Patriot National Bancorp Inc.
11/12/2026 | Press release | Distributed by Public on 11/12/2026 07:03
Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
"Safe Harbor" Statement Under Private Securities Litigation Reform Act of 1995
This Quarterly Report on Form 10-Q contains statements that relate to future events and expectations and, as such, constitute forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Certain statements, other than purely historical information, including estimates, projections, statements relating to our strategies, outlook, business and financial prospects, business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements." These forward-looking statements generally are identified by the words "believes," "project," "expects," "anticipates," "estimates," "intends," "strategy," "plan," "may," "will," "would," "will be," "will continue," "will likely result," and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Forward-looking statements are not guarantees of future performance. Although Patriot believes that the expectations reflected in any forward-looking statements are based on reasonable assumptions, these expectations may not be attained and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks, uncertainties and changes in circumstances, many of which are beyond Patriot's control.
For a discussion of certain factors that could cause actual results to differ materially from those anticipated in this report, refer to the disclosures in Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations," Part II, Item 1A, "Risk Factors," of this Quarterly Report on Form 10-Q, and Item 1A, "Risk Factors," in the Company's most recent Annual Report on Form 10-K. Patriot undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law.
Critical Accounting Policies
The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures. Actual results could differ from those estimates. Management has identified the allowance for credit losses and the realizability of deferred tax assets as among the Company's most critical accounting estimates because they are important to the portrayal of the Company's financial condition and results of operations and require management to make subjective and complex judgments about matters that are inherently uncertain. See the Company's Annual Report on Form 10-K for the year ended December 31, 2025 and Note 9, Income Taxes, for additional information.
SUMMARY OF RESULTS
The Company continued to execute its strategic plan during the nine months ended September 30, 2026, with a focus on balance sheet growth, capital optimization, and risk management. Significant regulatory milestones were achieved during the quarter. On June 30, 2026, when the OCC formally terminated its Formal Agreement with the Bank, resulting in the Bank's reclassification from "adequately capitalized" to "well capitalized" under applicable regulatory standards. On July 7, 2026, the OCC also notified the Bank that it no longer considered the Bank to be in "troubled condition" for purposes of applicable law and regulation.
For the three months ended September 30, 2026, the Company reported net income of $1.2 million, or $0.01 per basic and diluted share, compared to a net loss of $2.7 million, or $0.03 per share, for the same period in 2025. For the nine months ended September 30, 2026, the Company reported a net loss of $0.4 million, or $0.00 per share, compared to a net loss of $10.4 million, or $0.16 per share, for the same period in 2025. The improvement reflects higher net interest income and increased non-interest income, partially offset by higher operating expenses.
FINANCIAL CONDITION
Total assets increased to $1.5 billion at September 30, 2026, from $1.09 billion at December 31, 2025, primarily driven by loan origination and purchase activity and continued growth of the investment securities portfolio.
Cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash increased from $207.1 million at December 31, 2025 to $289.1 million at September 30, 2026. The increase was driven primarily by a significant customer deposit held across quarter-end that was partially offset by the Bank's continuing strategic reallocation of liquidity into higher yielding asset classes, consistent with the Company's strategic objectives. For further details, refer to the Consolidated Statements of Cash Flows.
Investment securities
Total investments increased to $226.3 million at September 30, 2026, compared to $224.7 million at December 31, 2025. The investment portfolio continues to be composed primarily of U.S. Government agency and mortgage-backed securities, which totaled $191.7 million at fair value. The net increase was driven principally by $51.0 million in purchases of available-for-sale securities during 2026, reflecting the Company's ongoing deployment of liquidity into investment securities as part of its balance sheet repositioning. These purchases were partially offset by $29.1 million in sales proceeds, $6.1 million in principal paydowns, $2.9 million in net accretion of investment premiums and discounts, and a $17.2 million increase in net unrealized losses recorded in other comprehensive loss.
At September 30, 2026, securities of $123.9 million were pledged to the FHLB or FRB at September 30, 2026, compared to $15.1 million at December 31, 2025. Of the September 30, 2026 amount, approximately $91.7 million was pledged to the FHLB to support available borrowing capacity, and $32.2 million was pledged to the FRB. No FHLB or FRB borrowings were outstanding at September 30, 2026.
Loans held for investment
Loans receivable, net, increased to $893.2 million at September 30, 2026 from $585.7 million at December 31, 2025, an increase of approximately $307.5 million or approximately 52.50%. The increase reflects new loan originations under the Bank's targeted lending initiatives, as well as continued purchases of residential and commercial real estate loans.
