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Income Taxes
 12 Months Ended
Dec. 31, 2024
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, 2024.
(In thousands)Year Ended December 31,
202420232022
Current:
Federal$(71)$2,283 $44 
State32 474 62 
(39)2,757 106 
   
Deferred:   
Federal14,644 (3,347)1,117 
State9,180 (864)373 
23,824 (4,211)1,490 
   
Provision (benefit) for income taxes$23,785 $(1,454)$1,596 
For each of the years in the three-year period ended December 31, 2024, the difference between the federal statutory income tax rate and Patriot’s effective income tax rate reconciles as follows:
(In thousands)Year Ended December 31,
202420232022
Income taxes at statutory Federal rate$(3,380)$(1,183)$1,629 
State taxes, net of Federal benefit(390)(309)343 
Project expenses for merger and acquisition— — (383)
Deferred tax valuation allowance27,583 — — 
Nondeductible expenses20 13 (3)
Other(48)25 10 
   
Provision (benefit) for income taxes$23,785 $(1,454)$1,596 
The effective tax (benefit) rate for the years ended December 31, 2024, 2023 and 2022 was 147.8%, (25.8)%, and 20.6%, respectively. The Company’s effective rates for all periods were affected by state taxes and non-deductible expenses and the full valuation allowance on the DTAs in the third quarter of 2024.
Deferred Tax Assets and Liabilities
The significant components of Patriot’s net deferred tax (liabilities) assets at December 31, 2024 and 2023 are presented below.
(In thousands)December 31,
20242023
Deferred tax assets:
Federal NOL carryforward benefit$8,800 $3,247 
NOL write-off for Sec 382 Limit(3,258)(3,247)
Capitalized cost temporary item9,112 10,237 
State NOL carryforward benefit4,276 2,803 
Unrealized loss AFS securities5,259 5,608 
CECL transition— 3,565 
Allowance for credit loss1,944 799 
Lease liabilities404 501 
Non-accrual interest1,026 671 
Merger and acquisition133 154 
Accrued expenses44 82 
Goodwill and intangible325 369 
Depreciation of premises and equipment178 158 
Share based compensation17 — 
Other8 12 
Gross deferred tax assets28,268 24,959 
Less deferred tax asset valuation allowance(28,268)— 
Total deferred tax assets$— $24,959 
Deferred tax liabilities:
Right-of-use assets(385)(469)
Prepaid Expenses(334)(343)
Other(5)(13)
Gross deferred tax liabilities(724)(825)
Net deferred tax (liabilities) assets$(724)$24,134 
As of December 31, 2024, Patriot had available approximately $41.9 million of Federal net operating loss carryforwards (“NOL”) that are offset by $15.5 million in §382 limitations imposed by the Internal Revenue Code. After applying the limitation at December 31, 2024, Patriot has $26.4 million post-change net operating loss carry-forwards which do not expire.
Patriot has approximately $63.4 million of NOLs available for Connecticut tax purposes at December 31, 2024, which may be used to offset up to 50% of taxable income in any year. The NOLs will expire between 2030 and 2044.
The deferred tax liabilities are included in accrued expenses and other liabilities on the Consolidated Balance Sheet.
Valuation Allowance against Deferred Tax Assets
Patriot recognizes income taxes under the asset and liability method. Under this method, DTAs and DTLs are recognized for the estimated tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and loss carry forwards. DTAs and DTLs are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on DTAs and DTLs of a change in tax rates is recognized in income in the period that includes the enactment date.
In certain circumstances DTAs are subject to reduction by a valuation allowance. A valuation allowance is subject to ongoing adjustment based on changes in circumstances that affect management’s judgment about the realizability of the deferred tax asset. Adjustments to increase or decrease the valuation allowance are charged or credited to the deferred tax component of the income tax provision or benefit.
The Company recognize deferred tax assets to the extent management believe it is more likely than not the asset will be realized. Quarterly, management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of existing deferred tax assets, including future reversals of existing taxable temporary differences, projected taxable income, tax-planning strategies, carryback potential if permitted, and the results of recent operations. A significant piece of objective negative evidence is the existence of a three or four year cumulative loss. Such objective negative evidence limits the ability of management to consider other subjective evidence, such as projected taxable income. When appropriate, the Company records a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized.
Based on our assessment performed in September 2024, we determined that a full valuation allowance was appropriate against the Company’s U.S. federal and state deferred tax assets.This resulted in an increase in our income tax expense of approximately $25.1 million in the third quarter of 2024. The key factor for providing a full valuation allowance was the Company’s 3-year cumulative operating losses. As deferred tax assets associated with NOL carryforwards are already a direct reduction to Tier 1 Capital, the valuation allowance at September 30, 2024 resulted in a reduction of Tier 1 Capital of $19.9 million.
Once the Company begins generating profits, we will re-evaluate whether a full valuation allowance remains appropriate or if the allowance should be adjusted.
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, 2024 and 2023, the Company did not record any uncertain tax position related to the utilization of certain federal net operating losses. As of December 31, 2024 and 2023, 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 2021 through 2024 are subject to examination by the IRS for U.S. Federal tax purposes and, for State tax purposes, by the taxing authorities of Connecticut, New York and New Jersey, Department of Revenue Services for the State of Connecticut and the State of New York Department of Taxation and Finance.