Patriot National Bancorp(PNBK) - 2025 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION 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 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) 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 | $52,881 | 1240.00% | Consolidated Statements of Operations (Unaudited) This section details the Company's revenues, expenses, and net loss for the three-month periods, highlighting operational performance | Metric (In thousands, except per share) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | 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) | $(0.13) | 162.50% | Consolidated Statements of Comprehensive Loss (Unaudited) This section presents the Company's net loss and other comprehensive income items, such as unrealized gains or losses on securities | Metric (In thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | 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) | $(558) | 72.47% | Consolidated Statements of Shareholders' Equity (Unaudited) This section details changes in the Company's shareholders' equity, including net loss, stock issuances, and other comprehensive income | Metric (In thousands) | Balance at December 31, 2024 | Balance at March 31, 2025 | Change ($) | 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 | $1,449 | N/A | Consolidated Statements of Cash Flows (Unaudited) This section outlines the Company's cash inflows and outflows from operating, investing, and financing activities for the periods presented | Metric (In thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | 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) 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 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][27] Note 2. Summary of Significant Accounting Policies and Transactions This note details key accounting policies and significant transactions, including recent stock issuances and evaluations of new accounting standards - The Company completed a $5.45 million private placement of Series A Non-Cumulative Perpetual Convertible Preferred Stock on March 20, 2025, convertible into 7,266,560 shares of Common Stock[31][32] - The Company is evaluating the impact of recently issued accounting standards (ASU 2023-06, ASU 2023-09, ASU 2024-01, ASU 2024-03, ASU 2025-01) on its financial condition, results of operations, and disclosures, with most not expected to have a material impact on financial statements but potentially affecting disclosures[33][34][35][36] Note 3. Available-for-Sale Securities This note provides details on the Company's available-for-sale securities, including their fair value, unrealized losses, and pledging status | Metric (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | 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][38][40] - As of March 31, 2025, $80.7 million of available-for-sale securities were pledged to FHLB or FRB, compared to $60.2 million at December 31, 2024, primarily to secure borrowings[41] Note 4. Loans Receivable and Allowance for Credit Losses This note details the composition of the loan portfolio, changes in the allowance for credit losses, and information on non-accrual loans | Loan Portfolio Segment (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | 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][67] - 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][83] Note 5. Loans Held for Sale 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][93] - 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] - 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 $50,000 were recognized for the three months ended March 31, 2025. The Residential Mortgage Division was closed in April 2025[97][200] Note 6. Deposits This note details the composition of the Company's deposits, including non-interest bearing, interest bearing, and Digital Payments deposits | Deposit Category (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | 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] - 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][206] Note 7. Derivatives 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] | 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] Note 8. Share-Based Compensation and Employee Benefit Plan 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][111] - 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][113][114] - 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] Note 9. Earnings per share 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, $7.0 million of debt was converted into 9,333,334 shares of Common Stock[117] Note 10. Commitments and Contingencies This note outlines the Company's off-balance sheet commitments, including unused lines of credit, construction loans, and standby letters of credit | Commitment (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | 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] - 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] Note 11. Regulatory and Operational Matters 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] - The OCC terminated previously established individual minimum capital ratios (IMCR) on January 17, 2025, following the Bank's entry into the OCC Agreement[131] - 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] | 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 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][136][137][140] | 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] Note 13. Segment Information 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] Note 14. Subsequent Events 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] Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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][168] Critical Accounting Policies 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] 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] - 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, $7.0 million of subordinated and senior notes were converted into 9,333,334 shares of Common Stock[174][175][176] - The Private Placement resulted in capital ratios exceeding the minimums required by the OCC Agreement as of March 31, 2025[179] FINANCIAL CONDITION The Company's financial condition at March 31, 2025, showed a decrease in total assets, primarily driven by a reduction in gross loans and cash. This was offset by a significant increase in shareholders' equity due to a private placement. Deposits also saw a notable decrease, influenced by sales through the IntraFi network Cash, Cash Equivalents and Restricted Cash This section details the changes in the Company's cash and cash equivalents, primarily influenced by deposit reductions and stock issuance proceeds | Metric (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :-------------------- | :------------- | :---------------- | :--------- | :--------- | | Total cash, cash equivalents and restricted cash | $136,201 | $162,610 | $(26,409) | (16.24)% | - The decrease was primarily due to a $104.2 million reduction in deposits, partially offset by cash received on loans held for investment and proceeds from common and preferred stock issuance. Excess cash was reduced after the Private Placement[181] Investments This section outlines the Company's investment securities, including available-for-sale securities and other investments at cost | Investment Securities (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | 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 $827,000 in securities amortization. No available-for-sale securities were sold during the