The following table provides the composition of the Company's loan held for investment portfolio as of September 30, 2026 and December 31, 2025:
| (In thousands) | September 30, 2026 | December 31, 2025 | |||||||||||||||||||||
| Amount | % | Amount | % | ||||||||||||||||||||
| Loan portfolio: | |||||||||||||||||||||||
| Commercial Real Estate | $ | 474,564 | 53 | % | 346,191 | 58 | % | ||||||||||||||||
| Residential Real Estate | 199,272 | 22 | % | 79,667 | 13 | % | |||||||||||||||||
| Commercial and Industrial | 219,972 | 24 | % | 146,828 | 25 | % | |||||||||||||||||
| Consumer and Other | 7,879 | 1 | % | 19,876 | 3 | % | |||||||||||||||||
| Loans receivable, gross | 901,688 | 100 | % | 592,562 | 100 | % | |||||||||||||||||
| Allowance for credit losses | (8,469) | (6,839) | |||||||||||||||||||||
| Loans receivable, net | $ | 893,219 | $ | 585,723 | |||||||||||||||||||
Commercial real estate remained the largest loan category as of September 30, 2026, comprising 52.6% of total gross loans, compared to 58.4% at December 31, 2025. Residential real estate loans increased to 22.1% of total gross loans from 13.4% at year-end, driven primarily by loan purchases completed during the first quarter of 2026. SBA loans held for investment are included within the commercial real estate and commercial and industrial loan categories. As of September 30, 2026, SBA loans classified as commercial real estate totaled $10.8 million compared to $10.4 million at December 31, 2025. SBA loans included in the commercial and industrial loan category totaled $7.1 million at September 30, 2026, compared to $8.7 million at December 31, 2025.
As of September 30, 2026, the Company's net loan-to-deposit ratio increased to 65.0% from 60.6% at December 31, 2025, while the net loan-to-total assets ratio increased to 59.7% from 53.8% over the period. These increases are consistent with the Company's balance sheet repositioning.
Commercial Real Estate Loans
The following table provides the composition of the commercial real estate loan portfolio as of September 30, 2026 and December 31, 2025:
| (In thousands) | September 30, 2026 | December 31, 2025 | |||||||||||||||||||||
| Amount | % | Amount | % | ||||||||||||||||||||
| Commercial Real Estate | |||||||||||||||||||||||
| CRE owner occupied | $ | 99,993 | 21 | % | $ | 72,883 | 21 | % | |||||||||||||||
| CRE multifamily | 104,726 | 22 | % | 52,502 | 15 | % | |||||||||||||||||
| CRE office | 25,351 | 5 | % | 26,347 | 8 | % | |||||||||||||||||
| CRE retail | 56,800 | 12 | % | 42,953 | 12 | % | |||||||||||||||||
| Other CRE non-owner occupied | 187,694 | 40 | % | 151,505 | 44 | % | |||||||||||||||||
| Total | $ | 474,564 | 100 | % | $ | 346,191 | 100 | % | |||||||||||||||
The following table provides the commercial real estate loan portfolio by geographic concentrations as of September 30, 2026 and December 31, 2025:
| (In thousands) | September 30, 2026 | December 31, 2025 | |||||||||||||||||||||
| Amount | % | Amount | % | ||||||||||||||||||||
| California | $ | 160,329 | 34 | % | $ | 35,896 | 10 | % | |||||||||||||||
| Connecticut | 54,373 | 11 | % | 77,224 | 22 | % | |||||||||||||||||
| Florida | 13,070 | 3 | % | 7,262 | 2 | % | |||||||||||||||||
| New Jersey | 21,628 | 5 | % | 23,534 | 7 | % | |||||||||||||||||
| New York | 168,415 | 35 | % | 166,794 | 48 | % | |||||||||||||||||
| Other Markets (1) | 56,749 | 12 | % | 35,480 | 10 | % | |||||||||||||||||
| Total Commercial Real Estate | $ | 474,564 | 100 | % | $ | 346,191 | 100 | % | |||||||||||||||
(1) Outside Market consists of loans in all other states, none of which are greater than 5% of the total.
Commercial real estate and commercial and industrial loans represented approximately 77% of total gross loans at September 30, 2026. Accordingly, the Company's credit performance remains significantly influenced by borrower operating performance, collateral values, and economic conditions in the markets and customer segments served by the Bank. For purposes of internal and regulatory CRE concentration monitoring, including under OCC Bulletin 2006-46, owner-occupied CRE loans are excluded from CRE totals and classified as commercial and industrial loans, although owner-occupied CRE loans are included in the CRE portfolio presentation above.
As of September 30, 2026, the Bank's CRE concentration was 254% of Tier 1 capital plus allowance for credit loss, below the Bank's concentration policy limit of 350%. Exceeding this threshold would not, by itself, indicate unsafe or unsound banking practices; however, it subjects the Bank to heightened supervisory expectations for portfolio management, risk assessment, and capital planning. Management maintains portfolio management procedures, underwriting standards, and stress testing practices consistent with these regulatory expectations.
Allowance for Credit Losses ("ACL") on Loans
The Company estimates its ACL under the CECL methodology in ASC 326. The allowance for credit losses was $8.5 million at September 30, 2026, compared to $6.8 million at December 31, 2025. Based on management's evaluation of the loan portfolio at September 30, 2026, management believed the ACL of $8.5 million, or 0.94% of gross loans, was appropriate to absorb expected credit losses in the loan portfolio as of that date. The increase from December 31, 2025 reflected, in part, the initial allowance recorded on loans purchased during the first quarter of 2026 under ASU 2025-08.
