FORM 10-Q Filing Information [Registrant Information](index=1&type=section&id=Registrant%20Information) Patriot National Bancorp, Inc. (PNBK) is a Connecticut-incorporated, NASDAQ-listed non-accelerated filer with **97.2 million** shares outstanding - Patriot National Bancorp, Inc. (**PNBK**) is incorporated in Connecticut with its principal executive offices in Stamford. Its common stock is traded on the **NASDAQ Global Market**[2](index=2&type=chunk) | Indicator | Value | | :--- | :--- | | Filing Status | Non-accelerated filer, Smaller reporting company | | Common Stock Outstanding (as of Aug 14, 2025) | 97,190,958 shares | Table of Contents [Table of Contents](index=3&type=section&id=Table%20of%20Contents) PART I - FINANCIAL INFORMATION [Item 1: Consolidated Financial Statements](index=4&type=section&id=Item%201%3A%20Consolidated%20Financial%20Statements) Unaudited consolidated financial statements, encompassing balance sheets, operations, comprehensive loss, equity, and cash flows, are presented with detailed notes [Consolidated Balance Sheets (Unaudited)](index=4&type=section&id=Consolidated%20Balance%20Sheets%20(Unaudited)) Total assets and liabilities decreased from December 31, 2024, to June 30, 2025, while shareholders' equity significantly increased | Metric (In thousands) | June 30, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $929,953 | $1,012,292 | $(82,339) | | Total Liabilities | $863,752 | $1,008,027 | $(144,275) | | Total Shareholders' Equity | $66,201 | $4,265 | $61,936 | | Loans receivable (net) | $579,753 | $700,167 | $(120,414) | | Total deposits | $830,857 | $966,597 | $(135,740) | | Preferred stock | $5,099 | $0 | $5,099 | | Common stock | $169,223 | $106,854 | $62,369 | [Consolidated Statements of Operations (Unaudited)](index=6&type=section&id=Consolidated%20Statements%20of%20Operations%20(Unaudited)) Net losses increased for both the three and six months ended June 30, 2025, driven by lower net interest income | Metric (In thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total interest and dividend income | $11,494 | $13,217 | $24,042 | $27,218 | | Total interest expense | $7,306 | $8,194 | $15,900 | $16,791 | | Net interest income | $4,188 | $5,023 | $8,142 | $10,427 | | Provision for credit losses | $1,524 | $3,092 | $2,257 | $3,750 | | Total non-interest income | $2,030 | $2,063 | $4,758 | $4,310 | | Total non-interest expense | $9,744 | $7,999 | $18,469 | $15,225 | | Net loss | $(5,001) | $(3,081) | $(7,778) | $(3,380) | | Basic loss per share | $(0.06) | $(0.77) | $(0.17) | $(0.85) | | Diluted loss per share | $(0.06) | $(0.77) | $(0.17) | $(0.85) | [Consolidated Statements of Comprehensive Loss (Unaudited)](index=9&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Loss%20(Unaudited)) Comprehensive loss for the three and six months ended June 30, 2025, was lower than net loss due to unrealized holding gains | Metric (In thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(5,001) | $(3,081) | $(7,778) | $(3,380) | | Unrealized holding gain (loss) on securities | $797 | $(29) | $2,246 | $(629) | | Other comprehensive income (loss), net of tax | $797 | $(70) | $2,246 | $(541) | | Comprehensive loss | $(4,204) | $(3,151) | $(5,532) | $(3,921) | [Consolidated Statements of Shareholders' Equity (Unaudited)](index=10&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity%20(Unaudited)) Shareholders' equity significantly increased from December 31, 2024, to June 30, 2025, primarily due to stock issuances | Metric (In thousands, except shares) | Balance at Jan 1, 2025 | Balance at June 30, 2025 | | :--- | :--- | :--- | | Preferred Stock | $0 | $5,099 | | Common Stock | $106,854 | $169,223 | | Accumulated Deficit | $(86,908) | $(94,686) | | Accumulated Other Comprehensive Loss | $(15,681) | $(13,435) | | Total Shareholders' Equity | $4,265 | $66,201 | | Common stock from Private Placement | — | $61,073 | | Preferred Stock issuance | — | $5,099 | | Share-based compensation expense | — | $1,296 | | Net loss | — | $(7,778) | [Consolidated Statements of Cash Flows (Unaudited)](index=12&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) Cash, cash equivalents, and restricted cash significantly increased for the six months ended June 30, 2025, driven by investing activities | Metric (In thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(4,890) | $7,846 | | Net cash provided by investing activities | $121,541 | $71,281 | | Net cash used in financing activities | $(76,289) | $(52,011) | | Net increase in cash, cash equivalents and restricted cash | $40,362 | $27,116 | | Cash, cash equivalents and restricted cash at end of period | $202,972 | $93,652 | - Significant non-cash transactions include a net change in unrealized gain on available-for-sale securities of **$(2.2) million** in 2025 (compared to **$0.5 million** loss in 2024) and senior/subordinated debt conversion to common stock totaling **$(8.8) million** in 2025[23](index=23&type=chunk) [Notes to Consolidated Financial Statements (Unaudited)](index=15&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) Detailed disclosures on accounting policies, financial instruments, and regulatory matters are provided to supplement the financial statements [Note 1. Basis of Financial Statement Presentation](index=15&type=section&id=Note%201.%20Basis%20of%20Financial%20Statement%20Presentation) Unaudited interim consolidated financial statements are prepared under SEC rules and US GAAP, relying on management's critical estimates - The financial statements are unaudited and prepared under SEC rules, omitting some US GAAP disclosures. Key estimates include allowance for credit losses, investment securities valuation, deferred tax assets, derivatives, and servicing assets[25](index=25&type=chunk)[27](index=27&type=chunk) [Note 2. Summary of Significant Accounting Policies and Transactions](index=15&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies%20and%20Transactions) This note details the Series A Preferred Stock issuance and assesses the immaterial impact of new accounting standards and the OBBBA - On March 20, 2025, the Company completed a **$5.45 million** private placement, issuing **90,832 shares** of Series A Non-Cumulative Perpetual Convertible Preferred Stock with a **$60** liquidation preference per share. These shares are convertible into **7.3 million shares** of Common Stock[31](index=31&type=chunk)[32](index=32&type=chunk) - Several new Accounting Standards Updates (ASUs) have been issued (2023-06, 2023-09, 2024-01, 2024-03, 2025-01), with effective dates ranging from 2025 to 2027. The Company does not expect a **material impact** on its financial condition or results of operations from these adoptions, but some will result in additional disclosures[33](index=33&type=chunk)[34](index=34&type=chunk)[35](index=35&type=chunk)[36](index=36&type=chunk) - The One Big Beautiful Bill Act (OBBBA), enacted July 4, 2025, includes tax provisions with multiple effective dates. The Company is assessing its impact, which is expected to be **immaterial**[37](index=37&type=chunk) [Note 3. Available-for-Sale Securities](index=17&type=section&id=Note%203.%20Available-for-Sale%20Securities) Available-for-sale securities increased slightly to **$80.6 million** at June 30, 2025, with all securities having unrealized losses but no credit impairment recognized | (In thousands) | June 30, 2025 Fair Value | December 31, 2024 Fair Value | | :--- | :--- | :--- | | U. S. Government agency and mortgage-backed securities | $60,390 | $60,223 | | Corporate bonds | $13,191 | $12,735 | | Subordinated notes | $3,544 | $3,461 | | SBA loan pools | $3,502 | $3,573 | | Total available-for-sale securities | $80,627 | $79,992 | - As of June 30, 2025, all forty-four available-for-sale securities had unrealized losses, with an aggregate decline of **18.3%** from amortized cost (compared to **20.2%** at December 31, 2024). No allowance for credit losses was recognized as the Company does not believe these debt securities are credit impaired and does not intend to sell them[39](index=39&type=chunk)[40](index=40&type=chunk)[42](index=42&type=chunk) - Available-for-sale securities of **$72.4 million** (June 30, 2025) and **$60.2 million** (December 31, 2024) were pledged to the FHLB or FRB, primarily to secure borrowings[43](index=43&type=chunk) [Note 4. Loans Receivable and Allowance for Credit Losses](index=20&type=section&id=Note%204.%20Loans%20Receivable%20and%20Allowance%20for%20Credit%20Losses) The loan portfolio decreased by **$119.9 million** to **$587.5 million**, while the Allowance for Credit Losses (ACL) increased to **$7.8 million** due to qualitative factor adjustments [Loan Portfolio Composition](index=20&type=section&id=Loan%20Portfolio%20Composition) Gross loans receivable decreased by **$119.9 million** from December 31, 2024, to June 30, 2025, with reductions across all segments | Loan Portfolio Segment (In thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Commercial Real Estate | $370,376 | $419,489 | | Residential Real Estate | $60,123 | $92,215 | | Commercial and Industrial | $122,161 | $129,608 | | Consumer and Other | $33,363 | $59,973 | | Construction | $1,494 | $3,830 | | Construction to Permanent - CRE | $31 | $2,357 | | Loans receivable, gross | $587,548 | $707,472 | | Allowance for credit losses | $(7,795) | $(7,305) | | Loans receivable, net | $579,753 | $700,167 | [Risk Characteristics of Portfolio Classes](index=21&type=section&id=Risk%20Characteristics%20of%20Portfolio%20Classes) Patriot's lending is concentrated in specific CT and NY counties, with distinct underwriting policies for each loan class - Patriot's lending is concentrated in specific counties in Connecticut and New York. The Bank voluntarily suspended its **SBA Preferred Lender Program** status in Q2 2025, temporarily exiting the SBA lending business[47](index=47&type=chunk)[50](index=50&type=chunk) - Commercial Real Estate (CRE) loans are evaluated based on borrower's ability to pay and property value, with loan-to-value limits. Repayment is sensitive to real estate market and economic conditions[51](index=51&type=chunk)[52](index=52&type=chunk) - Consumer and Other Loans, including purchased unsecured consumer loans, carry a **moderate degree of risk** and are assessed based on FICO scores and delinquency status. The Company does not engage in subprime lending[59](index=59&type=chunk)[60](index=60&type=chunk)[61](index=61&type=chunk) [Allowance for Credit Losses (ACL)](index=24&type=section&id=Allowance%20for%20Credit%20Losses%20(ACL)) The ACL increased to **$7.8 million** at June 30, 2025, primarily due to qualitative factor adjustments, despite loan balance reductions - The Company adopted ASU 2016-13 (**CECL**) on January 1, 2023, using PD and LGD models for pooled loans and individual evaluations for others[68](index=68&type=chunk)[69](index=69&type=chunk) - In Q2 2025, the Bank refined its use of qualitative factors (**Q-Factors**) in its ACL methodology, resulting in a net **12 bps** addition to overall reserves, increasing the final ACL to **1.33%** of total loans[70](index=70&type=chunk)[215](index=215&type=chunk)[216](index=216&type=chunk) | Metric (In thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Allowance for credit losses | $7,795 | $7,305 | | ACL on unfunded commitments | $81 | $182 | [Loan Portfolio Vintage Analysis](index=29&type=section&id=Loan%20Portfolio%20Vintage%20Analysis) The loan portfolio vintage analysis shows significant originations in 2022-2023, with **$2.4 million** in gross charge-offs for the six months ended June 30, 2025 | Loan Portfolio Segment (In thousands) | Total Loans Receivable Gross (June 30, 2025) | Current Period Gross Charge-offs (6 Months Ended June 30, 2025) | | :--- | :--- | :--- | | Commercial Real Estate | $370,376 | $635 | | Residential Real Estate | $60,123 | $0 | | Commercial and Industrial | $122,161 | $130 | | Consumer and Other | $33,363 | $1,670 | | Construction | $1,494 | $0 | | Construction to Permanent - CRE | $31 | $0 | | Total Loans Receivable Gross | $587,548 | $2,435 | [Loan Portfolio Aging Analysis](index=31&type=section&id=Loan%20Portfolio%20Aging%20Analysis) As of June 30, 2025, total past due performing loans were **$10.2 million**, with non-accruing loans totaling **$24.2 million** | Loan Portfolio Segment (In thousands) | Total Past Due (Performing) | Non-accruing Loans (June 30, 2025) | | :--- | :--- | :--- | | Commercial Real Estate | $5,599 | $20,893 | | Residential Real Estate | $59 | $0 | | Commercial and Industrial | $4,055 | $2,869 | | Consumer and Other | $534 | $453 | | Construction | $0 | $0 | | Construction to Permanent - CRE | $0 | $31 | | Total Loans Receivable Gross | $10,247 | $24,246 | - If non-accrual loans had been performing, additional interest income of approximately **$0.9 million** (three months) and **$2.1 million** (six months) would have been recognized for the periods ended June 30, 2025[88](index=88&type=chunk) [Individually Evaluated Loans](index=34&type=section&id=Individually%20Evaluated%20Loans) Individually evaluated loans totaled **$23.8 million** at June 30, 2025, with no allowance recorded, indicating fair values exceeded recorded investment | (In thousands) | June 30, 2025 Recorded Investment | December 31, 2024 Recorded Investment | December 31, 2024 Related Allowance | | :--- | :--- | :--- | :--- | | Commercial Real Estate | $20,892 | $19,335 | $403 | | Commercial and Industrial | $2,856 | $3,323 | $60 | | Construction to permanent - CRE | $31 | $2,357 | $0 | | Total Individually evaluated loans | $23,779 | $25,015 | $463 | - For individually evaluated loans, specific allowances are estimated based on collateral fair value or present value of expected cash flows. As of June 30, 2025, **no specific reserves** were required for these loans[91](index=91&type=chunk)[92](index=92&type=chunk) [Loan Modifications Made to Borrowers Experiencing Financial Difficulty](index=36&type=section&id=Loan%20Modifications%20Made%20to%20Borrowers%20Experiencing%20Financial%20Difficulty) No loan modifications for borrowers experiencing financial difficulty or related payment defaults occurred in the reported periods - Patriot may modify loan terms for borrowers in financial difficulty, often extending terms or obtaining additional collateral. No such modifications or related payment defaults occurred in the reported periods[94](index=94&type=chunk)[95](index=95&type=chunk) [Note 5. Loans Held for Sale](index=36&type=section&id=Note%205.%20Loans%20Held%20for%20Sale) Loans held for sale totaled **$15.3 million** at June 30, 2025, primarily Digital Payments credit card loans, as the Bank exited SBA and residential mortgage lending - As of June 30, 2025, there were **no SBA loans held for sale**. The Bank voluntarily suspended its SBA Preferred Lender Program status in Q2 2025[96](index=96&type=chunk)[100](index=100&type=chunk) - Digital Payments credit card loans held for sale totaled **$15.0 million** at June 30, 2025, up from **$11.4 million** at December 31, 2024. These loans are fully cash-secured and sold at par, resulting in no servicing asset or gain/loss on sale[101](index=101&type=chunk) - The Bank exited the residential mortgage origination business in Q2 2025. Residential mortgage loans held for sale decreased to **$0.3 million** at June 30, 2025, from **$4.3 million** at December 31, 2024[102](index=102&type=chunk) [Note 6. Deposits](index=37&type=section&id=Note%206.%20Deposits) Total deposits decreased by **$135.7 million** to **$830.9 million** at June 30, 2025, with reductions in both non-interest-bearing and interest-bearing categories | Deposit Category (In thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Noninterest bearing deposits | $106,950 | $119,212 | | Interest bearing deposits | $723,907 | $847,385 | | Total deposits | $830,857 | $966,597 | | Digital Payments deposits | $216,900 (approx.) | $265,500 (approx.) | - Deposits from the Digital Payments Division totaled approximately **$216.9 million** at June 30, 2025, down from **$265.5 million** at December 31, 2024. Interest Bearing DDA is net of **$24.7 million** in deposits sold through the IntraFi network as of June 30, 2025[105](index=105&type=chunk) [Note 7. Derivatives](index=38&type=section&id=Note%207.%20Derivatives) Patriot uses interest rate swap derivatives to manage risk, with changes in fair value recognized directly in earnings and no net gain or loss reported - Patriot uses interest rate swaps with commercial lending customers, offset by third-party swaps, to manage interest rate risk. These are not designated as hedging instruments[107](index=107&type=chunk) | (In thousands) | Notional Amount (June 30, 2025) | Fair Value (June 30, 2025) | Notional Amount (Dec 31, 2024) | Fair Value (Dec 31, 2024) | | :--- | :--- | :--- | :--- | :--- | | 3rd party interest rate swap | $1,271 | $47 | $1,290 | $83 | | Customer interest rate swap | $1,271 | $(47) | $1,290 | $(83) | - No net gain or loss was recognized in other noninterest income from these derivatives for the three and six months ended June 30, 2025 and 2024[108](index=108&type=chunk) [Note 8. Share-Based Compensation and Employee Benefit Plan](index=40&type=section&id=Note%208.