Patriot National Bancorp(PNBK) - 2024 Q4 - Annual 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].