Effective January 1, 2026, the Company early adopted ASU 2025-08, Financial Instruments-Credit Losses (Topic 326): Purchased Loans, on a prospective basis. The adoption did not impact the Company's opening retained earnings. For loans purchased during the nine months ended September 30, 2026, the Company recorded an initial allowance for credit losses of $925 thousand as an adjustment to the amortized cost basis, consistent with the new standard.
The following table summarizes activity in the ACL:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In thousands) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
| Balance at beginning of the period | $ | 8,469 | $ | 7,795 | $ | 6,839 | $ | 7,305 | |||||||||||||||
| Provision for credit losses | (20) | (403) | 355 | 1,955 | |||||||||||||||||||
| PSL allowance credit losses | - | - | 925 | - | |||||||||||||||||||
| Net recovery (charge-offs) | 20 | (205) | 350 | (2,073) | |||||||||||||||||||
| Balance at end of the period | $ | 8,469 | $ | 7,187 | $ | 8,469 | $ | 7,187 | |||||||||||||||
| Ratios: | |||||||||||||||||||||||
| Net recovery (charge-offs) to average loans (annualized) | 0.01 | % | (0.14) | % | 0.06 | % | (0.42) | % | |||||||||||||||
| Allowance for credit losses to total loans | 0.94 | % | 1.22 | % | 0.94 | % | 1.22 | % | |||||||||||||||
| Allowance for credit losses to nonperforming | 32.15 | % | 27.67 | % | 32.15 | % | 27.67 | % | |||||||||||||||
For the three months ended September 30, 2026, net charge-offs decreased to a nominal net recovery, compared to $0.2 million and 0.14% for the three months ended September 30, 2025.
For the nine months ended September 30, 2026, net charge-offs decreased $2.4 million to $0.4 million net recovery, from $2.1 million as of September 30, 2025, Net charge-offs to average loans improved to a net recovery for the nine months ended September 30, 2026 from 0.42% for the period ended September 30, 2025. The decrease in net charge-offs in 2026 was primarily due to reductions and repositioning of the portfolio completed in 2025.
Average loans increased by approximately $341.8 million to $930.2 million for the three months ended September 30, 2026 from $588.4 million for the three months ended September 30, 2025. For the nine month period, the average loan balance increased $181.1 million, from $651.8 million in 2025 to $832.9 million in 2026. The increase reflects new loan originations under the Bank's targeted lending initiatives, as well as continued purchases of residential and commercial real estate loans.
Non-accrual loans
Non-accrual loans were $25.4 million as of September 30, 2026, compared to $26.0 million as of September 30, 2025. The ACL-to-non-accrual loans ratio was 33.4% as of September 30, 2026, compared to 27.67% as of September 30, 2025. The Company continues to actively manage and monitor credit risk, particularly in commercial real estate and consumer loan portfolios.
The following table presents non-accrual loans as of the dates indicated:
| September 30, | December 31, | ||||||||||
| (In thousands) | 2026 | 2025 | |||||||||
| Non-accruing loans: | |||||||||||
| Commercial Real Estate | $ | 11,609 | $ | 13,701 | |||||||
| Residential Real Estate | 884 | 57 | |||||||||
| Commercial and Industrial | 12,582 | 10,182 | |||||||||
| Consumer and Other | 280 | 413 | |||||||||
| Total non-accruing loans | 25,355 | 24,353 | |||||||||
| Loans past due over 90 days and still accruing | 988 | - | |||||||||
| Total nonperforming loans | $ | 26,343 | $ | 24,353 | |||||||
| Nonperforming assets to total assets | 1.76 | % | 2.24 | % | |||||||
| Nonperforming loans to total loans, net | 2.95 | % | 4.16 | % | |||||||
Non-accrual loans increased $1.0 million, to $25.4 million at September 30, 2026 from $24.4 million at December 31, 2025. At September 30, 2026, non-accrual loans were comprised of 81 loans, compared to 151 loans at December 31, 2025. At September 30, 2026, 36 loans were individually evaluated and a specific reserve of $2.7 million was established, compared to 9 individually evaluated loans and a specific reserve of $2.1 million at December 31, 2025. The increase in loan count and specific reserves on individually evaluated loans reflects continued enhanced loan-level analysis on certain credits within the portfolio, which resulted in refined reserve estimates for those loans. Individually evaluated loans are measured based on collateral value or discounted expected cash flows, as applicable.
Nonperforming assets to total assets improved to 1.76% at September 30, 2026 from 2.24% at December 31, 2025. Nonperforming loans to total loans, net decreased to 2.95% from 4.16%, primarily due to total loans increasing during 2026.