%20Share-Based%20Compensation%20and%20Employee%20Benefit%20Plan) RSA compensation expense saw a credit due to forfeitures, while RSU and stock option expenses increased following new grants under the 2025 Omnibus Equity Incentive Plan - For the three and six months ended June 30, 2025, the Company recognized credits in RSA share-based compensation expense of **$(70) thousand** and **$(16) thousand**, respectively, primarily due to forfeitures[115](index=115&type=chunk) - The **2025 Omnibus Equity Incentive Plan** was approved, allowing for various awards up to **20%** of outstanding common stock. For the three and six months ended June 30, 2025, RSU compensation expense was **$1.1 million** and **$1.3 million**, respectively[118](index=118&type=chunk)[119](index=119&type=chunk)[121](index=121&type=chunk) - On June 26, 2025, the Company granted stock options to purchase **400,000 shares** at **$1.40** per share, resulting in an estimated compensation expense of **$44 thousand** recognized as of June 30, 2025[123](index=123&type=chunk)[125](index=125&type=chunk) - 401(k) matching contributions for the three and six months ended June 30, 2025, were **$55 thousand** and **$147 thousand**, respectively, a decrease from **$88 thousand** and **$168 thousand** in the prior year[127](index=127&type=chunk) [Note 9. Earnings per share](index=44&type=section&id=Note%209.%20Earnings%20per%20share) Basic and diluted loss per share significantly decreased due to a substantial increase in weighted average shares outstanding from capital raises | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net loss attributable to Common shareholders (in thousands) | $(5,001) | $(3,081) | $(7,778) | $(3,380) | | Weighted average shares outstanding | 78,123,095 | 3,976,073 | 45,885,468 | 3,976,073 | | Basic loss per share | $(0.06) | $(0.77) | $(0.17) | $(0.85) | | Diluted loss per share | $(0.06) | $(0.77) | $(0.17) | $(0.85) | - The weighted average shares outstanding increased significantly due to a **$57.75 million** private placement (issuing **60.4 million** common shares and **90,832** preferred shares convertible into **7.3 million** common shares), conversion of **$7.0 million** in notes into **9.3 million** common shares, and a registered direct offering of **8.5 million** common shares[129](index=129&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk) [Note 10. Commitments and Contingencies](index=45&type=section&id=Note%2010.%20Commitments%20and%20Contingencies) Off-balance sheet commitments decreased to **$53.7 million**, and the Bank maintains a **$45 million** irrevocable standby letter of credit with Mastercard | Commitment Type (In thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Unused lines of credit | $40,971 | $61,910 | | Undisbursed construction loans | $524 | $860 | | Home equity lines of credit | $12,183 | $24,476 | | Future loan commitments | $0 | $325 | | Total Commitments to extend credit | $53,678 | $87,571 | - The Bank has an irrevocable standby letter of credit for **$45 million** with Mastercard, issued by the FHLB of Boston, extended to April 30, 2026[140](index=140&type=chunk) - An allowance for credit loss of **$81 thousand** (June 30, 2025) and **$182 thousand** (December 31, 2024) is maintained for off-balance sheet commitments[138](index=138&type=chunk) [Note 11. Regulatory and Operational Matters](index=47&type=section&id=Note%2011.%20Regulatory%20and%20Operational%20Matters) The Bank's capital ratios now exceed OCC Agreement minimums following a private placement, though it remains 'adequately capitalized' due to agreement terms - On January 14, 2025, the Bank entered into an agreement with the OCC, requiring actions in strategic planning, capital planning, BSA/AML risk management, payment activities oversight, credit administration, and concentrations risk management[145](index=145&type=chunk) - The OCC Agreement established individual minimum capital ratios for the Bank: **CET1 capital ratio of 10.00%**, **Tier 1 capital ratio of 10.00%**, **Tier 1 leverage ratio of 9.00%**, and **total capital ratio of 11.50%**[147](index=147&type=chunk) - As of June 30, 2025, the Private Placement resulted in the Bank's capital ratios exceeding both standard 'well capitalized' levels and the higher minimums set forth in the OCC Agreement. However, the Bank remains classified as **'adequately capitalized'** due to the specific terms of that agreement[148](index=148&type=chunk) | Capital Ratio | Patriot National Bancorp, Inc. (June 30, 2025) | Patriot Bank, N.A. (June 30, 2025) | Patriot National Bancorp, Inc. (Dec 31, 2024) | Patriot Bank, N.A. (Dec 31, 2024) | | :--- | :--- | :--- | :--- | :--- | | Total Capital Ratio | 16.48% | 16.34% | 6.07% | 7.71% | | Tier 1 Capital Ratio | 14.41% | 15.61% | 4.57% | 7.58% | | Common Equity Tier 1 Capital Ratio | 13.14% | 15.61% | 3.48% | 7.58% | | Tier 1 Leverage Capital Ratio | 9.32% | 10.10% | 3.50% | 5.79% | [Note 12. Fair Value and Interest Rate Risk](index=49&type=section&id=Note%2012.%20Fair%20Value%20and%20Interest%20Rate%20Risk) Fair value measurements are categorized into a three-level hierarchy, with loans receivable estimated at **$566.6 million** and four corporate bonds classified as Level 3 instruments - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[153](index=153&type=chunk)[156](index=156&type=chunk) | Financial Asset (In thousands) | Carrying Amount (June 30, 2025) | Estimated Fair Value (June 30, 2025) | Carrying Amount (Dec 31, 2024) | Estimated Fair Value (Dec 31, 2024) | | :--- | :--- | :--- | :--- | :--- | | Loans receivable, net | $579,753 | $566,585 | $700,167 | $675,901 | | Available-for-sale securities (Level 2) | $69,150 | $69,150 | $68,869 | $68,869 | | Available-for-sale securities (Level 3) | $11,477 | $11,477 | $11,123 | $11,123 | | Total Financial Assets | $894,437 | $881,301 | $974,257 | $950,077 | - As of June 30, 2025, four corporate bonds were classified as Level 3 instruments, with their fair values determined using a present value approach based on unobservable inputs in a pricing model[173](index=173&type=chunk) [Note 13. Segment Information](index=57&type=section&id=Note%2013.%20Segment%20Information) Patriot National Bancorp, Inc. operates as a single business segment, Community Banking, with performance evaluated on a company-wide basis - Patriot's only business segment is **Community Banking**. The CODM evaluates financial performance on a company-wide basis, using consolidated net income to benchmark against competitors and monitor budget to actual results[180](index=180&type=chunk) [Note 14. Subsequent Events](index=57&type=section&id=Note%2014.%20Subsequent%20Events) Subsequent events include the Amended and Restated Certificate of Incorporation, preferred stock conversion, additional note conversions, and a registered direct offering - On July 3, 2025, the Amended and Restated Certificate of Incorporation became effective, authorizing **200 million** common shares (**170 million** voting, **30 million** non-voting) and **1 million** preferred shares[182](index=182&type=chunk) - On July 3, 2025, **90,832** Series A Preferred Stock shares automatically converted into **7.3 million shares** of Non-Voting Common Stock[183](index=183&type=chunk) - On July 25-26, 2025, Unity Bancorp Inc. and American Bank Incorporated converted a total of **$2.8 million** in Senior Notes (principal and interest) into **3.7 million shares** of Common Stock at **$0.75** per share[184](index=184&type=chunk) - On July 5, 2025, the Company completed a registered direct offering of **8.5 million** common shares at **$1.25** per share, raising gross proceeds of **$10.7 million**[185](index=185&type=chunk) [Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations](index=58&type=section&id=Item%202%3A%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section reviews the Company's financial performance, condition, capital raises, and regulatory compliance, highlighting increased net losses and strategic balance sheet reduction ["Safe Harbor" Statement Under Private Securities Litigation Reform Act of 1995](index=58&type=section&id=Safe%20Harbor%22%20Statement%20Under%20Private%20Securities%20Litigation%20Reform%20Act%20of%201995) Forward-looking statements are subject to various risks and uncertainties, including regulatory actions, interest rate fluctuations, and economic conditions - Forward-looking statements are subject to risks and uncertainties, including regulatory actions (OCC agreement), reliance on third-party program managers in the Digital Payments Division, changes in interest rates, and economic conditions[186](index=186&type=chunk)[187](index=187&type=chunk) - Other risks include competition, legislative/regulatory changes, accounting standards, loan quality, funding access, and the ability to manage market, credit, and operational risks[187](index=187&type=chunk) [Critical Accounting Policies](index=60&type=section&id=Critical%20Accounting%20Policies) The allowance for credit losses is a critical accounting policy due to its subjective and complex nature, requiring inherently uncertain estimates - The allowance for credit losses is identified as one of the Company's most critical accounting policies due to the subjective and complex judgments required for inherently uncertain estimates[189](index=189&type=chunk) [Summary](index=60&type=section&id=Summary) The Company reported increased net losses for both the three and six months ended June 30, 2025, primarily due to a decline in net interest income | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(5.0) million | $(3.1) million | $(7.8) million | $(3.4) million | | Basic and diluted loss per share | $(0.06) | $(0.77) | $(0.17) | $(0.85) | | Net interest income decline | $(0.8) million | N/A | $(2.3) million | N/A | | Gross loans decrease (Dec 31, 2024 to June 30, 2025) | N/A | N/A | $(119.9) million | N/A | - The increase in net loss for the six months ended June 30, 2025, was **$4.4 million** year-over-year. The decline in net interest income was attributed to an intentional reduction in loan balances to strengthen capital ratios[191](index=191&type=chunk)[192](index=192&type=chunk) [Private Placement](index=60&type=section&id=Private%20Placement) A **$57.8 million** private placement on March 20, 2025, issued common and preferred stock, addressing OCC Agreement capital requirements - On March 20, 2025, the Company completed a **$57.8 million** private placement[195](index=195&type=chunk) | Securities Issued | Quantity | | :--- | :--- | | Common Stock | 60,400,106 shares | | Series A Preferred Stock | 90,832 shares | | Convertible into Common Stock | 7,266,560 shares | - The Private Placement was critical to address the Capital Plan and Higher Minimums Articles and pivotal to the Strategic Plan Article in the OCC Agreement[146](index=146&type=chunk) [Amendment to Notes](index=61&type=section&id=Amendment%20to%20Notes) Amendments to Subordinated and Senior Notes, effective March 20, 2025, included **$7.0 million** in principal conversions to common stock, PIK provisions, and maturity extensions - Approximately **$7.0 million** of the aggregate principal amount of the Subordinated and Senior Notes was converted into **9.3 million shares** of Common Stock[197](index=197&type=chunk) - The Subordinated Note amendment includes interest paid-in-kind (**PIK**) provisions through March 30, 2026, and a **$2.0 million** principal conversion to common stock[198](index=198&type=chunk)[199](index=199&type=chunk) - The Senior Notes amendment extends the maturity date to April 15, 2028, increases the interest rate to **10.0%** from January 1, 2026, and includes a **$5.0 million** principal conversion to common stock[198](index=198&type=chunk)[200](index=200&type=chunk) [Note Conversions](index=61&type=section&id=Note%20Conversions) Following the Private Placement, additional note conversions occurred, including **$1.90 million** in May 2025 and over **$2.8 million** in July 2025, into common shares - On May 13, 2025, two Senior Note holders converted **$1.90 million** of principal and accrued interest into **2.5 million shares** of Common Stock[202](index=202&type=chunk) - On July 25, 2025, Unity Bancorp Inc. notified conversion of **$2.0 million** of Senior Notes into **2.7 million** common shares[203](index=203&type=chunk) - On July 26, 2025, American Bank Incorporated notified conversion of **$0.8 million** of Senior Notes into **1.1 million** common shares[203](index=203&type=chunk) [Registered Direct Offering](index=63&type=section&id=Registered%20Direct%20Offering) On July 5, 2025, the Company completed a registered direct offering, selling **8.5 million** common shares for **$10.7 million** gross proceeds - On July 5, 2025, the Company completed a registered direct offering of **8.5 million shares** of common stock at **$1.25** per share[204](index=204&type=chunk) - The offering raised gross proceeds of **$10.7 million**[204](index=204&type=chunk) [FINANCIAL CONDITION](index=63&type=section&id=FINANCIAL%20CONDITION) Total assets decreased by **$82.3 million** to **$930.0 million** at June 30, 2025, reflecting a strategic reduction in loan growth and balance sheet size [Cash, Cash Equivalents and Restricted Cash](index=63&type=section&id=Cash%20Cash%20Equivalents%20and%20Restricted%20Cash) Cash, cash equivalents, and restricted cash increased by **$40.4 million** to **$203.0 million** at June 30, 2025, driven by loan repayments and stock issuances | Metric (In thousands) | June 30, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Cash, cash equivalents and restricted cash | $203,000 | $162,600 | $40,400 | | Reduction in deposits | N/A | N/A | $(135,700) | - The increase was primarily driven by loan repayments and sale of loan receivable, and cash proceeds from issuance of common and preferred stock shares, partially offset by a **$135.7 million** reduction in deposits[206](index=206&type=chunk) [Investments](index=63&type=section&id=Investments) Total investment securities increased slightly by **$0.7 million** to **$85.1 million** at June 30, 2025, mainly due to reduced unrealized losses | Investment Category (In thousands) | June 30, 2025 Amount | June 30, 2025 % | December 31, 2024 Amount | December 31, 2024 % | | :--- | :--- | :--- | :--- | :--- | | U. S. Government agency and mortgage backed securities | $60,390 | 0.28% | $60,223 | 0.28% | | Corporate bonds | $13,191 | 3.58% | $12,735 | 3.58% | | Subordinated notes | $3,544 | 2.40% | $3,461 | 2.40% | | SBA loan pools | $3,502 | (1.99)% | $3,573 | (1.99)% | | Total available-for-sale securities, at fair value | $80,627 | 0.79% | $79,992 | 0.79% | | Other investments, at cost | $4,450 | 0.00% | $4,450 | 0.00% | | Total investment securities | $85,077 | 0.75% | $84,442 | 0.75% | - The increase in investments was primarily attributable to a **$2.2 million** reduction in unrealized losses on securities, partially offset by the repayment of securities totaling **$1.7 million**[207](index=207&type=chunk) [Loans held for investment](index=64&type=section&id=Loans%20held%20for%20investment) The loan portfolio decreased by **$119.9 million** to **$587.5 million** due to a strategic decision to restrict loan growth and allow paydowns | Loan Portfolio Segment (In thousands) | June 30, 2025 Amount | June 30, 2025 % | December 31, 2024 Amount | December 31, 2024 % | | :--- | :--- | :--- | :--- | :--- | | Commercial Real Estate | $370,376 | 63.04% | $419,489 | 59.30% | | Residential Real Estate | $60,123 | 10.23% | $92,215 | 13.03% | | Commercial and Industrial | $122,161 | 20.79% | $129,608 | 18.32% | | Consumer and Other | $33,363 | 5.68% | $59,973 | 8.48% | | Construction | $1,494 | 0.25% | $3,830 | 0.54% | | Construction to permanent - CRE | $31 | 0.01% | $2,357 | 0.33% | | Loans receivable, gross | $587,548 | 100.00% | $707,472 | 100.00% | | Allowance for credit losses | $(7,795) | N/A | $(7,305) | N/A | | Loans receivable, net | $579,753 | N/A | $700,167 | N/A | - The Company sold **$15.9 million** Home Equity Line of Credit loans and **$28.9 million** purchased residential real estate loans in Q2 2025, resulting in a recognized net loss of **$1.0 million**[208](index=208&type=chunk) | Ratio | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Net loan to deposit ratio | 69.8% | 72.4% | | Net loan to total assets ratio | 62.3% | 69.2% | [Commercial Real Estate Loans ("CRE")](index=64&type=section&id=Commercial%20Real%20Estate%20Loans%20(%22CRE%22)) The CRE loan portfolio decreased to **$370.4 million**, with a concentration ratio of **301%** of total Tier 1 capital plus ACL, slightly above the supervisory threshold | CRE Segment (In thousands) | June 30, 2025 Amount | June 30, 2025 % | December 31, 2024 Amount | December 31, 2024 % | | :--- | :--- | :--- | :--- | :--- | | CRE owner occupied | $64,549 | 17.43% | $83,934 | 20.01% | | CRE multifamily | $64,293 | 17.36% | $77,443 | 18.46% | | CRE office | $37,752 | 10.19% | $55,900 | 13.33% | | CRE retail | $45,349 | 12.24% | $46,946 | 11.19% | | Other CRE non-owner occupied | $158,433 | 42.78% | $155,266 | 37.01% | | Total | $370,376 | 100.00% | $419,489 | 100.00% | | Geographic