Patriot National Bancorp Inc.
08/14/2025 | Press release | Distributed by Public on 08/14/2025 14:14
Quarterly Report for Quarter Ending June 30, 2025 (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.
Many possible events or factors could affect Patriot's future financial results and performance and could cause the actual results, performance or achievements of Patriot to differ materially from any anticipated results expressed or implied by such forward-looking statements. Such risks and uncertainties include, among others:
(1)We are operating under a formal agreement with the OCC requiring our Board of Directors to implement enhancements in strategic planning, capital planning, BSA/AML compliance, payment activities oversight, credit administration, and concentration risk management. The agreement reflects the OCC's supervisory view that our controls in these areas must be strengthened. Failure to meet the agreement's requirements on a timely basis could result in additional regulatory actions or restrictions, which could adversely affect our operations and financial condition.
(2)Our Digital Payments Division relies on third-party program managers and processors to operate programs under our BINs. Because certain transactions occur through their systems, our visibility and direct control over all activities may be limited. This structure increases our exposure to fraud, compliance failures, and operational issues by third parties, which could result in financial losses, regulatory action, network penalties, and reputational harm.
(3)changes in prevailing interest rates which would affect the interest earned on the Company's interest earning assets and the interest paid on its interest bearing liabilities;
(4)the timing of re-pricing of the Company's interest earning assets and interest bearing liabilities;
(5)the effect of changes in governmental monetary policy;
(6)the effect of changes in regulations applicable to the Company and the Bank and the conduct of its business;
(7)changes in competition among financial service companies, including possible further encroachment of non-banks on services traditionally provided by banks;
(8)the ability of competitors that are larger than the Company to provide products and services which it is impracticable for the Company to provide;
(9)the state of the economy and real estate values in the Company's market areas, and the consequent effect on the quality of the Company's loans;
(10)demand for loans and deposits in our market area;
(11)recent governmental initiatives that are expected to have a profound effect on the financial services industry and could dramatically change the competitive environment of the Company;
(12)other legislative or regulatory changes, including those related to residential mortgages, changes in accounting standards, and Federal Deposit Insurance Corporation ("FDIC") premiums that may adversely affect the Company;
(13)the application of generally accepted accounting principles in the United States of America ("U.S. GAAP"), consistently applied;
(14)the fact that one period of reported results may not be indicative of future periods;
(15)the state of the economy in the greater New York metropolitan area and its particular effect on the Company's customers, vendors and communities and other such factors, including risk factors, as may be described in the Company's other filings with the Securities and Exchange Commission (the "SEC");
(16)political, social, legal and economic instability, civil unrest, war, catastrophic events, acts of terrorism;
(17)possible future outbreaks of infectious diseases, including the ongoing novel coronavirus (COVID-19) outbreak;
(18)changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for c losses;
(19)our ability to access cost-effective funding;
(20)our ability to implement and change our business strategies;
(21)changes in the quality or composition of our loan or investment portfolios;
(22)technological changes that may be more difficult or expensive than expected;
(23)our ability to manage market risk, credit risk and operational risk in the current economic environment;
(24)our ability to enter new markets successfully and capitalize on growth opportunities;
(25)changes in consumer spending, borrowing and savings habits;
(26)our ability to retain key employees;
(27)our compensation expense associated with equity allocated or awarded to our employees;
(28)the premiums paid for the guaranteed portion of SBA loans by third party investors;
(29)our ability to meet regulatory capital requirements; and
(30)the imposition of new or increased tariffs on imported or exported goods, which could negatively impact economic activity in the Company's markets, affect the creditworthiness of borrowers, and reduce demand for the Company's products and services.
The risks and uncertainties included here are not exhaustive. In addition to those included herein further information concerning our business, including additional factors that could materially affect our financial results, is included in our other filings with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2024 (the "2024 Form 10-K"). Further, it is not possible to assess the effect of all risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. In addition, we disclaim any obligation to update any forward-looking statements to reflect events or circumstances that occur after the date of this report.
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 to disclose contingent assets and liabilities. Actual results could differ from those estimates. Management has identified the accounting for the allowance for credit losses as one of the Company's most critical accounting policies and estimates because it is important to the portrayal of the Company's financial condition and results of operations. This area requires management's most subjective and complex judgment due to the need to make estimates about the effect of matters that are inherently uncertain. Refer to the Company's 2024 Form 10-K for additional information.