Loans held for sale
Loans held for sale totaled $28.5 million at September 30, 2026, compared to $24.5 million at December 31, 2025, and primarily consist of credit card receivables originated for certain digital payments programs and generally sold shortly after origination to third parties, including certain receivables that remained on the Bank's balance sheet after program manager Parker Group, Inc. failed to complete the anticipated purchase.
During the third quarter of 2026, the Bank collected approximately $0.3 million directly on the Parker-related receivables, and approximately $6.0 million of principal payments were received by a court-appointed joint servicer and separately recognized as a receivable within other assets. At September 30, 2026, the remaining Parker-related loans held for sale had a gross balance of approximately $13.7 million. The related valuation allowance decreased from $5.5 million at June 30, 2026 to $2.6 million at September 30, 2026, reflecting the lower remaining gross balance following collections, improved collection expectations, a shorter anticipated collection period, and lower estimated net collection and workout costs. See Note 5 for additional information.
Deferred Taxes
The Company reported a net deferred tax asset of approximately $920 thousand at September 30, 2026, compared with a net deferred tax liability of $783 thousand at December 31, 2025. During the second quarter of 2026, management concluded that a portion of the Company's deferred tax assets met the more-likely-than-not realization threshold and released approximately $1.2 million of the related valuation allowance, resulting in a corresponding discrete income tax benefit. The Company continues to maintain a substantial valuation allowance against its remaining deferred tax assets.
Management will continue to evaluate the realizability of its deferred tax assets based on all available positive and negative evidence. Changes in operating results, expected taxable income, strategic actions, applicable tax-law limitations or other relevant factors could result in additional changes to the valuation allowance and affect future income tax expense or benefit. See Note 9, Income Taxes, for additional information.
Deposits
The following table is a summary of the Company's deposits at the dates shown:
| (In thousands) | September 30, 2026 | December 31, 2025 | |||||||||
| Non-interest-bearing: | |||||||||||
| Total non-interest-bearing deposits | 347,565 | 106,766 | |||||||||
| Interest-bearing: | |||||||||||
| Savings | 73,472 | 38,036 | |||||||||
| Interest-bearing DDA | 586,482 | 291,728 | |||||||||
| Money market | 170,676 | 191,177 | |||||||||
| Certificates of deposit, $250,000 or less | 133,647 | 206,915 | |||||||||
| Certificates of deposit, more than $250,000 | 56,586 | 76,480 | |||||||||
| Brokered deposits | 5,063 | 54,683 | |||||||||
| Total interest-bearing deposits | 1,025,927 | 859,020 | |||||||||
| Total Deposits | $ | 1,373,492 | $ | 965,786 | |||||||
| Additional deposit metrics | |||||||||||
| Deposits associated with digital payments customers | $ | 412,825 | $ | 297,702 | |||||||
| Total retail branch bank deposits | $ | 316,121 | $ | 341,453 | |||||||
| Total uninsured deposits | $ | 316,724 | $ | 194,254 | |||||||
Total deposits increased to $1.37 billion at September 30, 2026, from $965.8 million at December 31, 2025. Non-interest-bearing deposits increased to $347.6 million from $106.8 million. The increase was driven primarily by a significant customer deposit held across quarter-end. Interest-bearing deposits grew from $859.0 million to $1.03 billion, reflecting the growth of deposits from institutional banking and high-net-worth customers, partially offset by reductions in CD, money market and brokered deposits. Brokered deposits decreased $49.6 million to $5.1 million at September 30, 2026 from $54.7 million at December 31, 2025. These changes reflect the Company's ongoing efforts to manage liquidity, reduce certain deposit concentrations, and support its broader balance sheet repositioning.
Borrowings
Total borrowings were $26.1 million at September 30, 2026, compared to $16.4 million at December 31, 2025. The increase primarily reflects the issuance of $10.0 million in new subordinated notes in September 2026 bearing interest at 8.5%, fixed until September 30, 2031, after which the rate resets quarterly to three-month SOFR plus 416 basis points. Subordinated notes totaled $18.0 million and junior subordinated debentures totaled $8.2 million at September 30, 2026. No FHLB advances, FRB borrowings, or senior notes were outstanding at September 30, 2026; the 2022 Senior Notes were fully repaid during the third quarter of 2025. The Bank maintained standby letters of credit issued by the FHLB for the benefit of Mastercard in connection with card settlement requirements of $70.0 million at September 30, 2026 and $55.0 million at December 31, 2025, which reduced available FHLB borrowing capacity.
Shareholders' Equity
Total shareholders' equity decreased to $83.2 million at September 30, 2026, from $94.7 million at December 31, 2025, a decrease of $11.5 million. The primary driver of the equity decrease was a $17.2 million increase in accumulated other comprehensive loss, reflecting a deterioration in the fair value of available-for-sale securities driven by higher market interest rates during the nine months ended September 30, 2026.
Shareholders' equity was further impacted by a net loss of $0.4 million for the nine months ended September 30, 2026, compared to a net loss of $10.4 million for the same period in 2025.
