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Income Taxes | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | 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, 2023.
(In thousands) | Year Ended December 31,
| 2023 |  | 2022 |  | 2021
Current: |  |  |  |  |
Federal | $ | 2,283 |  |  | $ | 44 |  |  | $ | — |
State | 474 |  |  | 62 |  |  | 180 |
| 2,757 |  |  | 106 |  |  | 180 |
Deferred: |  |  |  |  |
Federal | (3,347) |  |  | 1,117 |  |  | 1,860 |
State | (864) |  |  | 373 |  |  | (2,121) |
| (4,211) |  |  | 1,490 |  |  | (261) |
Income tax (benefit) expense | $ | (1,454) |  |  | $ | 1,596 |  |  | $ | (81) |
For each of the years in the three-year period ended December 31, 2023, 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,
| 2023 |  | 2022 |  | 2021
Income taxes at statutory Federal rate | $ | (1,183) |  |  | $ | 1,629 |  |  | $ | 1,053 |
State taxes, net of Federal benefit | (309) |  |  | 343 |  |  | 404 |
Project expenses for merger and acquisition | — |  |  | (383) |  |  | 383 |
Deferred tax valuation allowance | — |  |  | — |  |  | (1,938) |
Reversal UTP on Federal DTA | — |  |  | — |  |  | — |
Nondeductible expenses | 13 |  |  | (3) |  |  | (10) |
Other | 25 |  |  | 10 |  |  | 27 |
Income tax (benefit) expense | $ | (1,454) |  |  | $ | 1,596 |  |  | $ | (81) |
The effective tax rate for the years ended December 31, 2023, 2022 and 2021 was 25.8%, 20.6%, and (1.6)%, respectively. The effective tax rate for 2023 increased over 2022 because 2022 included a $1.8 million reduction to taxable income for the reversal of previously capitalized merger and acquisition costs. The effective tax rate for 2022 was greater than 2021 because 2022 included an increase to taxable income for the $1.8 million capitalized merger and acquisition costs and because 2021 included the full reversal of $1.9 million deferred tax asset valuation allowance recorded at December 31, 2020. Deferred Tax Assets and Liabilities The significant components of Patriot’s net deferred tax assets at December 31, 2023 and 2022 are presented below.
(In thousands) | December 31,
| 2023 |  | 2022
Deferred tax assets: |  |  |
Federal NOL carryforward benefit | $ | 3,247 |  |  | $ | 3,321 |
NOL write-off for Sec 382 Limit | (3,247) |  |  | (3,258) |
Capitalized cost temporary item | 10,237 |  |  | 3,023 |
State NOL carryforward benefit | 2,803 |  |  | 3,128 |
Unrealized loss AFS securities | 5,608 |  |  | 5,440 |
CECL transition | 4,228 |  |  | — |
Allowance for credit loss | 799 |  |  | 2,793 |
Lease liabilities | 501 |  |  | 634 |
Non-accrual interest | 671 |  |  | 907 |
Merger and acquisition | 154 |  |  | 171 |
Accrued expenses | 82 |  |  | 80 |
Goodwill and intangible | 369 |  |  | 104 |
Depreciation of premises and equipment | 158 |  |  | 120 |
Other | 12 |  |  | 25 |
Gross deferred tax assets | 25,622 |  |  | 16,488 |
Total deferred tax assets | $ | 25,622 |  |  | $ | 16,488 |
Deferred tax liabilities: |  |  |
Expected credit loss for unfunded commitments | (663) |  |  | — |
Right-of-use assets | (469) |  |  | (597) |
Prepaid Expenses | (343) |  |  | (337) |
Other | (13) |  |  | (27) |
Gross deferred tax liabilities | (1,488) |  |  | (961) |
Net deferred tax asset | $ | 24,134 |  |  | $ | 15,527 |
As of December 31, 2023, Patriot had available approximately $15.5 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 $15.5 million, approximately $15.5 million will expire between 2030 and 2033. Patriot has approximately $47.3 million of NOLs available for Connecticut tax purposes at December 31, 2023, 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. For the year ended December 31, 2023, Patriot was in a cumulative income position for the current and prior two-year periods. Patriot reviewed the ability to remain in a cumulative income position and to utilize net operating losses by using the most recent forecast for the next three years and including a conservative growth rate for the years after. In addition, 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. Based on the analyses of cumulative income position and future profitability combined with the potential tax planning strategy, it was determined that a valuation allowance is not required. Patriot will continue to evaluate the need for a valuation allowances. In 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. As of December 31, 2023 and 2022, no valuation allowance was recorded. 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, 2023 and 2022, the Bank did not record any uncertain tax position related to the utilization of certain federal net operating losses. As of December 31, 2023 and 2022, Patriot no longer has a liability for unrecognized tax benefits. Additionally, Patriot has no pending or on-going audits in any tax jurisdiction. 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 2020 through 2023 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 -Topic 946 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 13 -Publisher FASB -URI https://asc.fasb.org//1943274/2147480990/946-20-50-13 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 235 -SubTopic 10 -Name Accounting Standards Codification -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480678/235-10-S99-1 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//740/tableOfContent Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 14 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482685/740-10-50-14 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 21 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482685/740-10-50-21 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 270 -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482526/740-270-50-1 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 17 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147482685/740-10-50-17 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479360/740-10-S99-1 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479360/740-10-S99-2 Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 30 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org//1943274/2147482603/740-30-50-2 + Details
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