Patriot National Bancorp(US:PNBK)2024-04-01 18:48Credit Losses and Allowances - The Company's allowance for credit losses totaled $15.9 million as of December 31, 2023, consisting of $11.7 million for collectively evaluated loans and $4.2 million for individually evaluated loans[211]. - The allowance for credit losses is influenced by various economic indicators, including GDP and unemployment rates[212]. - The allowance for credit losses increased to $15.925 million in 2023 from $10.310 million in 2022, indicating a more cautious approach to credit risk[331]. - The provision for credit losses rose to $7,429 thousand in 2023, compared to $1,885 thousand in 2022, indicating a significant increase in expected credit losses[226]. - The allowance for credit losses may increase due to a decline in loan portfolio performance and higher incurred losses[365]. - The allowance for credit losses on unfunded lending commitments was $271,000 as of December 31, 2023[355]. - The total allowance for credit losses (ACL) increased to $23.3 million post-ASC 326 adoption from $10.3 million pre-adoption, reflecting a significant rise in reserves[260]. - The Company evaluates loans using a probability of default/loss given default (PD/LGD) method, which forecasts expected credit losses over the remaining life of the portfolio[263]. - The Company employs a risk rating system to assess the credit quality of its loan portfolio, with risk ratings reviewed and adjusted as necessary[361]. - The total charge-offs for the year ended December 31, 2023, amount to $(18,417,000)[357]. - The total recorded investment in individually evaluated loans was $17,133,000, with a principal outstanding of $22,535,000 and an allowance of $4,205,000[376]. Financial Performance - The company reported a net loss of $4,179 thousand in 2023, compared to a net income of $6,161 thousand in 2022, indicating a significant downturn[226]. - Net interest income decreased to $28,500 thousand in 2023 from $33,259 thousand in 2022, a decline of about 14.3%[226]. - Total assets increased to $1,093,425 thousand in 2023, up from $1,043,359 thousand in 2022, representing a growth of approximately 4.8%[223]. - Total deposits decreased to $840,311 thousand in 2023, down from $860,446 thousand in 2022, reflecting a reduction of approximately 2.5%[223]. - Interest expense surged to $30,457 thousand in 2023, up from $10,753 thousand in 2022, marking an increase of about 183%[226]. - Non-interest income increased to $6,005 thousand in 2023, up from $3,605 thousand in 2022, representing a growth of approximately 66.7%[226]. - The accumulated deficit increased to $47,026 thousand in 2023 from $31,337 thousand in 2022, reflecting a worsening financial position[223]. - The total shareholders' equity decreased to $44,383 thousand in 2023, down from $59,583 thousand in 2022, a decline of approximately 25.4%[223]. - Cash flows from operating activities resulted in a net cash used of $10,715,000 in 2023, a decrease from net cash provided of $7,036,000 in 2022[232]. - Cash paid for interest increased to $29,631,000 in 2023 from $10,472,000 in 2022, indicating higher borrowing costs[233]. Interest Rate Risk Management - Management's interest income simulations indicate that changes in interest rates can significantly affect net interest income, with quarterly simulations presented to the Asset and Liability Committee[193]. - The Management Asset and Liability Committee monitors interest rate risk to maximize net interest income while maintaining acceptable risk levels[191]. - The Company’s strategy includes originating variable rate loans and purchasing short-term investments to manage interest rate risk[190]. - The estimated net interest income under a +200 basis points interest rate scenario is projected to decrease by 5.10% to $107,524 thousand as of December 31, 2023[196]. - The estimated net portfolio value under a -200 basis points interest rate scenario is projected to decrease by 5.81% to $106,718 thousand as of December 31, 2023[196]. Goodwill and Intangible Assets - The Company recognized a goodwill impairment of $1.1 million and had no goodwill balance as of December 31, 2023[219]. - Patriot evaluates goodwill for impairment annually, with the last assessment conducted on October 31, and considers multiple valuation techniques[286]. - The company recorded an intangible asset impairment of $1,107 thousand in 2023, which was not present in 2022[226]. Regulatory and Accounting Changes - The Company adopted ASC 326 on January 1, 2023, presenting accrued interest receivable balances separately on the Consolidated Balance Sheet and fully reserving uncollectible accrued interest receivable[271]. - The Company recorded a net reduction of retained earnings of $11.5 million upon adopting ASC 326, which includes an increase in credit-related reserves of $13.0 million and an unfunded commitment reserve of $2.7 million[259]. - The Company adopted ASU 2022-02 effective January 1, 2023, which eliminated the accounting guidance for troubled debt restructurings (TDRs) while enhancing disclosure requirements[270]. - The adoption of ASU 2022-02 did not have a material impact on the Company's Consolidated Financial Statements[314]. - The Company does not expect the adoption of ASU 2023-06 to impact its financial condition but may change certain disclosures[317]. - The Company will adopt ASU 2023-09 for annual periods beginning January 1, 2025, without expecting a material impact on its Consolidated Financial Statements[318]. Loan Portfolio and Performance - The gross loans receivable total $848,859,000 as of December 31, 2023, compared to $848,316,000 in 2022[359]. - The commercial real estate loan portfolio increased to $472.093 million in 2023, up from $437.443 million in 2022[331]. - The company has not emphasized originating consumer loans, focusing instead on higher-yielding loans[338]. - The maximum loan-to-value for commercial real estate loans is limited to 75% of the market value of the underlying collateral[332]. - The company does not engage in subprime lending practices, focusing on borrowers with stronger credit histories[340]. - The loan portfolio aging analysis indicated that as of December 31, 2023, total performing loans were $830.732 million, with non-performing loans at $18.127 million[369]. - The company is monitoring the performance of its loan portfolio closely, with a focus on addressing identified weaknesses in substandard assets[366]. - The commercial real estate segment reported pass loans of $452.841 million, while special mention and substandard loans were $6.482 million and $12.770 million, respectively[367]. - The residential real estate segment had total loans of $106.783 million, all classified as pass loans[367]. - The consumer and other segment reported pass loans of $98.711 million, with substandard loans amounting to $977 thousand[367]. - The total amount of SBA loans held for investment was $30.0 million in 2023, down from $32.5 million in 2022[346]. - The total amount of SBA loans held for sale increased from $5.2 million in 2022 to $9.9 million in 2023, with $3.5 million in commercial and industrial loans and $6.4 million in commercial real estate loans[381].