Summary
The Company reported net loss of $5.0 million ($0.06 basic and diluted loss per share) for the quarter ended June 30, 2025, compared to a net loss of $3.1 million ($0.77 basic and diluted loss per share) for the quarter ended June 30, 2024.
For the six months ended June 30, 2025, the net loss was $7.8 million, or $0.17 basic and diluted loss per share, compared to a net loss of $3.4 million, ($0.85 basic and diluted loss per share) for the six months ended June 30, 2024. This represents a year-over-year increase in net loss of $4.4 million.
For the three and six months ended June 30, 2025, net interest income declined $835,000 and $2.3 million, compared to the three and six months ended June 30, 2024, respectively, due to an intentional decline in loan balances. The Company reported a decrease in gross loans of $119.9 million in 2025, from $707.5 million at December 31, 2024 to $587.5 million at June 30, 2025. The Company has continued the trend of restricting loan growth and allowing loans to pay down as the balance sheet is reduced in order to strengthen capital ratios.
Private Placement
On March 20, 2025, the Company entered into (i) securities purchase agreements (the "Co-Lead Investors Agreements") with its President and director, Steven Sugarman, and three co-lead investors, and (ii) securities purchase agreements with other accredited investors (collectively, and together with the Co-Lead Investors and the Lead Party, the "Purchasers").
Also on March 20, 2025, the Company completed a $57.8 million private placement of: (i) shares of the Company's common stock, par value 0.01 per share ("Common Stock"), at a purchase price of $0.75 per share, and (ii) shares of a new series of the Company's preferred stock, no par value per share, designated as Series A Non-Cumulative Perpetual Convertible Preferred Stock (the "Series A Preferred Stock"), with a liquidation preference of $60 per share (the "Private Placement").
The Private Placement included the issuance of: (i) 60,400,106 shares of Common Stock, and (ii) 90,832 shares of Series A Preferred Stock, convertible, in the aggregate, into 7,266,560 shares of Common Stock.
Amendment to Notes
In addition, as part of the Private Placement, on March 20, 2025, the Company's amendments to (i) 6.25% Fixed to Floating Subordinated Note due June 30, 2028 (the "Subordinated Note"), and (ii) 8.5% Fixed Rate Senior Notes Due 2026 (the "Senior Notes" and together with the Subordinated Note, the "Notes") became effective and noteholders converted approximately $7.0 million of the aggregate principal amount of the Notes into 9,333,334 shares of Common Stock.
The amendment to the Subordinated Note provides that the interest on the Subordinated Note will be paid-in-kind ("PIK") and the aggregate outstanding principal amount of the Subordinated Note will be automatically increased on each interest payment date by the amount of such PIK interest for all accrued and unpaid interest payments as of the closing date of the Private Placement and for future scheduled interest payments owed through and including the March 30, 2026 interest payment date. In addition, pursuant to such amendment, the noteholder agreed to convert $2.0 million of the outstanding principal amount of the Subordinated Note into shares of Common Stock effective on the closing date of the Private Placement. The amendment to the Senior Notes provides that (i) the maturity date of the Senior Notes will be extended to April 15, 2028, (ii) the interest rate will be increased to 10.0% effective as of January 1, 2026, and (iii) at any time prior to the maturity date, the Company may repay any amount of the outstanding principal amount of the Senior Notes, in whole or in part, without penalty. In addition, pursuant to such amendment, the noteholders agreed to convert into shares of Common Stock an amount of the outstanding Senior Notes, on a pro rata basis, equal to $5.0 million based on the terms of the amendment and the closing of the Private Placement, and all accrued and unpaid interest payments as of the closing date of the Private Placement and for future scheduled interest payments owed through the January 15, 2026 payment may be PIK.
The amendment to the Subordinated Note provides that the interest on the Subordinated Note will be paid-in-kind ("PIK") and the aggregate outstanding principal amount of the Subordinated Note will be automatically increased on each interest payment date by the amount of such PIK interest for all accrued and unpaid interest payments as of the closing date of the Private Placement and for future scheduled interest payments owed through and including the March 30, 2026 interest payment date. In addition, pursuant to such amendment, the noteholder agreed to convert $2.0 million of the outstanding principal amount of the Subordinated Note into shares of Common Stock effective on the closing date of the Private Placement.