Concentration (In thousands) | June 30, 2025 Amount | June 30, 2025 % | December 31, 2024 Amount | December 31, 2024 % | | :--- | :--- | :--- | :--- | :--- | | New York | $190,669 | 51.48% | $208,093 | 49.61% | | Connecticut | $91,369 | 24.67% | $98,342 | 23.44% | | New Jersey | $24,312 | 6.56% | $26,861 | 6.40% | | Outside Market | $64,026 | 17.29% | $86,193 | 20.55% | | Total Commercial Real Estate | $370,376 | 100.00% | $419,489 | 100.00% | - As of June 30, 2025, the Bank's CRE concentration was **301%** of total Tier 1 capital plus allowance for credit loss, which is below the Bank's policy limit of **350%** but slightly above the **300%** supervisory monitoring threshold[213](index=213&type=chunk) [Allowance for Credit Losses ("ACL") on Loans](index=65&type=section&id=Allowance%20for%20Credit%20Losses%20(%22ACL%22)%20on%20Loans) The ACL on loans increased by **$0.5 million** to **$7.8 million** due to qualitative factor adjustments, while net charge-offs significantly decreased - The ACL on loans increased by **$0.5 million** to **$7.8 million** at June 30, 2025, from **$7.3 million** at December 31, 2024. This increase was mainly attributed to qualitative factors (**Q-Factors**) incorporated into the ACL calculations[214](index=214&type=chunk)[215](index=215&type=chunk)[216](index=216&type=chunk) | Metric (In thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net charge-offs | $(536) | $(1,921) | $(1,868) | $(4,722) | | Provision for credit losses | $1,602 | $3,133 | $2,358 | $3,786 | | Balance at end of period | $7,795 | $14,989 | $7,795 | $14,989 | | Net charge-offs to average loans (annualized) | (0.08)% | (0.24)% | (0.55)% | (1.15)% | | Allowance for credit losses to total loans | 1.33% | 1.93% | 1.33% | 1.93% | | Allowance for credit losses to nonaccrual loans | 32.15% | 40.11% | 32.15% | 40.11% | - The reduction in net charge-offs for both periods was primarily driven by a **$2.7 million** decrease in charge-offs related to purchased unsecured consumer loans as the portfolio balances declined[219](index=219&type=chunk) [Non-performing Assets](index=67&type=section&id=Non-performing%20Assets) Total non-performing assets decreased to **$26.8 million** at June 30, 2025, with non-accrual loans at **$24.2 million** and an ACL to non-accrual loans ratio of **32.15%** | Non-performing Asset (In thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total non-accruing loans | $24,246 | $25,871 | | Other real estate owned | $2,590 | $2,843 | | Total nonperforming assets | $26,836 | $28,714 | | Nonperforming assets to total assets | 2.89% | 2.84% | | Nonperforming loans to total loans, net | 4.18% | 3.69% | - Non-accrual loans at June 30, 2025, comprised **166 borrowers**, with **14 individually evaluated loans** having a specific reserve of zero, as fair values exceeded recorded investment[224](index=224&type=chunk) [Loans held for sale](index=68&type=section&id=Loans%20held%20for%20sale) SBA loans held for sale were zero, Digital Payments credit card loans increased to **$15.0 million**, and residential mortgage loans decreased to **$0.3 million** following division closure - SBA loans held for sale were **zero** at June 30, 2025 and December 31, 2024[226](index=226&type=chunk) - Digital Payments credit card loans held for sale totaled **$15.0 million** at June 30, 2025, up from **$11.4 million** at December 31, 2024. These are fully cash-secured and sold at par[227](index=227&type=chunk) - Residential mortgage loans held for sale decreased to **$0.3 million** at June 30, 2025, from **$4.3 million** at December 31, 2024, following the closure of the Residential Mortgage Division in April 2025[228](index=228&type=chunk) [Deferred Taxes](index=68&type=section&id=Deferred%20Taxes) Deferred tax assets were zero due to a full valuation allowance, significantly impacting the effective tax benefit rate, while substantial NOLs remain - Deferred tax assets (DTA) were **zero** at June 30, 2025, and December 31, 2024, due to a full valuation allowance recorded against all DTAs[230](index=230&type=chunk) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Effective tax benefit rate | (0.97)% | (23.07)% | (0.61)% | (20.25)% | - Patriot has **$32.9 million** in post-change Federal NOL carryforwards (after §382 limitations) that do not expire, and approximately **$66.7 million** of Connecticut NOLs, mostly expiring between 2030 and 2044[232](index=232&type=chunk)[233](index=233&type=chunk) [Deposits](index=69&type=section&id=Deposits) Total deposits decreased by **$135.7 million** to **$830.9 million** due to management's focus on reducing high-cost non-relationship deposits and IntraFi network sales | Deposit Category (In thousands) | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total non-interest bearing | $106,950 | $119,212 | $(12,262) | (10.29)% | | Total Interest bearing | $723,907 | $847,385 | $(123,478) | (14.57)% | | Total Deposits | $830,857 | $966,597 | $(135,740) | (14.04)% | | Total Digital Payments deposits | $216,865 | $265,542 | $(48,677) | (18.33)% | | Total uninsured deposits | $194,842 | $297,845 | $(103,003) | (34.58)% | | Uninsured deposits to total deposits | 23.45% | 30.81% | N/A | N/A | - The reduction in deposits was primarily driven by management's focus on allowing high-cost non-relationship deposits to decrease, along with **$28.7 million** in deposits sold through the IntraFi network[235](index=235&type=chunk) - Excluding Digital Payments deposits, the non-GAAP uninsured deposits to total deposits ratio was **16.02%** at June 30, 2025, compared to **15.80%** at December 31, 2024[241](index=241&type=chunk) [Borrowings](index=70&type=section&id=Borrowings) Total borrowings decreased to **$22.3 million** due to FHLB advance repayments and note conversions, despite utilizing **$70.0 million** from the Federal Reserve Discount Window | Borrowing Type (In thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total borrowings | $22,300 | $33,100 | | FHLB advances | $0 | $3,000 | | Senior notes, net | $5,803 | $11,861 | | Subordinated debt, net | $8,277 | $9,898 | | Junior subordinated debt, net | $8,152 | $8,147 | | Note payable | $54 | $162 | - Outstanding FHLB advances decreased from **$3.0 million** at December 31, 2024, to **zero** at June 30, 2025. The Company's maximum borrowing capacity with FHLB-B was **$46.5 million** at June 30, 2025[239](index=239&type=chunk)[240](index=240&type=chunk) - The Company borrowed and repaid **$70.0 million** from the Federal Reserve Discount Window during the six months ended June 30, 2025, incurring **$98 thousand** in interest expense[244](index=244&type=chunk) - Senior Notes principal decreased due to **$5.0 million** conversion to common stock in March 2025 and **$1.90 million** conversion in May 2025. Subordinated Notes principal decreased due to **$2.0 million** conversion to common stock in March 2025[198](index=198&type=chunk)[199](index=199&type=chunk)[202](index=202&type=chunk)[250](index=250&type=chunk)[255](index=255&type=chunk) [Equity](index=74&type=section&id=Equity) Shareholders' equity significantly increased by **$61.9 million** to **$66.2 million** at June 30, 2025, driven by capital raises and unrealized gains | Metric (In thousands) | June 30, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Total Shareholders' Equity | $66,201 | $4,265 | $61,936 | | Net capital raise from Private Placement | N/A | N/A | $57,750 | | Net proceeds from registered direct offering | N/A | N/A | $10,470 | | Net unrealized gain in investments | N/A | N/A | $2,200 | | Net loss (6 months ended June 30, 2025) | N/A | N/A | $(7,800) | [Off-Balance Sheet Commitments](index=74&type=section&id=Off-Balance%20Sheet%20Commitments) Off-balance sheet commitments decreased to **$53.7 million**, and the Bank maintains a **$45 million** irrevocable standby letter of credit with Mastercard | Commitment Type (In thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Commitments to lend | $53,700 | $87,600 | | Irrevocable stand-by letter of credit (Mastercard) | $45,000 | $45,000 | [Average Balances](index=75&type=section&id=Average%20Balances) Average interest-earning assets decreased, leading to a decline in net interest income and net interest margin, despite lower average interest-bearing liabilities | Metric (In thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Average Balance - Loans | $657,729 | $805,682 | $683,959 | $823,380 | | Average Balance - Total interest earning assets | $907,636 | $940,060 | $942,363 | $962,443 | | Average Balance - Total interest bearing liabilities | $793,520 | $848,737 | $847,741 | $868,496 | | Net interest income | $4,188 | $5,023 | $8,142 | $10,427 | | Interest margin | 1.85% | 2.14% | 1.74% | 2.17% | | Interest spread | 1.39% | 1.77% | 1.36% | 1.79% | | Change in Net Interest Income (In thousands) | 3 Months Ended June 30, 2025 vs 2024 | 6 Months Ended June 30, 2025 vs 2024 | | :--- | :--- | :--- | | Decrease in net interest income | $(835) | $(2,285) | | Attributable to Volume | $(133) | $(723) | | Attributable to Rate | $(702) | $(1,562) | [Results of Operations](index=77&type=section&id=Results%20of%20Operations) Net interest income and margin declined due to lower loan balances and higher deposit costs, while non-interest income increased and non-interest expenses rose - Net interest income decreased by **$0.8 million** to **$4.2 million** for the three months ended June 30, 2025, and by **$2.3 million** to **$8.1 million** for the six months ended June 30, 2025, compared to the prior year periods[273](index=273&type=chunk)[274](index=274&type=chunk) - The net interest margin declined to **1.85%** (three months) and **1.74%** (six months) for June 30, 2025, primarily due to increased cost of deposits and borrowings, and lower loan interest income[276](index=276&type=chunk) - Non-interest income for the six months ended June 30, 2025, increased to **$4.8 million** (from **$4.3 million** in 2024), primarily due to growth in the Digital Payments Division[281](index=281&type=chunk) - Non-interest expense increased to **$9.7 million** (three months) and **$18.5 million** (six months) for June 30, 2025, mainly due to higher salaries and benefits, and other operating expenses[282](index=282&type=chunk) [Provision for Credit Losses ("PCL")](index=78&type=section&id=Provision%20for%20Credit%20Losses%20(%22PCL%22)) The provision for credit losses decreased to **$1.5 million** for three months and **$2.3 million** for six months ended June 30, 2025, reflecting strategic credit management and a smaller loan portfolio | Metric (In thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Provision for credit losses | $1,524 | $3,092 | $2,257 | $3,750 | | Loan provision | $1,602 | $3,133 | $2,358 | $3,786 | | Off-balance-sheet exposure credit | $(78) | $(41) | $(101) | $(36) | - The loan portfolio declined from **$810.3 million** (June 30, 2024) to **$587.5 million** (June 30, 2025), leading to a lower level of reserves. The ACL for loans outstanding decreased from **$13.8 million** to **$7.8 million**[279](index=279&type=chunk) - Purchased unsecured consumer loans decreased from **$32.3 million** (June 30, 2024) to **$12.4 million** (June 30, 2025), with corresponding reserves falling from **$4.6 million** to **$2.7 million**[280](index=280&type=chunk) [Non-interest income](index=78&type=section&id=Non-interest%20income) Non-interest income remained stable at **$2.0 million** for the three months but increased to **$4.8 million** for the six months ended June 30, 2025, driven by the Digital Payments Division | Metric (In thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Non-interest income | $2,030 | $2,063 | $4,758 | $4,310 | - The increase in non-interest income for the six months ended June 30, 2025, is primarily attributed to the growth in the income from the Bank's Digital Payments Division[281](index=281&type=chunk) [Non-interest expense](index=78&type=section&id=Non-interest%20expense) Non-interest expense increased to **$9.7 million** for three months and **$18.5 million** for six months ended June 30, 2025, primarily due to higher salaries and benefits | Metric (In thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Non-interest expense | $9,744 | $7,999 | $18,469 | $15,225 | | Salaries and benefits | $5,242 | $4,623 | $9,753 | $8,779 | | Other operating expense | $1,274 | $723 | $2,264 | $1,313 | - The increase in 2025 is primarily attributed to the higher salaries and benefits, along with other operating expense[282](index=282&type=chunk) [Provision for income taxes](index=78&type=section&id=Provision%20for%20income%20taxes) The Company reported a significantly lower benefit for income taxes due to a change in the valuation allowance against deferred tax assets | Metric (In thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Benefit for income taxes | $(49) | $(924) | $(48) | $(858) | - The Company's effective tax benefit rate for the three and six months ended June 30, 2025, was affected by the change in the valuation allowance[231](index=231&type=chunk) [Liquidity](index=79&type=section&id=Liquidity) On-hand liquidity increased by **$29.2 million** to **$193.3 million**, and total liquidity rose to **$260.1 million**, with the Private Placement significantly alleviating liquidity risk | Metric (In thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total on-hand liquidity | $193,265 | $164,042 | | Total borrowing capacity | $179,617 | $188,136 | | Total liquidity | $260,089 | $234,017 | | On-hand liquidity to total liabilities | 22.38% | 16.27% | | Total liquidity to total liabilities | 30.11% | 23.22% | - On-hand liquidity increased primarily due to higher cash balances maintained after the completion of the Private Placement as the risk of deposit flight subsided[285](index=285&type=chunk) - The Private Placement on March 20, 2025, provided additional liquidity and alleviated liquidity risk, with amendments to Senior and Subordinated Notes deferring interest payments until 2026 and extending maturity dates[287](index=287&type=chunk) [Regulatory Capital Requirements](index=80&type=section&id=Regulatory%20Capital%20Requirements) The Bank's capital ratios now exceed OCC Agreement minimums following a **$49.5 million** capital infusion, though it remains 'adequately capitalized' due to agreement terms | Capital Ratio | Patriot National Bancorp, Inc. (June 30, 2025) | Patriot Bank, N.A. (June 30, 2025) | Patriot National Bancorp, Inc. (Dec 31, 2024) | Patriot Bank, N.A. (Dec 31, 2024) | | :--- | :--- | :--- | :--- | :--- | | Total Capital (to risk weighted assets) | 16.48% | 16.34% | 6.07% | 7.71% | | Individual minimum capital ratio (Bank) | N/A | 11.50% | N/A | 11.50% | | Tier 1 Capital (to risk weighted assets) | 14.41% | 15.61% | 4.57% | 7.58% | | Individual minimum capital ratio (Bank) | N/A | 10.00% | N/A | 10.00% | | Common Equity Tier 1 Capital (to risk weighted assets) | 13.14% | 15.61% | 3.48% | 7.58% | | Individual minimum capital ratio (Bank) | N/A | 10.00% | N/A | 10.00% | | Tier 1 Leverage Capital (to average assets) | 9.32% | 10.10% | 3.50% | 5.79% | | Individual minimum capital ratio (Bank) | N/A | 9.00% | N/A | 9.00% | - As of December 31, 2024, the Bank did not meet any of its regulatory capital requirements. On January 14, 2025, the Bank entered into an agreement with the OCC, which terminated previously established IMCRs[295](index=295&type=chunk) - As of June 30, 2025, the Private Placement proceeds infused **$49.5 million** in capital into the Bank, resulting in capital ratios exceeding the minimums required by the OCC Agreement. However, the Bank remains classified as **'adequately capitalized'** due to the agreement's terms[296](index=296&type=chunk) [Item 3: Quantitative and Qualitative Disclosures about Market Risk](index=82&type=section&id=Item%203%3A%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The Company's primary market risk is interest rate risk, managed through asset/liability structuring and simulation analyses to assess impact on net interest income and net portfolio value [Interest Rate Risk Management](index=82&type=section&id=Interest%20Rate%20Risk%20Management) Patriot's market risk is primarily interest rate risk, managed by ALCO committees to maximize profitability and minimize exposure to rate fluctuations - The Company's market risk is primarily limited to interest rate risk, managed by the Management Asset and Liability Committee and the Board Asset and Liability Committee (**ALCO**)[297](index=297&type=chunk)[299](index=299&type=chunk) - Management uses interest income simulation and gap analysis to monitor interest rate sensitivity, aiming to moderate the effects of interest rate fluctuations on net interest income[300](index=300&type=chunk)[301](index=301&type=chunk) [Impact of Inflation and Changing Prices](index=83&type=section&id=Impact%20of%20Inflation%20and%20Changing%20Prices) Patriot's performance is more significantly impacted by interest rates than general inflation, though inflation can affect loan collateral values and future earnings - Interest rates have a more significant impact on a financial institution's performance than general inflation, as virtually all assets and liabilities