period[182] Loans held for investment This section details the composition and changes in the Company's loan portfolio, reflecting strategic decisions to manage loan growth | Loan Portfolio Segment (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | 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 $33.3 million, reflecting the Company's strategy to restrict loan growth and allow paydowns to strengthen capital ratios[184] | Commercial Real Estate Composition (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | 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 | $(18,086) | (4.31)% | Allowance for Credit Losses ("ACL") on Loans This section analyzes the allowance for credit losses, including its ratio to gross loans and net charge-offs | Metric | March 31, 2025 | December 31, 2024 | Change ($) | 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] - The average loan balance decreased by $130.6 million, from $841.1 million to $710.5 million, reflecting the Company's strategy to limit loan growth and reduce the balance sheet[191] Non-performing Assets This section provides an overview of non-performing assets, including non-accrual loans and other real estate owned, and their ratios to total assets and loans | Non-performing Asset (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | 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] Loans held for sale 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][199][200] Deferred Taxes 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][203] - 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 $64.6 million, expiring between 2030 and 2044[204][205] Deposits This section analyzes the Company's deposit base, including non-interest bearing, interest bearing, Digital Payments, and uninsured deposits | Deposit Category (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | 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 $116.9 million in deposits sold through the IntraFi network as of March 31, 2025, with no such sales in the prior period[206] Borrowings This section details the Company's borrowings, including FHLB advances, senior notes, subordinated debt, and junior subordinated debt | Borrowing Type (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | 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][212] - 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] - Subordinated Notes were amended in March 2025 to allow for paid-in-kind (PIK) interest payments through March 30, 2026, and converted $2.0 million of principal into Common Stock[227] - The Company deferred quarterly interest payments on junior subordinated debentures in December 2024 and continued to defer through March 31, 2025[232] Equity This section details the significant increase in shareholders' equity, primarily driven by a private placement and unrealized gains on investments | Metric (In thousands) | December 31, 2024 | March 31, 2025 | Change ($) | 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 $2.8 million net loss[238] Off-Balance Sheet Commitments This section summarizes the Company's off-balance sheet commitments, including total commitments to extend credit and standby letters of credit | Commitment (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :------------------------ | :------------- | :---------------- | :--------- | :--------- | | Total commitments to extend credit | $80,787 | $87,571 | $(6,784) | (7.75)% | - The Bank has an irrevocable standby letter of credit for $45 million with Mastercard, issued by the FHLB of Boston, extended to April 30, 2026[240] Average Balances This section presents average balances for key financial metrics, including loans, investments, deposits, and borrowings, along with net interest income and margins | Metric (In thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | 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 $1.5 million, and net interest margin declined from 2.20% to 1.64%, primarily due to increased cost of deposits and other borrowings, partially offset by rising variable rate interest-earning assets, and the lowering of loan balances[244][245] Results of Operations The Company experienced a significant increase in net loss for the three months ended March 31, 2025, driven by a decline in net interest income and a substantial rise in non-interest expenses, despite an increase in non-interest income Provision for Credit Losses ("PCL") This section details the provision for credit losses, reflecting changes in the loan portfolio and allowance for credit losses | Metric (In thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | 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 $6.7 million[247] Non-interest income This section analyzes the increase in non-interest income, primarily driven by contributions from the Digital Payments division | Metric (In thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :-------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Total non-interest income | $2,728 | $2,247 | $481 | 21.41% | - The increase was primarily driven by a $794,000 rise in non-interest income from the Bank's Digital Payments division[248] Non-interest expense This section details the increase in non-interest expenses, attributed to higher salaries, professional services, regulatory assessments, and OREO expenses | Metric (In thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | 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 ($253,000)[249] Provision for income taxes This section explains the significant decrease in the provision for income taxes, primarily due to changes in the valuation allowance | Metric (In thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :-------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Provision for income taxes | $1 | $66 | $(65) | (98.48)% | - The provision for income taxes decreased significantly, with the effective tax rate for Q1 2025 being zero, compared to 28.33% in Q1 2024, primarily due to the change in the valuation allowance[250][203] Liquidity This section assesses the Company's liquidity position, including on-hand and total liquidity, and the impact of recent financing activities | Metric (In thousands) | March 31, 2025 | December 31, 2024 | Change ($) | 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] - 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] - 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][257][258] Regulatory Capital Requirements 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][265] - 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] Item 3: Quantitative and Qualitative Disclosures about Market Risk 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 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] Item 4: Disclosure Controls and Procedures 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 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] Changes in Internal Control Over Financial Reporting 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] Limitations on the Effectiveness of Controls 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] PART II - OTHER INFORMATION This section includes disclosures on legal proceedings, other information, and a list of exhibits filed with the report Item 1: Legal Proceedings 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 This section states that there is no other information to report Item 6: Exhibits 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 This section contains the required signatures, certifying the accuracy and completeness of the financial report