During the nine months ended September 30, 2026, the Company raised net proceeds of $5.5 million from common stock issuances, including a registered direct offering completed on September 23, 2026 of 4,782,608 shares of voting common stock at $1.15 per share and 956,522 five-year warrants to purchase shares of non-voting common stock at an exercise price of $1.25 per share, for aggregate net proceeds of approximately $5.5 million (net of estimated offering expenses of $35 thousand). The warrants are not exercisable until six months following the closing of the offering. Accordingly, the warrants were excluded from the computation of diluted earnings per share for the three and nine months ended September 30, 2026, as their inclusion would be anti-dilutive or the exercise conditions had not been met. The 4,782,608 shares of common stock issued in the offering are included in the weighted average shares outstanding from the date of issuance. The Company intends to contribute the net proceeds to Patriot Bank, N.A. as regulatory capital and for general corporate purposes. The offering was made pursuant to the Company's registration statement on Form S-3 (File No. 333-287283), declared effective May 22, 2025. Common shares issued and outstanding increased to 123,524,808 at September 30, 2026 from 114,996,672 at December 31, 2025.
Average Balances
The following tables present daily average balance sheets, interest income, interest expense and the corresponding yields earned and rates paid for the three months ended September 30, 2026 and 2025:
| (In thousands) | Three Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||||||||||||||
| Average Balance | Interest | Yield | Average Balance | Interest | Yield | ||||||||||||||||||||||||||||||
| ASSETS | |||||||||||||||||||||||||||||||||||
| Interest Earning Assets: | |||||||||||||||||||||||||||||||||||
| Loans | $ | 930,255 | $ | 14,210 | 6.06 | % | $ | 588,449 | $ | 8,565 | 5.77 | % | |||||||||||||||||||||||
| Investments | 240,886 | 3,053 | 5.07 | % | 92,367 | 646 | 2.80 | % | |||||||||||||||||||||||||||
| Cash equivalents and other | 94,645 | 858 | 3.60 | % | 210,849 | 2,332 | 4.39 | % | |||||||||||||||||||||||||||
| Total interest earning assets | 1,265,786 | 18,120 | 5.68 | % | 891,665 | 11,543 | 5.14 | % | |||||||||||||||||||||||||||
| Total non-earning assets | 41,557 | 35,536 | |||||||||||||||||||||||||||||||||
| Total Assets | $ | 1,307,343 | $ | 927,201 | |||||||||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
| Deposits | $ | 1,095,301 | $ | 7,030 | 2.55 | % | $ | 743,806 | $ | 6,090 | 3.25 | % | |||||||||||||||||||||||
| Borrowed funds | 18,431 | 348 | 7.50 | % | 19,309 | 443 | 9.10 | % | |||||||||||||||||||||||||||
| Total interest-bearing liabilities | 1,113,732 | 7,379 | 2.63 | % | 763,115 | 6,533 | 3.40 | % | |||||||||||||||||||||||||||
| Non-interest-bearing deposits | 94,203 | 79,678 | |||||||||||||||||||||||||||||||||
| Other liabilities | 12,410 | 7,950 | |||||||||||||||||||||||||||||||||
| Total Liabilities | 1,220,345 | 850,743 | |||||||||||||||||||||||||||||||||
| Shareholders' equity | 86,998 | 76,458 | |||||||||||||||||||||||||||||||||
| Total Liabilities and Shareholders' Equity | $ | 1,307,343 | $ | 927,201 | |||||||||||||||||||||||||||||||
| Net interest income | $ | 10,742 | $ | 5,010 | |||||||||||||||||||||||||||||||
| Net interest margin | 3.37 | % | 2.23 | % | |||||||||||||||||||||||||||||||
| Net interest spread | 3.05 | % | 1.74 | % | |||||||||||||||||||||||||||||||
The following tables present daily average balance sheets, interest income, interest expense and the corresponding yields earned and rates paid for the nine months ended September 30, 2026 and 2025:
| (In thousands) | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||||||||||||||
| Average Balance | Interest | Yield | Average Balance | Interest | Yield | ||||||||||||||||||||||||||||||
| ASSETS | |||||||||||||||||||||||||||||||||||
| Interest Earning Assets: | |||||||||||||||||||||||||||||||||||
| Loans | $ | 832,894 | $ | 36,488 | 5.86 | % | $ | 651,773 | $ | 27,648 | 5.67 | % | |||||||||||||||||||||||
| Investments | 242,623 | 9,112 | 5.01 | % | 88,739 | 1,807 | 2.72 | % | |||||||||||||||||||||||||||
| Cash equivalents and other | 129,517 | 3,660 | 3.78 | % | 184,767 | 6,130 | 4.44 | % | |||||||||||||||||||||||||||
| Total interest earning assets | 1,205,034 | 49,259 | 5.47 | % | 925,279 | 35,585 | 5.14 | % | |||||||||||||||||||||||||||
| Total non-earning assets | 47,847 | 38,039 | |||||||||||||||||||||||||||||||||
