PATRIOT NATIONAL BANCORP INCPNBK
PATRIOT NATIONAL BANCORP INC Income Taxes Disclosure
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, 2025.
| Year Ended December 31, | |||||||||||||||||
| (In thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | — | $ | (71) | $ | 2,283 | |||||||||||
| State | — | 32 | 474 | ||||||||||||||
| — | (39) | 2,757 | |||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | 34 | 14,644 | (3,347) | ||||||||||||||
| State | 25 | 9,180 | (864) | ||||||||||||||
| 59 | 23,824 | (4,211) | |||||||||||||||
| Provision (benefit) for income taxes | $ | 59 | $ | 23,785 | $ | (1,454) | |||||||||||
For each of the years in the three-year period ended December 31, 2025, the difference between the federal statutory income tax rate and Patriot’s effective income tax rate reconciles as follows:
| Year Ended December 31, | |||||||||||||||||
| (In thousands) | 2025 | % | 2024 | 2023 | |||||||||||||
| Income taxes at statutory Federal rate | $ | (2,657) | 21.00% | $ | (3,380) | $ | (1,183) | ||||||||||
| State taxes, net of Federal benefit(a) | 20 | (0.16)% | (390) | (309) | |||||||||||||
| Deferred tax valuation allowance | 2,679 | (21.18)% | 27,583 | — | |||||||||||||
| Nondeductible expenses | 17 | (0.13)% | 20 | 13 | |||||||||||||
| Other | — | (48) | 25 | ||||||||||||||
| Provision (benefit) for income taxes | $ | 59 | (0.47)% | $ | 23,785 | $ | (1,454) | ||||||||||
(a)State taxes in Connecticut and New York made up the majority (greater than 50%) of the tax effect in this category.
The effective tax (benefit) rate for the years ended December 31, 2025, 2024, and 2023 was (0.47)%, 147.8%, and (25.8)%, respectively. The Company’s effective rates were affected by state taxes and non-deductible expenses and the full valuation allowance on the DTAs in 2024.
Deferred Tax Assets and Liabilities
The significant components of Patriot’s net deferred tax (liabilities) assets at December 31, 2025 and 2024 are presented below.
| December 31, | |||||||||||
| (In thousands) | 2025 | 2024 | |||||||||
| Deferred tax assets: | |||||||||||
| Federal NOL carryforward benefit | $ | 10,673 | $ | 8,800 | |||||||
| NOL write-off for Sec 382 Limit | (3,258) | (3,258) | |||||||||
| Capitalized cost temporary item | 8,450 | 9,112 | |||||||||
| State NOL carryforward benefit | 4,884 | 4,276 | |||||||||
| Unrealized loss AFS securities | 4,333 | 5,259 | |||||||||
| Allowance for credit loss | 1,820 | 1,944 | |||||||||
| Lease liabilities | 316 | 404 | |||||||||
| Non-accrual interest | 1,890 | 1,026 | |||||||||
| Merger and acquisition | 119 | 133 | |||||||||
| Accrued expenses | 28 | 44 | |||||||||
| Goodwill and intangible | 297 | 325 | |||||||||
| Depreciation of premises and equipment | 197 | 178 | |||||||||
| Share based compensation | 1,233 | 17 | |||||||||
| Other | 8 | 8 | |||||||||
| Gross deferred tax assets | 30,992 | 28,268 | |||||||||
| Less deferred tax asset valuation allowance | (30,992) | (28,268) | |||||||||
| Total deferred tax assets | $ | — | $ | — | |||||||
| Deferred tax liabilities: | |||||||||||
| Right-of-use assets | (298) | (385) | |||||||||
| Prepaid Expenses | (459) | (334) | |||||||||
| Other | (25) | (5) | |||||||||
| Gross deferred tax liabilities | (783) | (724) | |||||||||
| Net deferred tax (liabilities) assets | $ | (783) | $ | (724) | |||||||
As of December 31, 2025, Patriot had available approximately $50.8 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, 2025, Patriot has $35.3 million post-change net operating loss carry-forwards which do not expire. These amounts reflect the Company’s existing Section 382 analysis and do not reflect the effect, if any, of ownership changes or additional limitations that may have resulted from the Company’s Private Placement or the registered direct offerings completed later in 2025, as no updated Section 382 analysis with respect to those transactions had been completed as of the date of these consolidated financial statements. Because the Company maintained a full valuation allowance against its deferred tax assets at December 31, 2025, management does not expect completion of such analysis to materially affect the net deferred tax asset balance reported in the accompanying Consolidated Balance Sheets as of that date, although it could affect the amount and availability of NOL carryforwards for future periods.
Patriot has approximately $64.2 million of NOLs available for Connecticut tax purposes at December 31, 2025, which may be used to offset up to 50% of taxable income in any year. The NOLs will expire between 2030 and 2055 . In addition, the Company had state net operating loss carryforwards of approximately $13.4 million in New York and $1.9 million in New Jersey, which are scheduled to expire in 2044. Furthermore, Patriot had $1.2 million of NOLs in Florida, which may be carried forward indefinitely. These state NOL amounts likewise do not reflect the effect, if any, of ownership changes or related limitation analyses that may result from the Private Placement or the registered direct offerings completed in 2025.
The deferred tax liabilities are included in accrued expenses and other liabilities on the Consolidated Balance Sheet.
Valuation Allowance against Deferred Tax Assets
Deferred tax assets are recognized to the extent management believes it is more likely than not that such assets will be realized. Realization of deferred tax assets is dependent upon the generation of future taxable income during periods which temporary differences are expected to be recovered or settled.
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.
As of December 31, 2025, the Company maintained a full valuation allowance against its deferred tax assets. During the year ended December 31, 2025, management performed its required annual assessment of the realizability of deferred tax assets, including consideration of all available positive and negative evidence. Significant negative evidence included the Company’s recent history of operating losses and uncertainty regarding timing and sustainability of future taxable income. Accordingly, management concluded that the full valuation allowance remained appropriate at December 31, 2025, and no release of the valuation allowance was recorded during the year ended December 31, 2025.
The valuation allowance was $31.0 million and $28.3 million as of December 31, 2025 and 2024, respectively. Although the Bank returned to profitability at the bank level during 2025, the Company remained unprofitable on a consolidated basis for the year ended December 31, 2025. In light of improved operating performance and current projections, the Company is evaluating whether a full valuation allowance will remain appropriate in future periods. Any future release of all or a portion of the valuation allowance would depend on management’s conclusion, based on sufficient positive evidence, that realization of the related deferred tax assets is more likely than not.
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, 2025 and 2024, the Company did not record any uncertain tax position related to the utilization of certain federal net operating losses. As of December 31, 2025 and 2024, 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 2022 through 2025 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 Florida. In addition, the Company’s tax returns for the years ended 2021 through 2025 remain subject to examination by New Jersey.Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 31, 2026 | Showing above |
| 2024 | Apr 15, 2025 | |
| 2023 | Apr 1, 2024 | |
| 2022 | Mar 29, 2023 | |
| 2021 | Mar 24, 2022 | |
| 2020 | Mar 30, 2021 | |
| 2019 | Apr 29, 2020 | |
| 2018 | Apr 1, 2019 | |
| 2017 | Mar 30, 2018 | |
| 2016 | Mar 31, 2017 | |
| 2015 | Mar 31, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.