 404 |  |  |  | (191 | ) |  |  | (228 | )
Deferred tax valuation allowance |  |  | (1,938 | ) |  |  | 1,938 |  |  |  | - |
Reversal UTP on Federal DTA |  |  | - |  |  |  | (1,132 | ) |  |  | - |
Nondeductible expenses |  |  | (10 | ) |  |  | 8 |  |  |  | 14 |
Project expenses for merger and acquisition |  |  | 383 |  |  |  | - |  |  |  | - |
Other |  |  | 27 |  |  |  | (87 | ) |  |  | 95 |
Income tax benefit |  | $ | (81 | ) |  | $ | (337 | ) |  | $ | (899 | )
The effective tax rate for the years ended December 31, 2021, 2020 and 2019 was (1.6%), 8.1%, and 24.2%, respectively. The decrease in the effective tax rate for 2021 was primarily due to the full reversal of $1.9 million deferred tax asset valuation allowance recorded at December 31, 2020. There were no significant changes to the effective tax rate in 2019. Deferred Tax Assets and Liabilities The significant components of Patriot’s net deferred tax assets at December 31, 2021 and 2020 are presented below.
(In thousands) |  | December 31, |
|  | 2021 |  |  | 2020 |
Deferred tax assets: |  |  |  |  |  |  |  |
Federal NOL carryforward benefit |  | $ | 3,605 |  |  | $ | 4,576 |
NOL write-off for Sec 382 Limit |  |  | (3,258 | ) |  |  | (3,258 | )
Capitalized cost temporary item |  |  | 3,325 |  |  |  | 3,627 |
State NOL carryforward benefit |  |  | 3,168 |  |  |  | 3,306 |
Allowance for loan loss |  |  | 3,017 |  |  |  | 3,869 |
Lease liabilities |  |  | 746 |  |  |  | 775 |
Non-accrual interest |  |  | 827 |  |  |  | 558 |
Merger and acquisition |  |  | 187 |  |  |  | 204 |
Accrued expenses |  |  | 421 |  |  |  | 201 |
Unrealized loss AFS securities |  |  | 569 |  |  |  | 180 |
Goodwill and intangible |  |  | 137 |  |  |  | 170 |
Depreciation of premises and equipment |  |  | 98 |  |  |  | - |
Share based compensation |  |  | 3 |  |  |  | 8 |
Other |  |  | 17 |  |  |  | 15 |
Gross deferred tax assets |  |  | 12,862 |  |  |  | 14,231 |
Less deferred taxasset valuation allowance |  |  | - |  |  |  | (1,937 | )
Total deferred tax assets |  | $ | 12,862 |  |  | $ | 12,294 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Right-of-use assets |  |  | (709 | ) |  |  | (736 | )
Depreciation of premises and equipment |  |  | - |  |  |  | (32 | )
Other |  |  | (7 | ) |  |  | (30 | )
Gross deferred tax liabilities |  |  | (716 | ) |  |  | (798 | )
Net deferred tax asset |  |  | 12,146 |  |  |  | 11,496 |
As of December 31, 2021, Patriot had available approximately $17.2 million of Federal net operating loss carryforwards (“NOL”) that is offset by $15.5 million in §382 limitations imposed by the Internal Revenue Code. Of the NOL of $17.2 million, approximately $15.8 million will expire between 2030 and 2033 and $1.4 million do not expire. Patriot has approximately $53.5 million of NOLs available for Connecticut tax purposes at December 31, 2021, which may be used to offset up to 50% of taxable income in any year. The NOLs will expire between 2030 and 2040. Valuation Allowance against net Deferred Tax Assets Patriot uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax laws is recognized in the consolidated statements of operations in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more likely than not expected to be realized based on the weighting of positive and negative evidence. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback or carryforward periods available under the applicable tax law. The Company regularly reviews the deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and prudent and feasible tax planning strategies. The Company’s judgments regarding future profitability may change due to many factors, including future market conditions and the ability to successfully execute its business plans. Should there be a change in the ability to recover deferred tax assets, the tax provision would increase or decrease in the period in which the assessment is changed. During December 31, 2021, Patriot fully reversed the valuation allowance of $1.9 million primarily against its deferred tax asset related to state net operating loss carryforwards. For the year ended December 31, 2021 Patriot was in a cumulative income position. Patriot reviewed its accumulated pre-tax income(loss) for the current and prior two- and there-year periods and adjusted for non-recurring items. After the adjustments, Patriot remained in a cumulative income position. Patriot used the average adjusted pre-tax income for the current and prior three years as the basis for objectively estimating future taxable income. Patriot will continue to evaluate the need for valuation allowances Secondly, Patriot has a tax planning strategy available under ASC 740 that would be implemented to prevent a carry-forward state net operating losses from expiring. The strategy consists of capitalizing loan costs to increase income and avoid state net operating losses from expiring unused. As of December 31, 2021, based on Patriot’s objective projection of future taxable income and tax planning, Patriot fully reversed the partial valuation allowance of $1.9 million recorded at December 31, 2020. Patriot will review the valuation allowance quarterly to determine if an adjustment, to either increase or decrease, the allowance is required. 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. As of December 31, 2021 and 2020, the Bank did not record any uncertain tax position related to the utilization of certain federal net operating losses. At December 31, 2021 Patriot no longer has a liability for unrecognized tax benefits. 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) |  | Year Ended December 31, |
|  | 2021 |  |  | 2020 |  |  | 2019 |
Balance, beginning of year |  | $ | - |  |  | $ | 1,220 |  |  | $ | 1,132 |
Increases due to tax positions related to a prior year |  |  | - |  |  |  | 65 |  |  |  | 88 |
Decreases to tax positions as a result of a lapse of statute |  |  | - |  |  |  | (1,285 | ) |  |  | - |
Balance, end of year |  | $ | - |  |  | $ | - |  |  | $ | 1,220 |
The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. Patriot’s returns for tax years 2018 through 2021 are subject to examination by the 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.

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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://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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