| Total Assets | $ | 1,252,881 | $ | 963,318 | |||||||||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
| Deposits | $ | 1,034,873 | $ | 21,341 | 2.76 | % | $ | 792,458 | $ | 20,681 | 3.49 | % | |||||||||||||||||||||||
| Borrowed funds | 23,453 | 1,143 | 6.52 | % | 26,762 | 1,752 | 8.75 | % | |||||||||||||||||||||||||||
| Total interest-bearing liabilities | 1,058,327 | 22,484 | 2.84 | % | 819,220 | 22,433 | 3.66 | % | |||||||||||||||||||||||||||
| Non-interest-bearing deposits | 89,807 | 86,649 | |||||||||||||||||||||||||||||||||
| Other liabilities | 13,789 | 7,482 | |||||||||||||||||||||||||||||||||
| Total Liabilities | 1,161,923 | 913,351 | |||||||||||||||||||||||||||||||||
| Shareholders' equity | 90,958 | 49,967 | |||||||||||||||||||||||||||||||||
| Total Liabilities and Shareholders' Equity | $ | 1,252,881 | $ | 963,318 | |||||||||||||||||||||||||||||||
| Net interest income | $ | 26,775 | $ | 13,152 | |||||||||||||||||||||||||||||||
| Net interest margin | 2.97 | % | 1.90 | % | |||||||||||||||||||||||||||||||
| Net interest spread | 2.62 | % | 1.48 | % | |||||||||||||||||||||||||||||||
The following table presents the change in interest-earning assets and interest-bearing liabilities by major category and the related change in the interest income earned and interest expense incurred thereon attributable to the change in transactional volume in the financial instruments and the rates of interest applicable thereto, comparing the three and nine ended September 30, 2026 and 2025.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2026 compared to 2025 | 2026 compared to 2025 | ||||||||||||||||||||||||||||||||||
| (In thousands) | Increase/(Decrease) | Increase/(Decrease) | |||||||||||||||||||||||||||||||||
| Volume | Rate | Total | Volume | Rate | Total | ||||||||||||||||||||||||||||||
| Interest earning assets: | |||||||||||||||||||||||||||||||||||
| Loans | $ | 4,975 | $ | 670 | $ | 5,645 | $ | 7,683 | $ | 1,157 | $ | 8,840 | |||||||||||||||||||||||
| Investments | 1,038 | 1,369 | 2,407 | 3,133 | 4,172 | 7,305 | |||||||||||||||||||||||||||||
| Cash equivalents and other | (1,285) | (188) | (1,473) | (1,833) | (637) | (2,470) | |||||||||||||||||||||||||||||
| Total interest earning assets | 4,728 | 1,850 | 6,578 | 8,983 | 4,692 | 13,675 | |||||||||||||||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
| Deposit | (2,878) | 1,937 | (941) | (6,326) | 5,666 | (660) | |||||||||||||||||||||||||||||
| Borrowed funds | 20 | 74 | 94 | 217 | 391 | 608 | |||||||||||||||||||||||||||||
| Total interest-bearing liabilities | (2,858) | 2,011 | (846) | (6,110) | 6,057 | (53) | |||||||||||||||||||||||||||||
| Increase (decrease) in net interest income | $ | 1,870 | $ | 3,862 | $ | 5,732 | $ | 2,873 | $ | 10,749 | $ | 13,623 | |||||||||||||||||||||||
Interest Rate Risk
In the normal course of its operations, Patriot assumes interest rate risk (i.e., the risk that general interest rate levels will fluctuate). As a result, the fair value of Patriot's financial assets and liabilities are affected when interest market rates change, which change may be either favorable or unfavorable. Management attempts to mitigate interest rate risk by matching the maturities of its financial assets and liabilities. However, borrowers with fixed rate obligations are less likely to prepay their obligations in a rising interest rate environment and more likely to prepay their obligations in a falling interest rate environment. Conversely, depositors receiving fixed rates are more likely to withdraw funds before maturity in a rising interest rate environment and less likely to do so in a falling interest rate environment. Management monitors market rates of interest and the maturities of its financial assets and financial liabilities, adjusting the terms of new loans and deposits in an attempt to minimize interest rate risk. Additionally, management mitigates its overall interest rate risk through its available funds investment strategy.
Results of Operations
For the three months ended September 30, 2026, the Company reported net income of $1.2 million, or $0.01 per basic and diluted share, compared to a net loss of $2.7 million, or $0.03 per share, for the same period in 2025. For the nine months ended September 30, 2026, the Company reported a net loss of $0.4 million, or $0.00 per share, compared to a net loss of $10.4 million, or $0.16 per share, for the same period in 2025. The improvement reflects higher net interest income and increased non-interest income, partially offset by higher operating expenses.