are monetary[305](index=305&type=chunk) - Inflation can directly affect the value of loan collateral, especially real estate, and could significantly impact the Company's earnings in future periods[305](index=305&type=chunk) [Item 4: Disclosure Controls and Procedures](index=84&type=section&id=Item%204%3A%20Disclosure%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025, with no material changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=84&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Patriot's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025 - Patriot's disclosure controls and procedures were evaluated and deemed effective at the **reasonable assurance level** as of June 30, 2025[307](index=307&type=chunk) [Changes in Internal Control Over Financial Reporting](index=84&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) No material changes in the Company's internal control over financial reporting occurred during the fiscal quarter ended June 30, 2025 - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[308](index=308&type=chunk) [Limitations on the Effectiveness of Controls](index=84&type=section&id=Limitations%20on%20the%20Effectiveness%20of%20Controls) Internal controls have inherent limitations, meaning they may not prevent or detect all misstatements and offer only reasonable assurance - Internal controls over financial reporting have inherent limitations and may not prevent or detect all misstatements, offering only **reasonable assurance**[309](index=309&type=chunk) PART II - OTHER INFORMATION [Item 1: Legal Proceedings](index=85&type=section&id=Item%201%3A%20Legal%20Proceedings) Patriot is not involved in any material legal proceedings beyond routine litigation incidental to its business - Patriot has no pending legal proceedings other than ordinary routine litigation incidental to its business[310](index=310&type=chunk) - Management believes the ultimate disposition of these routine legal matters will not have a **material adverse effect** on the consolidated financial condition, results of operations, or liquidity[310](index=310&type=chunk) [Item 5: Other Information](index=85&type=section&id=Item%205%3A%20Other%20Information) This section states that there is no other information to report - No other information is reported in this section[311](index=311&type=chunk) [Item 6: Exhibits](index=86&type=section&id=Item%206%3A%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, regulatory agreements, and equity incentive plans - Exhibits include Amended and Restated Certificate of Incorporation and By-Laws, regulatory agreements (OCC), amendments to Senior and Subordinated Notes, various Securities Purchase Agreements, and the 2025 Omnibus Equity Incentive Plan[313](index=313&type=chunk) SIGNATURES [SIGNATURES](index=88&type=section&id=SIGNATURES)

Core Viewpoint - Patriot National Bancorp, Inc. has successfully completed a registered direct offering of 8,524,160 shares at a price of $1.25 per share, raising gross proceeds of $10,655,200, which strengthens the bank's capital base and enhances its strategic objectives [1][3]. Group 1: Offering Details - The registered direct offering follows a previous private placement on March 20, 2025, which raised over $50 million from accredited investors [2]. - The shares were offered under a shelf registration statement on Form S-3, effective since May 22, 2025 [3]. Group 2: Management Commentary - Steven Sugarman, President of Patriot National Bancorp, expressed satisfaction with the strong investor interest and emphasized the importance of the offering in reinforcing the bank's balance sheet and operational flexibility [3]. Group 3: Advisory and Legal Counsel - Performance Trust Capital Partners, LLC acted as the capital markets adviser, while Blank Rome LLP and Robinson & Cole LLP served as legal counsel for the company [4].

STAMFORD, Conn., May 19, 2025 (GLOBE NEWSWIRE) -- Patriot Bank, N.A. ("Patriot Bank"), the wholly owned subsidiary of Patriot National Bancorp, Inc. (NASDAQ: PNBK), is pleased to announce the election of Richard Smith, Jeffrey Seabold and Thedora Nickel to serve on the Patriot Bank's Board of Directors and the appointment of the following leaders to the management team: These appointments strengthen Patriot Bank's leadership team as the organization focuses on delivering exceptional banking services to high ...

[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section presents the Company's unaudited consolidated financial statements, management's discussion and analysis, and disclosures on market risk and internal controls [Item 1: Consolidated Financial Statements](index=4&type=section&id=Item%201%3A%20Consolidated%20Financial%20Statements) This section presents the unaudited consolidated financial statements of Patriot National Bancorp, Inc. and its subsidiaries for the three months ended March 31, 2025 and 2024, including balance sheets, statements of operations, comprehensive loss, shareholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial instrument details [Consolidated Balance Sheets (Unaudited)](index=4&type=section&id=Consolidated%20Balance%20Sheets%20(Unaudited)) This section provides a snapshot of the Company's financial position, detailing assets, liabilities, and shareholders' equity at specific dates | Metric (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :-------------------- | :------------- | :---------------- | :--------- | :--------- | | Total assets | $956,612 | $1,012,292 | $(55,680) | (5.50)% | | Total liabilities | $899,466 | $1,008,027 | $(108,561) | (10.77)% | | Total shareholders' equity | $57,146 | $4,265 | $52,881 | 1240.00% | [Consolidated Statements of Operations (Unaudited)](index=6&type=section&id=Consolidated%20Statements%20of%20Operations%20(Unaudited)) This section details the Company's revenues, expenses, and net loss for the three-month periods, highlighting operational performance | Metric (In thousands, except per share) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Total interest and dividend income | $12,548 | $14,001 | $(1,453) | (10.38)% | | Total interest expense | $8,594 | $8,597 | $(3) | (0.03)% | | Net interest income | $3,954 | $5,404 | $(1,450) | (26.83)% | | Provision for credit losses | $733 | $658 | $75 | 11.40% | | Total non-interest income | $2,728 | $2,247 | $481 | 21.41% | | Total non-interest expense | $8,725 | $7,226 | $1,499 | 20.74% | | Net loss | $(2,777) | $(299) | $(2,478) | 828.76% | | Basic loss per share | $(0.21) | $(0.08) | $(0.13) | 162.50% | | Diluted loss per share | $(0.21) | $(0.08) | $(0.13) | 162.50% | [Consolidated Statements of Comprehensive Loss (Unaudited)](index=9&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Loss%20(Unaudited)) This section presents the Company's net loss and other comprehensive income items, such as unrealized gains or losses on securities | Metric (In thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :-------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Net loss | $(2,777) | $(299) | $(2,478) | 828.76% | | Unrealized holding gain (loss) on securities, net of tax | $1,449 | $(471) | $1,920 | -407.64% | | Comprehensive loss | $(1,328) | $(770) | $(558) | 72.47% | [Consolidated Statements of Shareholders' Equity (Unaudited)](index=10&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity%20(Unaudited)) This section details changes in the Company's shareholders' equity, including net loss, stock issuances, and other comprehensive income | Metric (In thousands) | Balance at December 31, 2024 | Balance at March 31, 2025 | Change ($) | Change (%) | | :-------------------- | :--------------------------- | :------------------------ | :--------- | :--------- | | Total Shareholders' Equity | $4,265 | $57,146 | $52,881 | 1240.00% | | Preferred stock issuance | $0 | $5,099 | $5,099 | N/A | | Common stock issuance | $0 | $48,929 | $48,929 | N/A | | Net loss | $(2,777) | $(2,777) | $0 | 0.00% | | Unrealized holding gain on available-for-sale securities, net of tax | $0 | $1,449 | $1,449 | N/A | [Consolidated Statements of Cash Flows (Unaudited)](index=12&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) This section outlines the Company's cash inflows and outflows from operating, investing, and financing activities for the periods presented | Metric (In thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :-------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Net cash (used in) provided by operating activities | $(5,811) | $1,799 | $(7,610) | -423.01% | | Net cash provided by investing activities | $34,261 | $43,472 | $(9,211) | -21.19% | | Net cash used in financing activities | $(54,859) | $(19,032) | $(35,827) | 188.24% | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(26,409) | $26,239 | $(52,648) | -200.65% | | Cash, cash equivalents and restricted cash at end of period | $136,201 | $92,775 | $43,426 | 46.81% | [Notes to Consolidated Financial Statements (Unaudited)](index=14&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) This section provides detailed disclosures and explanations for the consolidated financial statements, covering accounting policies, specific financial instruments like securities, loans, deposits, and derivatives, as well as share-based compensation, earnings per share, commitments, regulatory matters, fair value measurements, and segment information [Note 1. Basis of Financial Statement Presentation](index=14&type=section&id=Note%201.%20Basis%20of%20Financial%20Statement%20Presentation) This note outlines the accounting principles and estimation methods used in preparing the unaudited interim financial statements - The unaudited interim condensed Consolidated Financial Statements are prepared in accordance with SEC rules and US GAAP, omitting certain disclosures normally included in annual statements. **Management's estimates and assumptions are critical**, particularly for allowance for credit losses, investment securities valuation, deferred tax assets, derivatives, and servicing assets[25](index=25&type=chunk)[27](index=27&type=chunk) [Note 2. Summary of Significant Accounting Policies and Transactions](index=14&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies%20and%20Transactions) This note details key accounting policies and significant transactions, including recent stock issuances and evaluations of new accounting standards - The Company completed a **$5.45 million** private placement of Series A Non-Cumulative Perpetual Convertible Preferred Stock on March 20, 2025, convertible into **7,266,560 shares** of Common Stock[31](index=31&type=chunk)[32](index=32&type=chunk) - The Company is evaluating the impact of recently issued accounting standards (ASU 2023-06, ASU 2023-09, ASU 2024-01, ASU 2024-03, ASU 2025-01) on its financial condition, results of operations, and disclosures, with most not expected to have a material impact on financial statements but potentially affecting disclosures[33](index=33&type=chunk)[34](index=34&type=chunk)[35](index=35&type=chunk)[36](index=36&type=chunk) [Note 3. Available-for-Sale Securities](index=16&type=section&id=Note%203.%20Available-for-Sale%20Securities) This note provides details on the Company's available-for-sale securities, including their fair value, unrealized losses, and pledging status | Metric (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :-------------------- | :------------- | :---------------- | :--------- | :--------- | | Amortized Cost | $99,457 | $100,247 | $(790) | (0.79)% | | Gross Unrealized Losses | $(18,806) | $(20,255) | $1,449 | (7.15)% | | Fair Value | $80,651 | $79,992 | $659 | 0.82% | - All available-for-sale securities had unrealized losses, with an aggregate decline of **18.9%** at March 31, 2025, and **20.2%** at December 31, 2024, from their amortized cost. No allowance for credit losses was recognized as the Company does not believe any debt securities are credit impaired and does not intend to sell them before recovery of amortized cost[37](index=37&type=chunk)[38](index=38&type=chunk)[40](index=40&type=chunk) - As of March 31, 2025, **$80.7 million** of available-for-sale securities were pledged to FHLB or FRB, compared to **$60.2 million** at December 31, 2024, primarily to secure borrowings[41](index=41&type=chunk) [Note 4. Loans Receivable and Allowance for Credit Losses](index=18&type=section&id=Note%204.%20Loans%20Receivable%20and%20Allowance%20for%20Credit%20Losses) This note details the composition of the loan portfolio, changes in the allowance for credit losses, and information on non-accrual loans | Loan Portfolio Segment (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :------------------------------------ | :------------- | :---------------- | :--------- | :--------- | | Commercial Real Estate | $401,403 | $419,489 | $(18,086) | (4.31)% | | Residential Real Estate | $90,753 | $92,215 | $(1,462) | (1.59)% | | Commercial and Industrial | $122,375 | $129,608 | $(7,233) | (5.58)% | | Consumer and Other | $53,498 | $59,973 | $(6,475) | (10.79)% | | Construction | $3,823 | $3,830 | $(7) | (0.18)% | | Construction to Permanent - CRE | $2,357 | $2,357 | $0 | 0.00% | | Loans receivable, gross | $674,209 | $707,472 | $(33,263) | (4.70)% | | Allowance for credit losses | $(6,729) | $(7,305) | $576 | (7.89)% | | Loans receivable, net | $667,480 | $700,167 | $(32,687) | (4.67)% | | ACL Activity (In thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :-------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Beginning Balance | $7,305 | $15,925 | $(8,620) | (54.13)% | | Charge-offs | $(1,670) | $(3,112) | $1,442 | (46.33)% | | Recoveries | $338 | $311 | $27 | 8.68% | | Provisions (credits) | $756 | $653 | $103 | 15.77% | | Ending Balance | $6,729 | $13,777 | $(7,048) | (51.16)% | - The Company adopted the CECL methodology on January 1, 2023, for estimating expected credit losses over the life of financial assets, using PD and LGD models for pooled loans and individual evaluations for loans not sharing similar risk characteristics[66](index=66&type=chunk)[67](index=67&type=chunk) - Non-accrual loans increased to **$29.7 million** at March 31, 2025, from **$25.9 million** at December 31, 2024. If these loans had been performing, an additional **$1.2 million** in interest income would have been recognized for the three months ended March 31, 2025, compared to **$573,000** in the prior year[81](index=81&type=chunk)[83](index=83&type=chunk) [Note 5. Loans Held for Sale](index=32&type=section&id=Note%205.%20Loans%20Held%20for%20Sale) This note provides information on loans designated for sale, including SBA, Digital Payments credit card, and residential mortgage loans - SBA loans held for sale were **zero** at March 31, 2025, and December 31, 2024. The Company generally sells the guaranteed portion of SBA loans and retains servicing rights[92](index=92&type=chunk)[93](index=93&type=chunk) - Digital Payments credit card loans held for sale increased to **$17.6 million** at March 31, 2025, from **$11.4 million** at December 31, 2024. These loans are fully cash-secured by deposits and sold at par, resulting in no servicing asset or gain/loss on sale[96](index=96&type=chunk) - Residential mortgage loans held for sale decreased to **$3.2 million** at March 31, 2025, from **$4.3 million** at December 31, 2024. A gain on sale of **$43,000** and a servicing asset of **$50,000** were recognized for the three months ended March 31, 2025. The Residential Mortgage Division was closed in April 2025[97](index=97&type=chunk)[200](index=200&type=chunk) [Note 6. Deposits](index=33&type=section&id=Note%206.%20Deposits) This note details the composition of the Company's deposits, including non-interest bearing, interest bearing, and Digital Payments deposits | Deposit Category (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :------------------------------ | :------------- | :---------------- | :--------- | :--------- | | Non-interest bearing deposits | $80,363 | $119,212 | $(38,849) | (32.59)% | | Interest bearing deposits | $782,071 | $847,385 | $(65,314) | (7.71)% | | Total deposits | $862,434 | $966,597 | $(104,163) | (10.78)% | - Digital Payments deposits, included in non-interest bearing, interest bearing DDA, and money market deposits, decreased from **$265.5 million** at December 31, 2024, to **$161.1 million** at March 31, 2025[100](index=100&type=chunk) - As of March 31, 2025, **$116.9 million** in deposits were sold through the IntraFi network, compared to no such sales at December 31, 2024[100](index=100&type=chunk)[206](index=206&type=chunk) [Note 7. Derivatives](index=34&type=section&id=Note%207.%20Derivatives) This note describes the Company's use of interest rate swap derivatives to manage risk for commercial lending customers - Patriot uses interest rate swap derivatives, not designated as hedging instruments, to manage risk for commercial lending customers. These swaps are offset by third-party swaps to minimize net risk exposure[102](index=102&type=chunk) | Derivative (In thousands) | Notional Amount (March 31, 2025) | Fair Value (March 31, 2025) | Notional Amount (December 31, 2024) | Fair Value (December 31, 2024) | | :------------------------ | :------------------------------- | :-------------------------- | :---------------------------------- | :----------------------------- | | 3rd party interest rate swap | $1,280 | $62 | $1,290 | $83 | | Customer interest rate swap | $1,280 | $(62) | $1,290 | $(83) | - No net gain or loss was recognized in other noninterest income from these swaps for the three months ended March 31, 2025 and 2024[103](index=103&type=chunk) [Note 8. Share-Based Compensation and Employee Benefit Plan](index=36&type=section&id=Note%208.