Patriot National Bancorp(PNBK) - 2025 Q2 - Quarterly Report

FORM 10-Q Filing Information Registrant Information 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] | 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 PART I - FINANCIAL INFORMATION Item 1: Consolidated Financial Statements Unaudited consolidated financial statements, encompassing balance sheets, operations, comprehensive loss, equity, and cash flows, are presented with detailed notes Consolidated Balance Sheets (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) 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) 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) 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) 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] Notes to Consolidated Financial Statements (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 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][27] Note 2. Summary of Significant Accounting Policies and Transactions 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][32] - 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][34][35][36] - 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] Note 3. Available-for-Sale Securities 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][40][42] - 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] Note 4. Loans Receivable and Allowance for Credit Losses 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 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 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][50] - 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][52] - 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][60][61] Allowance for Credit Losses (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][69] - 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][215][216] | 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 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 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] Individually Evaluated Loans 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][92] Loan Modifications Made to Borrowers Experiencing Financial Difficulty 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][95] Note 5. Loans Held for Sale 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][100] - 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] - 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] Note 6. Deposits 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] Note 7. Derivatives 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] | (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] Note 8. Share-Based Compensation and Employee Benefit Plan 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] - 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][119][121] - 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][125] - 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] Note 9. Earnings per share 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][130][131] Note 10. Commitments and Contingencies 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] - 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] Note 11. Regulatory and Operational Matters 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] - 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] - 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] | 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 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][156] | 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] Note 13. Segment Information 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] Note 14. Subsequent Events 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] - On July 3, 2025, 90,832 Series A Preferred Stock shares automatically converted into 7.3 million shares of Non-Voting Common Stock[183] - 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] - 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] Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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][187] - Other risks include competition, legislative/regulatory changes, accounting standards, loan quality, funding access, and the ability to manage market, credit, and operational risks[187] Critical Accounting Policies 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] 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][192] Private Placement 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] | 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] Amendment to Notes 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] - 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][199] - 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][200] Note Conversions 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] - On July 25, 2025, Unity Bancorp Inc. notified conversion of $2.0 million of Senior Notes into 2.7 million common shares[203] - On July 26, 2025, American Bank Incorporated notified conversion of $0.8 million of Senior Notes into 1.1 million common shares[203] Registered Direct Offering 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] - The offering raised gross proceeds of $10.7 million[204] FINANCIAL CONDITION 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 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] 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] Loans held for investment 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] | 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") 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] Allowance for Credit Losses ("ACL") on Loans 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][215][216] | 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] Non-performing Assets 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] Loans held for sale 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] - 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] - 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] Deferred Taxes 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] | 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][233] 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] - 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] 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][240] - 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] - 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][199][202][250][255] 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 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 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 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][274] - 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] - 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] - 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] Provision for Credit Losses ("PCL") 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] - 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] Non-interest income 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] Non-interest expense 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] Provision for income taxes 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] 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] - 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] Regulatory Capital Requirements 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] - 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] Item 3: Quantitative and Qualitative Disclosures about Market Risk 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 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][299] - 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][301] Impact of Inflation and Changing Prices 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] - Inflation can directly affect the value of loan collateral, especially real estate, and could significantly impact the Company's earnings in future periods[305] Item 4: Disclosure Controls and Procedures 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 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] Changes in Internal Control Over Financial Reporting 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] Limitations on the Effectiveness of Controls 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] PART II - OTHER INFORMATION Item 1: Legal Proceedings 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] - 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] Item 5: Other Information This section states that there is no other information to report - No other information is reported in this section[311] Item 6: Exhibits 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] SIGNATURES SIGNATURES