Net interest income
Net interest income for the three months ended September 30, 2026 was $10.7 million, compared to $5.0 million for the same period in 2025, an increase of $5.7 million, or approximately 114%. For the nine months ended September 30, 2026, net interest income was $26.8 million, compared to $13.2 million for the nine months ended September 30, 2025. The increase reflects significant growth in the loan portfolio, a higher-yielding investment securities portfolio, and relatively stable funding costs.
Interest and fees on loans increased $5.6 million for the quarter and $8.8 million year-to-date, driven by substantial loan portfolio growth since year-end 2025. Interest on investment securities increased $2.4 million for the quarter and $7.2 million year-to-date, reflecting the Company's strategic reallocation of liquidity from cash into investment securities. Total interest expense increased $0.8 million for the quarter, as volume-driven increases in deposit interest costs were partially offset by the elimination of senior note interest expense following the repayment of the 2022 Senior Notes in the third quarter of 2025. For the nine months ended September 30, 2026 and 2025, total interest expense was essentially flat at $22.5 million and $22.4 million, respectively. Net
interest margin was 3.37% for the three months ended September 30, 2026, compared to 2.23% for the same period in 2025. For the nine months ended September 30, 2026 and 2025, net interest margin was 2.97% and 1.90%, respectively.
Provision (Credit) for credit losses
The Company recorded a net credit of $3 thousand to the provision for credit losses for the three months ended September 30, 2026, compared to a credit to provisions of $0.4 million for the same period in 2025. For the nine months ended September 30, 2026, the provision for credit losses was $406 thousand, compared to $1.8 million for the same period in 2025. The lower provision in 2026 reflects a broadly improving credit quality profile following actions taken during 2025 to address higher-risk legacy assets, partially offset by reserve build related to new loan originations and purchases. As noted above, under ASU 2025-08, the initial ACL of $925 thousand on purchased loans was recorded as an adjustment to amortized cost rather than through provision expense.
Non-interest income
Non-interest income for the three months ended September 30, 2026 was $5.9 million, compared to $2.2 million for the same period in 2025, an increase of $3.7 million. For the nine months ended September 30, 2026, non-interest income was $12.3 million, compared to $7.0 million for the same period in 2025. Digital Payments income was $2.6 million for the quarter and $8.0 million year-to-date, compared to $2.7 million and $6.6 million in the comparable prior-year periods. Other income increased by $3.0 million to $3.1 million for the quarter primarily due to the change in the fair value related to loans held for sale of $2.8 million. These increases were partially offset by a decline in deposit fees and service charges and lower loan-related fee income compared to the prior year.
Non-interest expense
Non-interest expense for the three months ended September 30, 2026 was $15.7 million, compared to $10.3 million for the same period in 2025, an increase of $5.4 million. For the nine months ended September 30, 2026, non-interest expense was $40.8 million, compared to $28.8 million for the prior-year period. Salaries and benefits increased $1.3 million for the quarter and $4.7 million year-to-date, reflecting investments in new leadership and management as well as higher equity-based compensation expense.
Professional and outside services increased $4.1 million for the quarter and $5.8 million year-to-date, driven primarily by approximately $5.2 million of legal costs incurred in connection with the Parker-related litigation. These costs were partially offset by approximately $2.4 million of estimated insurance recoveries recognized by the Company and recorded as a receivable based on accepted coverage, applicable policy limits and management's assessment of eligible costs and expected adjustments, resulting in approximately $2.8 million of net legal expense associated with the litigation during the quarter. The remaining increase reflected legal, compliance, advisory, and remediation-related costs associated with the Bank's former Formal Agreement with the OCC.
Occupancy and equipment increased $0.3 million for the quarter and $0.8 million year-to-date, reflecting the opening of a new Beverly Hills, California office in the first quarter of 2026.
Income Taxes
For the three months ended September 30, 2026, the Company recorded an income tax benefit of $0.2 million, compared to a benefit of $5 thousand for the same period in 2025. For the nine months ended September 30, 2026, the income tax benefit was $1.7 million, compared to $53 thousand for the same period in 2025. The 2026 benefit reflects the partial release of the valuation allowance on deferred tax assets, resulting in recognition of a $0.9 million net deferred tax asset on the balance sheet at September 30, 2026.
LIQUIDITY AND CAPITAL RESOURCES
The Company monitors liquidity using, among other measures, on-hand liquidity to total liabilities, and total liquidity to total liabilities. On-hand liquidity is comprised of interest-bearing cash and cash equivalents and unpledged available-for-sale securities. Total liquidity includes on-hand liquidity plus unused borrowing capacity and other available contingent funding sources, including brokered deposit capacity subject to internal limits. The Company also monitors other metrics to manage liquidity and concentration risk in its funding base.