%20Share-Based%20Compensation%20and%20Employee%20Benefit%20Plan) This note details share-based compensation expenses, the new equity incentive plan, and contributions to the 401(k) plan - The Company recognized **$181,000** in total share-based compensation expense for the three months ended March 31, 2025, compared to **$24,000** for the same period in 2024[110](index=110&type=chunk)[111](index=111&type=chunk) - The 2025 Omnibus Equity Incentive Plan was approved by the Board, contingent on shareholder approval, authorizing awards up to **20%** of outstanding common stock. RSUs for **4,049,593 shares** were granted under an employment agreement, vesting monthly and settled in cash or common stock based on shareholder approval[112](index=112&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk) - Patriot made matching contributions of **$92,000** to its 401(k) Plan for the three months ended March 31, 2025, an increase from **$80,000** in the prior year[115](index=115&type=chunk) [Note 9. Earnings per share](index=38&type=section&id=Note%209.%20Earnings%20per%20share) This note presents the calculation of basic and diluted loss per share, considering the impact of recent stock issuances | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :----- | :-------------------------------- | :-------------------------------- | | Net loss attributable to Common shareholders | $(2,777) | $(299) | | Weighted average shares outstanding | 13,289,644 | 3,976,073 | | Basic loss per share of common stock | $(0.21) | $(0.08) | | Diluted loss per share of common stock | $(0.21) | $(0.08) | - The Private Placement on March 20, 2025, significantly impacted shares outstanding, with the issuance of **60,400,106 shares** of Common Stock and **90,832 shares** of Series A Preferred Stock (convertible into **7,266,560 Common Stock shares**). Additionally, **$7.0 million** of debt was converted into **9,333,334 shares** of Common Stock[117](index=117&type=chunk) [Note 10. Commitments and Contingencies](index=40&type=section&id=Note%2010.%20Commitments%20and%20Contingencies) This note outlines the Company's off-balance sheet commitments, including unused lines of credit, construction loans, and standby letters of credit | Commitment (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :------------------------ | :------------- | :---------------- | :--------- | :--------- | | Unused lines of credit | $54,251 | $61,910 | $(7,659) | (12.37)% | | Undisbursed construction loans | $576 | $860 | $(284) | (32.00)% | | Home equity lines of credit | $25,024 | $24,476 | $548 | 2.24% | | Future loan commitments | $936 | $325 | $611 | 188.00% | | Total commitments to extend credit | $80,787 | $87,571 | $(6,784) | (7.75)% | - Patriot maintains an allowance for credit loss of **$159,000** for unfunded commitments at March 31, 2025, down from **$182,000** at December 31, 2024[123](index=123&type=chunk) - The Bank has an irrevocable standby letter of credit for **$45 million** with Mastercard, issued by FHLB of Boston, extended to April 30, 2026[125](index=125&type=chunk) [Note 11. Regulatory and Operational Matters](index=42&type=section&id=Note%2011.%20Regulatory%20and%20Operational%20Matters) This note discusses regulatory agreements, capital requirements, and the impact of recent capital raises on the Bank's regulatory status - On January 14, 2025, the Bank entered into an agreement with the OCC, requiring actions in strategic planning, capital planning, BSA/AML risk management, payment activities oversight, credit administration, and concentrations risk management[130](index=130&type=chunk) - The OCC terminated previously established individual minimum capital ratios (IMCR) on January 17, 2025, following the Bank's entry into the OCC Agreement[131](index=131&type=chunk) - As of March 31, 2025, the Private Placement resulted in the Bank's capital ratios exceeding both standard "well capitalized" levels and the higher minimums set forth in the Formal Agreement. However, the Bank remains classified as "adequately capitalized" due to the specific terms of that agreement[132](index=132&type=chunk) | Capital Ratio | Patriot National Bancorp, Inc. (March 31, 2025) | Patriot Bank, N.A. (March 31, 2025) | Patriot National Bancorp, Inc. (December 31, 2024) | Patriot Bank, N.A. (December 31, 2024) | | :------------ | :---------------------------------------------- | :---------------------------------- | :------------------------------------------------- | :------------------------------------- | | Total Capital | 13.41% | 14.13% | 6.07% | 7.71% | | Tier 1 Capital | 11.72% | 13.62% | 4.57% | 7.58% | | Common Equity Tier 1 Capital | 10.58% | 13.62% | 3.48% | 7.58% | | Tier 1 Leverage Capital | 7.95% | 9.23% | 3.50% | 5.79% | [Note 12. Fair Value and Interest Rate Risk](index=44&type=section&id=Note%2012.%20Fair%20Value%20and%20Interest%20Rate%20Risk) This note discusses the Company's fair value measurements and strategies for managing interest rate risk through asset and liability matching - Patriot measures certain financial assets and liabilities at fair value, which can cause fluctuations in carrying value. The fair value hierarchy (Level 1, 2, 3) prioritizes observable inputs[134](index=134&type=chunk)[136](index=136&type=chunk)[137](index=137&type=chunk)[140](index=140&type=chunk) | Financial Asset/Liability (In thousands) | Fair Value Hierarchy | Carrying Amount (March 31, 2025) | Estimated Fair Value (March 31, 2025) | Carrying Amount (December 31, 2024) | Estimated Fair Value (December 31, 2024) | | :--------------------------------------- | :------------------- | :------------------------------- | :------------------------------------ | :---------------------------------- | :--------------------------------------- | | Total Financial Assets | | $919,766 | $899,285 | $974,257 | $950,077 | | Total Financial Liabilities | | $887,247 | $887,156 | $1,001,165 | $1,000,091 | | Level 3 Available-for-Sale Securities (In thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Beginning balance | $11,123 | $10,262 | | Unrealized loss | $(155) | $(73) | | Ending balance | $10,968 | $10,189 | - Management attempts to mitigate interest rate risk by matching maturities of financial assets and liabilities, monitoring market rates, and adjusting terms of new loans and deposits[163](index=163&type=chunk) [Note 13. Segment Information](index=52&type=section&id=Note%2013.%20Segment%20Information) This note identifies Community Banking as the Company's sole reportable business segment, with all operations being domestic - Patriot's only reportable business segment is Community Banking, with financial performance evaluated on a company-wide basis using consolidated net income as a benchmark. All operations are domestic[164](index=164&type=chunk) [Note 14. Subsequent Events](index=52&type=section&id=Note%2014.%20Subsequent%20Events) This note confirms that no material recognizable or non-recognizable subsequent events were identified through the financial statement issuance date - The Company evaluated all events through the financial statement issuance date and found no material recognizable or non-recognizable subsequent events[166](index=166&type=chunk) [Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations](index=53&type=section&id=Item%202%3A%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial performance and condition, highlighting key trends, drivers, and strategic actions for the quarter ended March 31, 2025, compared to the prior year. It covers critical accounting policies, a summary of results, detailed financial condition, average balances, results of operations, liquidity, and regulatory capital requirements ["Safe Harbor" Statement Under Private Securities Litigation Reform Act of 1995](index=53&type=section&id=Safe%20Harbor%22%20Statement%20Under%20Private%20Securities%20Litigation%20Reform%20Act%20of%201995) This statement cautions that forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially - This section contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially. Key risks include changes in interest rates, governmental monetary policy, regulations, competition, economic conditions, real estate values, loan quality, demand for loans/deposits, accounting standards, and technological changes[167](index=167&type=chunk)[168](index=168&type=chunk) [Critical Accounting Policies](index=55&type=section&id=Critical%20Accounting%20Policies) This section identifies the allowance for credit losses as a critical accounting policy due to its subjective and complex estimation requirements - The allowance for credit losses is identified as one of the Company's most critical accounting policies due to the subjective and complex judgments required for inherently uncertain estimates[170](index=170&type=chunk) [Summary](index=55&type=section&id=Summary) This section provides an overview of the Company's financial performance, including net loss, net interest income, and the impact of a recent private placement | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :----- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Net loss | $(2,800) | $(299) | $(2,501) | 836.45% | | Basic and diluted loss per share | $(0.21) | $(0.08) | $(0.13) | 162.50% | - Net interest income declined by **$1.5 million** due to an intentional decline in loan balances, with gross loans decreasing by **$33.3 million** from December 31, 2024, to March 31, 2025, as the Company restricted loan growth to strengthen capital ratios[172](index=172&type=chunk) - The Company completed a **$57.8 million** private placement on March 20, 2025, issuing **60,400,106 shares** of Common Stock and **90,832 shares** of Series A Preferred Stock. Additionally, **$7.0 million** of subordinated and senior notes were converted into **9,333,334 shares** of Common Stock[174](index=174&type=chunk)[175](index=175&type=chunk)[176](index=176&type=chunk) - The Private Placement resulted in capital ratios exceeding the minimums required by the OCC Agreement as of March 31, 2025[179](index=179&type=chunk) [FINANCIAL CONDITION](index=56&type=section&id=FINANCIAL%20CONDITION) The Company's financial condition at March 31, 2025, showed a decrease in total assets, primarily driven by a reduction in gross loans and cash. This was offset by a significant increase in shareholders' equity due to a private placement. Deposits also saw a notable decrease, influenced by sales through the IntraFi network [Cash, Cash Equivalents and Restricted Cash](index=56&type=section&id=Cash%2C%20Cash%20Equivalents%20and%20Restricted%20Cash) This section details the changes in the Company's cash and cash equivalents, primarily influenced by deposit reductions and stock issuance proceeds | Metric (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :-------------------- | :------------- | :---------------- | :--------- | :--------- | | Total cash, cash equivalents and restricted cash | $136,201 | $162,610 | $(26,409) | (16.24)% | - The decrease was primarily due to a **$104.2 million** reduction in deposits, partially offset by cash received on loans held for investment and proceeds from common and preferred stock issuance. Excess cash was reduced after the Private Placement[181](index=181&type=chunk) [Investments](index=56&type=section&id=Investments) This section outlines the Company's investment securities, including available-for-sale securities and other investments at cost | Investment Securities (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------- | :---------------- | :--------- | :--------- | | Total available-for-sale securities, at fair value | $80,651 | $79,992 | $659 | 0.82% | | Other investments, at cost | $4,450 | $4,450 | $0 | 0.00% | | Total investment securities | $85,101 | $84,442 | $659 | 0.78% | - The increase in total investments was primarily due to a **$1.4 million** unrealized gain on securities, partially offset by **$827,000** in securities amortization. No available-for-sale securities were sold during the period[182](index=182&type=chunk) [Loans held for investment](index=58&type=section&id=Loans%20held%20for%20investment) This section details the composition and changes in the Company's loan portfolio, reflecting strategic decisions to manage loan growth | Loan Portfolio Segment (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :------------------------------------ | :------------- | :---------------- | :--------- | :--------- | | Loans receivable, gross | $674,209 | $707,472 | $(33,263) | (4.70)% | | Allowance for credit losses | $(6,729) | $(7,305) | $576 | (7.89)% | | Loans receivable, net | $667,480 | $700,167 | $(32,687) | (4.67)% | - The loan portfolio decreased by **$33.3 million**, reflecting the Company's strategy to restrict loan growth and allow paydowns to strengthen capital ratios[184](index=184&type=chunk) | Commercial Real Estate Composition (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :------------------------------------------------ | :------------- | :---------------- | :--------- | :--------- | | CRE owner occupied | $83,845 | $83,934 | $(89) | (0.11)% | | CRE multifamily | $71,155 | $77,443 | $(6,288) | (8.12)% | | CRE office | $50,657 | $55,900 | $(5,243) | (9.38)% | | CRE retail | $46,484 | $46,946 | $(462) | (0.98)% | | Other CRE non-owner occupied | $149,262 | $155,266 | $(6,004) | (3.87)% | | Total Commercial Real Estate | $401,403 | $419,489 | $(18,086) | (4.31)% | | Commercial Real Estate Geographic Concentration (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :----------------------------------------------------------- | :------------- | :---------------- | :--------- | :--------- | | New York | $198,670 | $208,093 | $(9,423) | (4.53)% | | Connecticut | $95,089 | $98,342 | $(3,253) | (3.31)% | | New Jersey | $24,416 | $26,861 | $(2,445) | (9.10)% | | Outside Market | $83,228 | $86,193 | $(2,965) | (3.44)% | | Total Commercial Real Estate | $401,403 | $419,489 | $(18,086) | (4.31)% | [Allowance for Credit Losses ("ACL") on Loans](index=59&type=section&id=Allowance%20for%20Credit%20Losses%20(%22ACL%22)%20on%20Loans) This section analyzes the allowance for credit losses, including its ratio to gross loans and net charge-offs | Metric | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :----- | :------------- | :---------------- | :--------- | :--------- | | Allowance for credit losses | $6,729 | $7,305 | $(576) | (7.89)% | | ACL to gross loans outstanding | 1.00% | 1.03% | -0.03% | (2.91)% | | ACL Ratios | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change (pp) | | :--------- | :-------------------------------- | :-------------------------------- | :---------- | | Net charge-offs to average loans (annualized) | (0.19)% | (0.33)% | 0.14% | | Allowance for credit losses to total loans | 1.00% | 1.70% | -0.70% | | Allowance for credit losses to nonaccrual loans | 22.65% | 72.21% | -49.56% | - Net charge-offs decreased by **$1.5 million** to **$1.3 million**, primarily driven by a **$1.6 million** decrease in charge-offs related to purchased unsecured consumer loans as portfolio balances declined[190](index=190&type=chunk) - The average loan balance decreased by **$130.6 million**, from **$841.1 million** to **$710.5 million**, reflecting the Company's strategy to limit loan growth and reduce the balance sheet[191](index=191&type=chunk) [Non-performing Assets](index=60&type=section&id=Non-performing%20Assets) This section provides an overview of non-performing assets, including non-accrual loans and other real estate owned, and their ratios to total assets and loans | Non-performing Asset (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :---------------------------------- | :------------- | :---------------- | :--------- | :--------- | | Total non-accruing loans | $29,706 | $25,871 | $3,835 | 14.82% | | Other real estate owned | $2,590 | $2,843 | $(253) | (8.90)% | | Total nonperforming assets | $32,296 | $28,714 | $3,582 | 12.47% | | Nonperforming assets to total assets | 3.38% | 2.84% | 0.54% | 19.01% | | Nonperforming loans to total loans, net | 4.45% | 3.69% | 0.76% | 20.59% | - Non-accrual loans increased to **$29.7 million** at March 31, 2025, from **$25.9 million** at December 31, 2024, comprising **268 borrowers**. **14 loans** were individually evaluated with a specific reserve of **$310,000**[196](index=196&type=chunk) [Loans held for sale](index=61&type=section&id=Loans%20held%20for%20sale) This section details the Company's loans held for sale, including SBA, Digital Payments credit card, and residential mortgage loans - SBA loans held for sale remained at **zero** for both periods. Digital Payments credit card loans held for sale increased to **$17.6 million** from **$11.4 million**. Residential mortgage loans held for sale decreased to **$3.2 million** from **$4.3 million**, with the Residential Mortgage Division closing in April 2025[198](index=198&type=chunk)[199](index=199&type=chunk)[200](index=200&type=chunk) [Deferred Taxes](index=61&type=section&id=Deferred%20Taxes) This section discusses the Company's deferred tax assets, valuation allowance, effective tax rate, and net operating loss carryforwards - Deferred tax assets were **zero** at March 31, 2025, and December 31, 2024, due to a full valuation allowance. The effective tax provision rate for the three months ended March 31, 2025, was **zero**, compared to **28.33%** in the prior year, influenced by the valuation allowance[202](index=202&type=chunk)[203](index=203&type=chunk) - Patriot had **$44.2 million** in Federal net operating loss carryforwards (NOL), offset by **$15.5 million** in §382 limitations, resulting in **$28.7 million** post-change NOL that do not expire. Connecticut NOLs totaled **$64.6 million**, expiring between 2030 and 2044[204](index=204&type=chunk)[205](index=205&type=chunk) [Deposits](index=62&type=section&id=Deposits) This section analyzes the Company's deposit base, including non-interest bearing, interest bearing, Digital Payments, and uninsured deposits | Deposit Category (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :------------------------------ | :------------- | :---------------- | :--------- | :--------- | | Total non-interest bearing | $80,363 | $119,212 | $(38,849) | (32.59)% | | Total Interest bearing | $782,071 | $847,385 | $(65,314) | (7.71)% | | Total Deposits | $862,434 | $966,597 | $(104,163) | (10.78)% | | Total Digital Payments deposits | $161,106 | $265,542 | $(104,436) | (39.33)% | | Total retail branch bank deposits | $394,760 | $412,960 | $(18,200) | (4.41)% | | Total uninsured deposits | $246,216 | $297,845 | $(51,629) | (17.33)% | | Uninsured deposits to total deposits | 28.55% | 30.81% | -2.26% | (7.34)% | | Non-GAAP uninsured deposits to total deposits excluding Digital Payments deposits | 13.43% | 15.80% | -2.37% | (15.00)% | - Total deposits decreased by **$104.2 million**, primarily due to **$116.9 million** in deposits sold through the IntraFi network as of March 31, 2025, with no such sales in the prior period[206](index=206&type=chunk) [Borrowings](index=63&type=section&id=Borrowings) This section details the Company's borrowings, including FHLB advances, senior notes, subordinated debt, and junior subordinated debt | Borrowing Type (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :---------------------------- | :------------- | :---------------- | :--------- | :--------- | | FHLB, FRB and correspondent bank borrowings | $0 | $3,000 | $(3,000) | (100.00)% | | Senior notes, net | $7,610 | $11,861 | $(4,251) | (35.84)% | | Subordinated debt, net | $8,112 | $9,898 | $(1,786) | (18.04)% | | Junior subordinated debt, net | $8,149 | $8,147 | $2 | 0.02% | | Note payable | $109 | $162 | $(53) | (32.72)% | | Total borrowings | $23,980 | $33,068 | $(9,088) | (27.48)% | - Outstanding FHLB-B advances decreased from **$3.0 million** to **zero**. The Company's maximum borrowing capacity with FHLB-B was **$50.6 million**, with **$45.0 million** used by a standby letter of credit[211](index=211&type=chunk)[212](index=212&type=chunk) - Senior Notes were amended in March 2025, extending maturity to April 15, 2028, increasing interest to **10.0%** from January 1, 2026, and converting **$5.0 million** into Common Stock[222](index=222&type=chunk) - Subordinated Notes were amended in March 2025 to allow for paid-in-kind (PIK) interest payments through March 30, 2026, and converted **$2.0 million** of principal into Common Stock[227](index=227&type=chunk) - The Company deferred quarterly interest payments on junior subordinated debentures in December 2024 and continued to defer through March 31, 2025[232](index=232&type=chunk) [Equity](index=66&type=section&id=Equity) This section details the significant increase in shareholders' equity, primarily driven by a private placement and unrealized gains on investments | Metric (In thousands) | December 31, 2024 | March 31, 2025 | Change ($) | Change (%) | | :-------------------- | :---------------- | :------------- | :--------- | :--------- | | Total Shareholders' Equity | $4,265 | $57,146 | $52,881 | 1240.00% | - Equity increased by **$52.9 million**, primarily due to a net capital raise of **$54.0 million** from the Private Placement and a **$1.4 million** net unrealized gain in investments, partially offset by a **$2.8 million** net loss[238](index=238&type=chunk) [Off-Balance Sheet Commitments](index=66&type=section&id=Off-Balance%20Sheet%20Commitments) This section summarizes the Company's off-balance sheet commitments, including total commitments to extend credit and standby letters of credit | Commitment (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :------------------------ | :------------- | :---------------- | :--------- | :--------- | | Total commitments to extend credit | $80,787 | $87,571 | $(6,784) | (7.75)% | - The Bank has an irrevocable standby letter of credit for **$45 million** with Mastercard, issued by the FHLB of Boston, extended to April 30, 2026[240](index=240&type=chunk) [Average Balances](index=67&type=section&id=Average%20Balances) This section presents average balances for key financial metrics, including loans, investments, deposits, and borrowings, along with net interest income and margins | Metric (In thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :-------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Average Balance - Loans | $710,481 | $841,077 | $(130,596) | (15.53)% | | Average Balance - Investments | $86,594 | $97,012 | $(10,418) | (10.74)% | | Average Balance - Cash equivalents and restricted cash | $180,402 | $46,736 | $133,666 | 286.00% | | Average Balance - Total interest earning assets | $977,477 | $984,825 | $(7,348) | (0.75)% | | Average Balance - Deposits | $861,878 | $746,101 | $115,777 | 15.52% | | Average Balance - Borrowings | $8,933 | $112,073 | $(103,140) | (92.03)% | | Net interest income | $3,954 | $5,404 | $(1,450) | (26.83)% | | Interest margin | 1.64% | 2.20% | -0.56% | (25.45)% | | Interest spread | 1.34% | 1.82% | -0.48% | (26.37)% | - Net interest income decreased by **$1.5 million**, and net interest margin declined from **2.20%** to **1.64%**, primarily due to increased cost of deposits and other borrowings, partially offset by rising variable rate interest-earning assets, and the lowering of loan balances[244](index=244&type=chunk)[245](index=245&type=chunk) [Results of Operations](index=68&type=section&id=Results%20of%20Operations) The Company experienced a significant increase in net loss for the three months ended March 31, 2025, driven by a decline in net interest income and a substantial rise in non-interest expenses, despite an increase in non-interest income [Provision for Credit Losses ("PCL")](index=68&type=section&id=Provision%20for%20Credit%20Losses%20(%22PCL%22)) This section details the provision for credit losses, reflecting changes in the loan portfolio and allowance for credit losses | Metric (In thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :-------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Provision for credit losses | $733 | $658 | $75 | 11.40% | | PCL on loans | $756 | $653 | $103 | 15.77% | | Reserve for credit losses on unfunded commitments | $(23) | $5 | $(28) | -560.00% | - The Bank selectively managed down its credit exposure in higher-risk areas, leading to a decline in the loan portfolio from **$810.3 million** to **$674.2 million** and a corresponding decrease in the ACL for loans outstanding from **$13.8 million** to **$6.7 million**[247](index=247&type=chunk) [Non-interest income](index=69&type=section&id=Non-interest%20income) This section analyzes the increase in non-interest income, primarily driven by contributions from the Digital Payments division | Metric (In thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :-------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Total non-interest income | $2,728 | $2,247 | $481 | 21.41% | - The increase was primarily driven by a **$794,000** rise in non-interest income from the Bank's Digital Payments division[248](index=248&type=chunk) [Non-interest expense](index=69&type=section&id=Non-interest%20expense) This section details the increase in non-interest expenses, attributed to higher salaries, professional services, regulatory assessments, and OREO expenses | Metric (In thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :-------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Total non-interest expense | $8,725 | $7,226 | $1,499 | 20.74% | - The increase was primarily due to higher salaries and benefits (**$355,000**), professional and other outside services (**$240,000**), regulatory assessments (**$236,000**), and an OREO expense (**$253,000**)[249](index=249&type=chunk) [Provision for income taxes](index=69&type=section&id=Provision%20for%20income%20taxes) This section explains the significant decrease in the provision for income taxes, primarily due to changes in the valuation allowance | Metric (In thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :-------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Provision for income taxes | $1 | $66 | $(65) | (98.48)% | - The provision for income taxes decreased significantly, with the effective tax rate for Q1 2025 being **zero**, compared to **28.33%** in Q1 2024, primarily due to the change in the valuation allowance[250](index=250&type=chunk)[203](index=203&type=chunk) [Liquidity](index=69&type=section&id=Liquidity) This section assesses the Company's liquidity position, including on-hand and total liquidity, and the impact of recent financing activities | Metric (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :-------------------- | :------------- | :---------------- | :--------- | :--------- | | Total on-hand liquidity | $118,505 | $164,042 | $(45,537) | (27.76)% | | Total liquidity | $190,764 | $234,017 | $(43,253) | (18.48)% | | On-hand liquidity to total liabilities | 13.18% | 16.27% | -3.09% | (18.99)% | | Total liquidity to total liabilities | 21.21% | 23.22% | -2.01% | (8.66)% | - On-hand liquidity decreased by **$45.5 million**, mainly due to lower cash balances maintained after the Private Placement, as the risk of deposit flight subsided[253](index=253&type=chunk) - The Private Placement on March 20, 2025, provided additional liquidity to both the Bank and the Company, alleviating liquidity risk and deferring interest payments on Senior and Subordinated Notes until 2026[255](index=255&type=chunk) - Net cash provided by operating activities decreased by **$7.6 million**, investing activities by **$9.2 million**, and financing activities by **$35.8 million**, reflecting reduced loan originations, loan portfolio runoff, and the use of stock issuance proceeds to lower deposits[256](index=256&type=chunk)[257](index=257&type=chunk)[258](index=258&type=chunk) [Regulatory Capital Requirements](index=71&type=section&id=Regulatory%20Capital%20Requirements) This section details the Company's and Bank's capital ratios, highlighting compliance with regulatory requirements following recent capital raises and agreements | Capital Ratio | Patriot National Bancorp, Inc. (March 31, 2025) | Patriot Bank, N.A. (March 31, 2025) | Patriot National Bancorp, Inc. (December 31, 2024) | Patriot Bank, N.A. (December 31, 2024) | | :------------ | :---------------------------------------------- | :---------------------------------- | :------------------------------------------------- | :------------------------------------- | | Total Capital | 13.41% | 14.13% | 6.07% | 7.71% | | Tier 1 Capital | 11.72% | 13.62% | 4.57% | 7.58% | | Common Equity Tier 1 Capital | 10.58% | 13.62% | 3.48% | 7.58% | | Tier 1 Leverage Capital | 7.95% | 9.23% | 3.50% | 5.79% | - As of December 31, 2024, the Bank did not meet any of its regulatory capital requirements. Following an agreement with the OCC on January 14, 2025, and the Private Placement in March 2025, the Bank's capital ratios now exceed the minimums required by the OCC Agreement[264](index=264&type=chunk)[265](index=265&type=chunk) - The OCC terminated the individual minimum capital ratios (IMCR) previously established for the Bank on January 17, 2025, in connection with the OCC Agreement[264](index=264&type=chunk) [Item 3: Quantitative and Qualitative Disclosures about Market Risk](index=73&type=section&id=Item%203%3A%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section discusses the Company's exposure to market risk, primarily interest rate risk, and its strategies to manage it. Management aims to maximize long-term profitability while minimizing interest rate fluctuations through asset/liability repricing balance and monitoring by the Management Asset and Liability Committee (ALCO) [Impact of Inflation and Changing Prices](index=74&type=section&id=Impact%20of%20Inflation%20and%20Changing%20Prices) This section explains how interest rates, rather than general inflation, primarily influence a financial institution's performance, with potential impacts on loan collateral and earnings - Interest rates have a more significant impact on a financial institution's performance than general inflation, as most assets and liabilities are monetary. Inflation can directly affect loan collateral values, particularly real estate, and could significantly impact earnings[276](index=276&type=chunk) [Item 4: Disclosure Controls and Procedures](index=75&type=section&id=Item%204%3A%20Disclosure%20Controls%20and%20Procedures) This section confirms the effectiveness of the Company's disclosure controls and procedures as of March 31, 2025, designed to ensure timely and accurate reporting of required information. It also notes no material changes in internal control over financial reporting during the quarter [Evaluation of Disclosure Controls and Procedures](index=75&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms that management, including the CEO and CFO, assessed the effectiveness of disclosure controls and procedures as of March 31, 2025 - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2025[278](index=278&type=chunk) [Changes in Internal Control Over Financial Reporting](index=75&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section states that no material changes occurred in the Company's internal control over financial reporting during the quarter - There were no material changes in the Company's internal control over financial reporting during the quarter ended March 31, 2025[279](index=279&type=chunk) [Limitations on the Effectiveness of Controls](index=75&type=section&id=Limitations%20on%20the%20Effectiveness%20of%20Controls) This section acknowledges that internal controls have inherent limitations and may not prevent or detect all misstatements, providing only reasonable assurance - Internal controls have inherent limitations and may not prevent or detect all misstatements, providing only reasonable assurance. Effectiveness projections are subject to risks of controls becoming inadequate or compliance deteriorating[280](index=280&type=chunk) [PART II - OTHER INFORMATION](index=76&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section includes disclosures on legal proceedings, other information, and a list of exhibits filed with the report [Item 1: Legal Proceedings](index=76&type=section&id=Item%201%3A%20Legal%20Proceedings) The Company is not involved in any pending legal proceedings, other than routine litigation incidental to its business, which management believes will not have a material adverse effect on its financial condition, results of operations, or liquidity [Item 5: Other Information](index=76&type=section&id=Item%205%3A%20Other%20Information) This section states that there is no other information to report [Item 6: Exhibits](index=77&type=section&id=Item%206%3A%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, amendments to debt agreements, securities purchase agreements, the 2025 Omnibus Equity Incentive Plan, and certifications [SIGNATURES](index=80&type=section&id=SIGNATURES) This section contains the required signatures, certifying the accuracy and completeness of the financial report