The Company's on-hand liquidity and total liquidity ratios as of September 30, 2026 and December 31, 2025, are as follows:
| (In thousands) |
September 30, 2026
|
December 31, 2025 | |||||||||
| On-hand liquidity | |||||||||||
| Interest-bearing cash and cash equivalents | $ | 286,993 | $ | 183,980 | |||||||
| Available-for-sale securities, at fair value | 226,253 | 224,677 | |||||||||
| Less: pledged available-for-sale securities | (123,938) | (15,138) | |||||||||
| Total on-hand liquidity | 389,308 | 393,519 | |||||||||
| Borrowing capacity | |||||||||||
| FHLB borrowing capacity | 148,344 | 76,003 | |||||||||
| FRB borrowing capacity | 49,519 | 26,357 | |||||||||
| Brokered deposit capacity | 343,373 | 144,868 | |||||||||
| Total borrowing capacity | 541,236 | 247,228 | |||||||||
| Less: used borrowing capacity | |||||||||||
| FHLB capacity used (including the standby letter of credit) | (71,161) | (55,671) | |||||||||
| FRB capacity used | - | - | |||||||||
| Outstanding brokered deposits | (5,063) | (54,683) | |||||||||
| Total used borrowing capacity | (76,224) | (110,354) | |||||||||
| Total liquidity | $ | 854,320 | $ | 530,393 | |||||||
| Total liabilities | $ | 1,414,105 | $ | 993,160 | |||||||
| On-hand liquidity to total liabilities | 27.53 | % | 39.62 | % | |||||||
| Total liquidity to total liabilities | 60.41 | % | 53.40 | % | |||||||
On-hand liquidity declined by $4.2 million during the nine months ended September 30, 2026, as the Company redeployed excess cash into higher-yielding earning assets, including loan originations and acquisitions, resulting in net loan growth of $307.5 million. The Company also enhanced its contingent liquidity position by increasing the amount of available-for-sale securities pledged to the FHLB, which increased available FHLB borrowing capacity to $148.3 million at September 30, 2026 from $76.0 million at December 31, 2025. On-hand liquidity to total liabilities decreased to 27.53% from 39.62%, and total liquidity to total liabilities improved to 60.41% from 53.40%, primarily reflecting the significant expansion in available borrowing and brokered deposit capacity.
A significant contributor to the improvement in total liquidity was the increase in brokered deposit capacity, which grew to $343.4 million at September 30, 2026 from $144.9 million at December 31, 2025. This increase reflects the termination of regulatory constraints on the Bank's utilization of brokered deposits following the termination of the OCC Formal agreement and of the designation of the Bank as a "troubled bank".
Liquidity represents the Company's ability to meet its financial obligations as they come due, including deposit withdrawals, funding commitments, debt service, and other operating needs. Management believes the Company's liquidity position at September 30, 2026 was sufficient to meet expected funding needs and reasonably anticipated deposit fluctuations.
Net cash used in operating activities for the nine months ended September 30, 2026 was $13.9 million, compared to $10.1 million used in the same period of 2025. The increase in cash used reflects higher net originations of loans held for sale, net of proceeds, as well as increases in accrued interest receivable and other assets and an increase in accrued expenses and other liabilities, which together resulted in net cash outflows from working capital of $3.8 million during the period. These outflows were partially offset by a lower net loss and higher share-based compensation of $4.4 million compared to $3.1 million in the prior-year period.
Net cash used in investing activities was $324.2 million for the nine months ended September 30, 2026, compared to $103.4 million provided by investing activities in the prior-year period. The primary driver of the period-over-period change was $307.2 million in net loan originations and purchases, primarily in residential and commercial real estate, as well as net purchases of available for sale securities of $15.9 million.
Net cash provided by financing activities was $420.1 million for the nine months ended September 30, 2026, compared to $54.4 million used in the prior-year period. Total deposits increased by $407.7 million, reflecting growth in core deposits and deposit activity associated with the Company's digital payments activity. Proceeds from subordinated debt issuance of $9.7 million and common stock issuance of $5.5 million, net of issuance costs, also served as funding sources for the Company's asset growth during the period.
Cash, cash equivalents and restricted cash increased $82.0 million during the nine months ended September 30, 2026, compared to an increase of $38.9 million during the same period in 2025. The increase was driven primarily by a significant customer deposit held across quarter-end that was partially offset by the Bank's continuing strategic reallocation of liquidity into higher yielding asset classes, consistent with the Company's strategic objectives.
REGULATORY CAPITAL REQUIREMENTS
As of September 30, 2026, the Bank's regulatory capital ratios exceeded the minimum levels required for classification as "well capitalized" under applicable federal banking regulations. On June 30, 2026, the OCC terminated the Formal Agreement with the Bank, and the Bank is no longer subject to the higher minimum capital ratios previously established thereunder. At September 30, 2026, the Bank's total risk-based capital ratio was 14.89%, its Tier 1 risk-based capital ratio was 13.97%, its common equity Tier 1 capital ratio was 13.97%, and its Tier 1 leverage ratio was 9.79%. See Note 14 to the consolidated financial statements for additional information regarding the Company's and the Bank's regulatory capital amounts and ratios.
Patriot National Bancorp Inc. published this content on November 12, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on November 12, 2026 at 13:09 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]