Financial Performance - The Company reported a net loss of $39.9 million for the year ended December 31, 2024, leading to a decrease in shareholders' equity from $44.4 million in 2023 to $4.3 million in 2024[164]. - For the year ended December 31, 2024, the Company recorded a net loss of $39.9 million, compared to a net loss of $4.2 million for the year ended December 31, 2023, representing an increase in loss of approximately 850%[170]. - Interest income decreased to $52.4 million in 2024 from $59.0 million in 2023, primarily due to a reduction of $101.3 million in average loan balances[173]. - Net interest income decreased to $20.1 million in 2024 from $28.5 million in 2023, with the net interest margin declining to 2.1% from 2.8%[175]. - Non-interest income increased to $8.4 million in 2024 from $6.0 million in 2023, primarily driven by the digital payments program[178]. - Non-interest expense decreased to $32.1 million in 2024 from $32.7 million in 2023, mainly due to a prior goodwill impairment[179]. - The Company recognized a total income tax expense of $23.8 million for the year ended December 31, 2024, which included $25.1 million from the initial recognition of a full valuation allowance against deferred tax assets[155]. Capital and Liquidity - The Company completed a private placement of $57.75 million, issuing 60,400,106 shares of Common Stock at $0.75 per share and 90,832 shares of Series A Preferred Stock with a liquidation preference of $60 per share[18]. - The Private Placement closing provided additional liquidity and deferred interest payments on senior and subordinated notes until 2026[194]. - The Company has not paid any dividends since 2020 and has temporarily suspended dividend payments[110]. - The Company relies on dividends from the Bank as its primary source of revenue, and restrictions on these payments could materially affect its financial health[84]. - The Company’s total assets decreased by $81.1 million, or 7.4%, from $1.09 billion at December 31, 2023, to $1.01 billion at December 31, 2024[120]. - Cash, cash equivalents, and restricted cash increased by $96.1 million, or 144.4%, from $66.5 million as of December 31, 2023, to $162.6 million as of December 31, 2024[121]. - On-hand liquidity increased by $93.0 million from December 31, 2023, to December 31, 2024, totaling $164.0 million[192]. - Total liquidity as of December 31, 2024, was $234.0 million, up from $191.4 million in 2023, reflecting an increase in cash balances and a reduction in total liabilities[192]. Loan and Credit Quality - Gross loans held for investment declined by $141.4 million, contributing to the overall decrease in total assets[120]. - The loan portfolio declined from $848.9 million as of December 31, 2023, to $707.5 million as of December 31, 2024, indicating a reduction in credit exposure[177]. - The average loan balance decreased by $101.3 million, from $896.5 million for the year ended December 31, 2023, to $795.2 million for the year ended December 31, 2024[135]. - Nonaccrual loans increased to $25.9 million as of December 31, 2024, from $18.1 million as of December 31, 2023, representing a $7.7 million increase[137]. - The allowance for credit losses decreased to $7.3 million at December 31, 2024, compared to $15.9 million at December 31, 2023, primarily due to charge-offs of $13.6 million from two large commercial real estate loans[132]. - Net charge-offs increased to $21.2 million as of December 31, 2024, up from $17.3 million as of December 31, 2023, with a net charge-off to average loans ratio of 2.66%[134]. - The Bank's allowance for credit losses may not be sufficient to cover actual losses, necessitating significant increases in provisions that could materially impact operations and capital adequacy[73]. Regulatory and Compliance - The Company is subject to capital adequacy rules and guidelines issued by the Fed, requiring it to maintain certain minimum ratios of capital to adjusted total assets[40]. - The Bank has adopted the community bank leverage ratio (CBLR) framework, which allows for a simplified measure of capital adequacy, with a Tier 1 leverage ratio requirement of greater than 9%[52]. - As of September 30, 2023, the Bank shifted to the risk-based capital framework, reporting leverage and risk-based capital ratios[52]. - The minimum capital standards under the Prompt Corrective Action (PCA) require a common equity Tier 1 capital to risk-based assets ratio of 4.5%[53]. - The capital conservation buffer requirement was fully implemented at 2.5% on January 1, 2019, limiting capital distributions if not met[55]. - The final rule to strengthen and modernize CRA regulations will take effect on April 1, 2024, with compliance dates staggered between January 1, 2026, and January 1, 2027[50]. - The Bank's Board appointed a Compliance Committee in January 2025 to oversee compliance with the OCC Agreement, which includes maintaining higher capital ratios[205]. Market and Economic Conditions - The economic conditions in Connecticut and New York trade areas significantly impact the Bank's operations due to its limited geographic diversification[60]. - Changes in interest rates may adversely affect the Bank's net interest spread and overall profitability, as the Bank's income is derived from the spread between interest earned and interest paid[66][67]. - Inflationary pressures have risen sharply, impacting the ability of business customers to repay loans, which could adversely affect the Bank's financial condition[69]. - A deterioration in national and regional real estate markets could lead to higher loan delinquencies and increased nonperforming assets, adversely affecting the Bank's financial condition[72]. - Competition in the banking sector is intense, particularly in Fairfield County and New York City, which may limit the Bank's growth and profitability[93]. Operational Developments - The Bank reentered the residential mortgage business in 2024, originating mortgage loans through its Residential Mortgage Division[25]. - The Bank operates eight branch offices, with seven located in Connecticut and one in New York as of December 31, 2024[27]. - The Digital Payments Division (DPD) is an increasing source of lower-cost deposit balances and non-interest income for the Bank[29]. - Total deposits increased by $126.3 million from $840.3 million in 2023 to $966.6 million in 2024, driven by higher deposits in the Digital Payments Division and increased brokered deposits[159]. - Total Digital Payments deposits rose to $265.5 million in 2024, up from $213.4 million in 2023, reflecting a significant growth in this segment[159].

Core Viewpoint - Patriot National Bancorp, Inc. has announced a private placement to raise over $50 million to strengthen its equity capital and balance sheet [1] Group 1: Capital Raise and Financial Strategy - The company has entered into securities purchase agreements to raise over $50 million through the issuance of common stock and non-voting preferred stock [1] - Net proceeds from the offering will be utilized to enhance the equity capital and bolster the balance sheet of both Patriot National Bancorp and its subsidiary, Patriot Bank NA [1] - The capital raise is seen as a positive inflection point for the bank, enabling it to pursue market opportunities [3] Group 2: Leadership Changes - Steven Sugarman has been appointed as the new President and has entered into a long-term employment agreement [2] - The current CEO, David Lowery, will remain in his position until April 15, 2025, to ensure a smooth transition [2] - Lowery expressed pride in leading the successful recapitalization of Patriot Bank and acknowledged the efforts of the employees [3] Group 3: Advisory and Legal Support - Performance Trust Capital Partners, LLC acted as the strategic advisor and placement agent for the private placement [4] - Various law firms provided legal counsel for the transaction, including Michelman & Robinson LLP and Blank Rome LLP [4] Group 4: Future Outlook - The company remains committed to enhancing its digital payments platform and supporting entrepreneurs and business leaders in the tri-state community [8]

Financial Performance - Total interest and dividend income for Q3 2024 was $12,814, a decrease of 15.0% from $15,070 in Q3 2023[14] - Net interest income after provision for credit losses was $3,973 for Q3 2024, compared to $1,837 in Q3 2023, representing a significant increase of 116.0%[14] - The net loss for Q3 2024 was $26,954, compared to a net loss of $3,770 in Q3 2023, indicating a deterioration in performance[14] - Non-interest income totaled $2,115 in Q3 2024, an increase of 80.9% from $1,169 in Q3 2023[14] - The comprehensive loss for Q3 2024 was $24,196, compared to a comprehensive loss of $6,468 in Q3 2023, indicating a worsening financial position[17] - The company reported a basic loss per share of $6.78 for Q3 2024, compared to a loss of $0.95 per share in Q3 2023[14] - The accumulated deficit increased to $77,360 by September 30, 2024, from $50,406 at the end of Q2 2024[19] - The total shareholders' equity decreased to $16,386 as of September 30, 2024, down from $40,527 at the end of Q2 2024[19] - As of September 30, 2024, the company reported a net loss of $30,334,000 compared to a net loss of $5,084,000 for the same period in 2023, indicating a significant increase in losses[27] - The total comprehensive loss for the nine months ended September 30, 2024, was $28,117,000, which includes an unrealized holding gain of $2,217,000 on available-for-sale securities[22] Cash Flow and Expenses - The company’s cash flows from operating activities provided $5,255,000 in 2024, a recovery from a cash outflow of $10,548,000 in 2023[27] - Cash paid for interest increased to $25,182,000 in 2024 from $20,611,000 in 2023, reflecting higher borrowing costs[28] - The total non-interest expense for Q3 2024 was $8,396, slightly up from $8,109 in Q3 2023, reflecting a 3.5% increase[14] - Share-based compensation expense increased from $77,000 in 2023 to $120,000 in 2024, indicating a rise in employee compensation costs[27] Loans and Credit Losses - As of September 30, 2024, total loans receivable, net, amounted to $740.7 million, a decrease from $832.9 million as of December 31, 2023, reflecting a decline of approximately 11%[59] - The allowance for credit losses decreased to $14.98 million as of September 30, 2024, compared to $15.93 million as of December 31, 2023, representing a reduction of approximately 6%[59] - The total allowance for credit losses as of September 30, 2024, was $14,984,000, compared to $25,668,000 as of September 30, 2023[94] - The provision for credit losses for the three months ended September 30, 2024, included a credit on unfunded loan commitments of $58,000[89] - The Company reported charge-offs of $1,512,000 for the three months ended September 30, 2024[92] - The total recoveries for the same period were $423,000[92] - The allowance for credit loss was $177,000 as of September 30, 2024, down from $271,000 as of December 31, 2023[162] Securities and Investments - The total available-for-sale securities amounted to $107.196 million as of September 30, 2024, with gross unrealized losses of $17.651 million, reflecting a decline of 16.8% from the amortized cost[49][51] - The Company does not intend to sell its available-for-sale debt securities and believes it is more likely than not that it will not be required to sell them before recovery of their amortized cost[52] - The fair value of available-for-sale securities was $89,578 thousand as of September 30, 2024, compared to $89,187 thousand on December 31, 2023, showing a slight increase of about 0.4%[206] Capital and Regulatory Compliance - The company’s Tier 1 Capital ratio must be at least 8.0% to be considered "well capitalized" under the regulatory framework[169] - The Bank's common equity tier 1 capital was $64.5 million, or 8.19% of risk-weighted assets, below the required level of 10.00%[175] - The Bank's total risk-based capital was $73.2 million, or 9.29% of risk-weighted assets, which is below the required 11.50%[175] - The actual Tier 1 leverage capital was $64.5 million, or 6.53% of average assets, falling short of the required 9.00%[175] - The Bank significantly reduced its total and risk-based assets during 2024 to work towards achieving individual minimum capital ratios (IMCR) targets[175] Deposits and Funding - Total deposits as of September 30, 2024, were $824.9 million, a decrease from $840.3 million as of December 31, 2023[136] - The Digital Payments Division's deposits totaled approximately $235.1 million as of September 30, 2024, up from $213.4 million as of December 31, 2023[136] Miscellaneous - The Company has not paid any dividends since 2020 and has no current plans to do so[154] - The Company adopted the CECL methodology on January 1, 2023, which estimates expected credit losses over the life of financial assets[81] - The company has implemented strategies to mitigate interest rate risk by matching the maturities of its financial assets and liabilities[205]

Financial Performance - For the three months ended June 30, 2024, total interest and dividend income was $13,217,000, a decrease of 13.5% from $15,309,000 in the same period of 2023[6]. - Net interest income for the same period was $5,023,000, down 34.9% from $7,713,000 year-over-year[6]. - The net loss for the three months ended June 30, 2024, was $3,081,000, compared to a net loss of $615,000 in the same period of 2023[7]. - Basic loss per share for the three months ended June 30, 2024, was $0.77, compared to $0.16 in the same period of 2023[6]. - The total comprehensive loss for the three months ended June 30, 2024, was $3,151,000, compared to $2,256,000 in the same period of 2023[7]. - For the six months ended June 30, 2024, the net loss was $3,380,000 compared to a net loss of $1,314,000 for the same period in 2023, representing a 157% increase in losses year-over-year[17]. - Total comprehensive loss for the first half of 2024 was $3,921,000, which includes an unrealized holding loss on available-for-sale securities of $541,000[14]. Credit Losses and Provisions - The provision for credit losses increased to $3,092,000 for the three months ended June 30, 2024, compared to $1,325,000 in the same period of 2023[6]. - The provision for credit losses for the first half of 2024 was $3,750,000, slightly up from $3,545,000 in the same period of 2023[17]. - The total allowance for credit losses is $14,989,000, with $7,958,000 for individually evaluated loans and $9,272,000 for collectively evaluated loans[63]. - The total ACL for credit losses increased to $14,989,000 as of June 30, 2024, compared to $24,098,000 as of June 30, 2023, reflecting a decrease of approximately 37.9% year-over-year[61]. - The charge-offs for the six months ended June 30, 2024, totaled $5,365,000, indicating a significant increase in losses compared to previous periods[61]. Loan Portfolio and Performance - As of June 30, 2024, total loans receivable, net, amounted to $761.3 million, a decrease of 8.6% from $832.9 million as of December 31, 2023[37]. - The commercial real estate loan portfolio was $458.6 million as of June 30, 2024, down from $472.1 million at the end of 2023, reflecting a decline of 2.3%[37]. - Residential real estate loans decreased to $99.4 million from $106.8 million, a decline of 6.5%[37]. - The company’s construction loans outstanding were $3.8 million as of June 30, 2024, down from $4.3 million at the end of 2023, a decrease of 11.6%[46]. - The total loans receivable gross included $716.854 million in performing loans, $11.308 million in special mention, and $40.948 million in substandard loans[76]. Deposits and Cash Flow - The company experienced a decrease in deposits of $39,409,000 in the first half of 2024, contrasting with an increase of $2,933,000 in 2023[17]. - As of June 30, 2024, total deposits held by Patriot National Bancorp amounted to $800.9 million, a decrease of 4.67% from $840.3 million on December 31, 2023[101]. - Cash provided by operating activities for the first half of 2024 was $7,846,000, up from $3,796,000 in the same period of 2023, indicating a 106% increase[17]. - The company reported a net increase in cash, cash equivalents, and restricted cash of $27,116,000 for the first half of 2024, compared to an increase of $32,316,000 in 2023[17]. Securities and Investments - As of June 30, 2024, total available-for-sale securities amounted to $86.667 million, with gross unrealized losses of $21.474 million, reflecting a decline of 19.9% from the amortized cost[28]. - The amortized cost of U.S. Government agency and mortgage-backed securities was $79.854 million, with unrealized losses of $15.567 million as of June 30, 2024[28]. - The company does not intend to sell the debt securities and believes it is more likely than not that they will not be required to sell them before recovery of their amortized cost[31]. Capital and Regulatory Compliance - As of June 30, 2024, the total capital to risk-weighted assets ratio for Patriot National Bancorp, Inc. was 9.84%, while the Tier 1 capital ratio was 7.66%[128]. - The common equity tier 1 capital ratio for Patriot National Bancorp, Inc. was 6.72% as of June 30, 2024, compared to 10.20% for Patriot Bank, N.A.[128]. - The Bank was notified by the OCC of individual minimum capital ratios, requiring a common equity tier 1 capital ratio of 10.00% and a total risk-based capital ratio of 11.50%[129]. Interest Income and Expense - Total interest expense increased to $8.2 million for the three months ended June 30, 2024, up by $598,000 from $7.6 million in the prior year[202]. - Net interest income decreased by $2.7 million, from $7.7 million in Q2 2023 to $5.0 million in Q2 2024, attributed to lower loan balances and narrower net interest margins[202]. - The total interest income recognized for the six months ended June 30, 2024, was $35.745 million, compared to $21.609 million for the same period in 2023, reflecting an increase of approximately 65.3%[88].

Financial Performance - Total interest and dividend income for Q1 2024 was $14,001,000, an increase of 2.6% from $13,646,000 in Q1 2023[14] - Net interest income after provision for credit losses decreased to $4,746,000 in Q1 2024, down 18.1% from $5,793,000 in Q1 2023[14] - Non-interest income surged to $2,247,000 in Q1 2024, a significant increase of 169.5% compared to $835,000 in Q1 2023[14] - The net loss for Q1 2024 was $299,000, an improvement from a net loss of $699,000 in Q1 2023[14] - Basic loss per share improved to $0.08 in Q1 2024 from $0.18 in Q1 2023[14] - The company reported a comprehensive loss of $770,000 for Q1 2024, compared to a comprehensive income of $548,000 in Q1 2023[15] - For the three months ended March 31, 2024, the company reported a net loss attributable to common shareholders of $299,000, resulting in a basic and diluted loss per share of $0.08, compared to a net loss of $699,000 and a loss per share of $0.18 for the same period in 2023[109] Cash and Liquidity - Cash, cash equivalents, and restricted cash at the end of Q1 2024 totaled $92,775,000, up from $60,252,000 at the end of Q1 2023[19] - Net cash provided by operating activities was $1,799,000 in Q1 2024, compared to a net cash used of $212,000 in Q1 2023[19] - Total assets decreased by $20.2 million to $1.07 billion as of March 31, 2024, primarily due to a $38.5 million decline in loans receivable[159] - Cash, cash equivalents, and restricted cash increased from $66.5 million at December 31, 2023, to $92.8 million at March 31, 2024, reflecting a strategy to enhance balance sheet liquidity[160] Loans and Credit Quality - As of March 31, 2024, total loans receivable, net, amounted to $796.5 million, a decrease from $832.9 million as of December 31, 2023, representing a decline of approximately 4.3%[39] - The allowance for loan and lease losses decreased to $13.8 million as of March 31, 2024, from $15.9 million as of December 31, 2023, indicating a reduction of approximately 13.5%[39] - The total loans receivable, gross, was $810,323,000 as of March 31, 2024, compared to $848,859,000 at December 31, 2023[65] - The total allowance for credit losses decreased to $13,777,000 as of March 31, 2024, from $15,925,000 at December 31, 2023[63] - The total past due loans as of March 31, 2024, amounted to $7.735 million, with $783.509 million classified as current[75] - The total performing loans as of March 31, 2024, were $791.244 million, with $19.079 million classified as non-performing[75] - Nonperforming assets increased to $22.4 million as of March 31, 2024, with a nonperforming assets to total assets ratio of 2.09%[168] Deposits and Borrowings - Total deposits increased to $859,724,000 as of March 31, 2024, compared to $840,311,000 as of December 31, 2023[96] - Interest-bearing deposits totaled $750,459,000 as of March 31, 2024, up from $730,255,000 at the end of 2023[96] - Total borrowings decreased from $201.1 million at December 31, 2023, to $161.1 million as of March 31, 2024[176] - FHLB-B advances decreased from $101.0 million at December 31, 2023, to $61.0 million at March 31, 2024[178] Interest Income and Expense - Total interest expense for the three months ended March 31, 2024, was $8.6 million, which increased by $3.0 million from $5.6 million in the same period of 2023[208] - Net interest income decreased to $5.4 million for the three months ended March 31, 2024, down from $8.0 million in the same period of 2023, reflecting a lower loan balance and narrower net interest margin[208] - The net interest margin was 2.20% for the three months ended March 31, 2024, compared to 3.29% for the same period in 2023, primarily due to increased deposit costs and a decline in loan balances[209] Capital Ratios - As of March 31, 2024, the Total Capital ratio for Patriot National Bancorp, Inc. was 9.95%, while Patriot Bank, N.A. reported a ratio of 11.26%[121] - The Tier 1 Capital ratio for Patriot National Bancorp, Inc. was 7.94% as of March 31, 2024, compared to 10.40% for Patriot Bank, N.A.[121] - The Common Equity Tier 1 (CET1) Capital ratio for Patriot National Bancorp, Inc. was 7.03% as of March 31, 2024, while Patriot Bank, N.A. reported a ratio of 10.40%[121] - The Tier 1 Leverage Capital ratio for Patriot National Bancorp, Inc. was 6.53% as of March 31, 2024, compared to 8.55% for Patriot Bank, N.A.[121] Risk Management - The company has established a risk management strategy involving interest rate swaps with commercial lending customers to minimize net risk exposure[98] - The Company’s commercial and industrial loans are subject to risks including cash flow issues and economic downturns[58] - The estimated credit losses for pooled loans are calculated using a model that incorporates probability of default and loss given default[57] Accounting and Regulatory Changes - The company does not expect the adoption of ASU 2023-06 to impact its financial condition or results of operations but may change certain disclosures[27] - The Company adopted the CECL methodology for estimating expected credit losses starting January 1, 2023, impacting the ACL calculations[56] - The company plans to monitor SEC actions regarding recently issued accounting standards and will prepare for their adoption accordingly[27]

Credit Losses and Allowances - The Company's allowance for credit losses totaled $15.9 million as of December 31, 2023, consisting of $11.7 million for collectively evaluated loans and $4.2 million for individually evaluated loans[211]. - The allowance for credit losses is influenced by various economic indicators, including GDP and unemployment rates[212]. - The allowance for credit losses increased to $15.925 million in 2023 from $10.310 million in 2022, indicating a more cautious approach to credit risk[331]. - The provision for credit losses rose to $7,429 thousand in 2023, compared to $1,885 thousand in 2022, indicating a significant increase in expected credit losses[226]. - The allowance for credit losses may increase due to a decline in loan portfolio performance and higher incurred losses[365]. - The allowance for credit losses on unfunded lending commitments was $271,000 as of December 31, 2023[355]. - The total allowance for credit losses (ACL) increased to $23.3 million post-ASC 326 adoption from $10.3 million pre-adoption, reflecting a significant rise in reserves[260]. - The Company evaluates loans using a probability of default/loss given default (PD/LGD) method, which forecasts expected credit losses over the remaining life of the portfolio[263]. - The Company employs a risk rating system to assess the credit quality of its loan portfolio, with risk ratings reviewed and adjusted as necessary[361]. - The total charge-offs for the year ended December 31, 2023, amount to $(18,417,000)[357]. - The total recorded investment in individually evaluated loans was $17,133,000, with a principal outstanding of $22,535,000 and an allowance of $4,205,000[376]. Financial Performance - The company reported a net loss of $4,179 thousand in 2023, compared to a net income of $6,161 thousand in 2022, indicating a significant downturn[226]. - Net interest income decreased to $28,500 thousand in 2023 from $33,259 thousand in 2022, a decline of about 14.3%[226]. - Total assets increased to $1,093,425 thousand in 2023, up from $1,043,359 thousand in 2022, representing a growth of approximately 4.8%[223]. - Total deposits decreased to $840,311 thousand in 2023, down from $860,446 thousand in 2022, reflecting a reduction of approximately 2.5%[223]. - Interest expense surged to $30,457 thousand in 2023, up from $10,753 thousand in 2022, marking an increase of about 183%[226]. - Non-interest income increased to $6,005 thousand in 2023, up from $3,605 thousand in 2022, representing a growth of approximately 66.7%[226]. - The accumulated deficit increased to $47,026 thousand in 2023 from $31,337 thousand in 2022, reflecting a worsening financial position[223]. - The total shareholders' equity decreased to $44,383 thousand in 2023, down from $59,583 thousand in 2022, a decline of approximately 25.4%[223]. - Cash flows from operating activities resulted in a net cash used of $10,715,000 in 2023, a decrease from net cash provided of $7,036,000 in 2022[232]. - Cash paid for interest increased to $29,631,000 in 2023 from $10,472,000 in 2022, indicating higher borrowing costs[233]. Interest Rate Risk Management - Management's interest income simulations indicate that changes in interest rates can significantly affect net interest income, with quarterly simulations presented to the Asset and Liability Committee[193]. - The Management Asset and Liability Committee monitors interest rate risk to maximize net interest income while maintaining acceptable risk levels[191]. - The Company’s strategy includes originating variable rate loans and purchasing short-term investments to manage interest rate risk[190]. - The estimated net interest income under a +200 basis points interest rate scenario is projected to decrease by 5.10% to $107,524 thousand as of December 31, 2023[196]. - The estimated net portfolio value under a -200 basis points interest rate scenario is projected to decrease by 5.81% to $106,718 thousand as of December 31, 2023[196]. Goodwill and Intangible Assets - The Company recognized a goodwill impairment of $1.1 million and had no goodwill balance as of December 31, 2023[219]. - Patriot evaluates goodwill for impairment annually, with the last assessment conducted on October 31, and considers multiple valuation techniques[286]. - The company recorded an intangible asset impairment of $1,107 thousand in 2023, which was not present in 2022[226]. Regulatory and Accounting Changes - The Company adopted ASC 326 on January 1, 2023, presenting accrued interest receivable balances separately on the Consolidated Balance Sheet and fully reserving uncollectible accrued interest receivable[271]. - The Company recorded a net reduction of retained earnings of $11.5 million upon adopting ASC 326, which includes an increase in credit-related reserves of $13.0 million and an unfunded commitment reserve of $2.7 million[259]. - The Company adopted ASU 2022-02 effective January 1, 2023, which eliminated the accounting guidance for troubled debt restructurings (TDRs) while enhancing disclosure requirements[270]. - The adoption of ASU 2022-02 did not have a material impact on the Company's Consolidated Financial Statements[314]. - The Company does not expect the adoption of ASU 2023-06 to impact its financial condition but may change certain disclosures[317]. - The Company will adopt ASU 2023-09 for annual periods beginning January 1, 2025, without expecting a material impact on its Consolidated Financial Statements[318]. Loan Portfolio and Performance - The gross loans receivable total $848,859,000 as of December 31, 2023, compared to $848,316,000 in 2022[359]. - The commercial real estate loan portfolio increased to $472.093 million in 2023, up from $437.443 million in 2022[331]. - The company has not emphasized originating consumer loans, focusing instead on higher-yielding loans[338]. - The maximum loan-to-value for commercial real estate loans is limited to 75% of the market value of the underlying collateral[332]. - The company does not engage in subprime lending practices, focusing on borrowers with stronger credit histories[340]. - The loan portfolio aging analysis indicated that as of December 31, 2023, total performing loans were $830.732 million, with non-performing loans at $18.127 million[369]. - The company is monitoring the performance of its loan portfolio closely, with a focus on addressing identified weaknesses in substandard assets[366]. - The commercial real estate segment reported pass loans of $452.841 million, while special mention and substandard loans were $6.482 million and $12.770 million, respectively[367]. - The residential real estate segment had total loans of $106.783 million, all classified as pass loans[367]. - The consumer and other segment reported pass loans of $98.711 million, with substandard loans amounting to $977 thousand[367]. - The total amount of SBA loans held for investment was $30.0 million in 2023, down from $32.5 million in 2022[346]. - The total amount of SBA loans held for sale increased from $5.2 million in 2022 to $9.9 million in 2023, with $3.5 million in commercial and industrial loans and $6.4 million in commercial real estate loans[381].