The amendment to the Senior Notes provides that (i) the maturity date of the Senior Notes will be extended to April 15, 2028, (ii) the interest rate will be increased to 10.0% effective as of January 1, 2026, and (iii) at any time prior to the maturity date, the Company may repay any amount of the outstanding principal amount of the Senior Notes, in whole or in part, without penalty. In addition, pursuant to such amendment, the noteholders agreed to convert into shares of Common Stock an amount of the outstanding Senior Notes, on a pro rata basis, equal to $5.0 million based on the terms of the amendment and the closing of the Private Placement, and all accrued and unpaid interest payments as of the closing date of the Private Placement and for future scheduled interest payments owed through the January 15, 2026 payment may be PIK.
As of June 30, 2025, the Private Placement results in capital ratios that are in excess of the minimums required by the OCC Agreement.
Note Conversions
On May 13, 2025, two holders of the Senior Notes, converted a total of $1,896,957 of the aggregate principal and accrued unpaid interest due on the Senior Notes into 2,529,275 shares of Common Stock.
On July 25, 2025, Unity Bancorp Inc. ("Unity") notified the Company of its desire to convert the entire outstanding principal balance and accrued unpaid interest of the Senior Notes, totaling $2,005,027, into 2,673,369 shares of Common Stock at a conversion price of $0.75 per share. Similarly, on July 26, 2025, American Bank Incorporated ("AmBank") provided notice to convert its outstanding principal balance and accrued unpaid interest of its Senior Note, amounting to $803,443, into 1,071,258 shares of Common Stock at the same conversion price of $0.75 per share.
Registered Direct Offering
On July 5, 2025, the Company completed its registered direct offering of 8,524,160 shares of its common stock at a purchase price of $1.25 per share, raising gross proceeds of $10,655,200.
FINANCIAL CONDITION
Total assets decreased $82.3 million to $930.0 million as of June 30, 2025, compared to $1.01 billion at December 31, 2024, primarily due to the decline in gross loans receivable of $119.9 million, partially offset by a $40.4 million increase in cash, cash equivalents and restricted cash as of June 30, 2025.
Cash, Cash Equivalents and Restricted Cash
Cash, cash equivalents and restricted cash increased from $162.6 million at December 31, 2024 to $203.0 million at June 30, 2025. The increase in 2025 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 $135.7 million reduction in deposits. Following the completion of the Private Placement, the Company reduced excess cash by lowering deposits. For further details, refer to the Consolidated Statements of Cash Flows.
Investments
The following table is a summary of the Company's investment securities portfolio, at fair value, at the dates shown:
| June 30, | December 31, | Increase /(Decrease) | |||||||||||||||||||||
| (In thousands) | 2025 | 2024 | ($) | (%) | |||||||||||||||||||
| U. S. Government agency and mortgage-backed securities | $ | 60,390 | $ | 60,223 | $ | 167 | 0.28 | % | |||||||||||||||
| Corporate bonds | 13,191 | 12,735 | 456 | 3.58 | % | ||||||||||||||||||
| Subordinated notes | 3,544 | 3,461 | 83 | 2.40 | % | ||||||||||||||||||
| SBA loan pools | 3,502 | 3,573 | (71) | (1.99) | % | ||||||||||||||||||
| Total available-for-sale securities, at fair value | 80,627 | 79,992 | 635 | 0.79 | % | ||||||||||||||||||
| Other investments, at cost | 4,450 | 4,450 | - | - | % | ||||||||||||||||||
| Total investment securities | $ | 85,077 | $ | 84,442 | $ | 635 | 0.75 | % | |||||||||||||||
Total investments increased by $700,000, from $84.4 million at December 31, 2024 to $85.1 million at June 30, 2025. The increase in the six months ended June 30, 2025 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. During the six months ended June 30, 2025, the Bank did not sell any available-for-sale securities.
Loans held for investment
The following table provides the composition of the Company's loan held for investment portfolio as of June 30, 2025 and December 31, 2024:
| (In thousands) | June 30, 2025 | December 31, 2024 | |||||||||||||||||||||
| Amount | % | Amount | % | ||||||||||||||||||||
| Loan portfolio segment: | |||||||||||||||||||||||
| 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) | (7,305) | |||||||||||||||||||||
| Loans receivable, net | $ | 579,753 | $ | 700,167 | |||||||||||||||||||
The Company's loan portfolio decreased $119.9 million, from $707.5 million at December 31, 2024 to $587.5 million at June 30, 2025. The Company has continued the trend of restricting loan growth and allowing loans to pay down as the balance sheet is reduced in order to strengthen capital ratios. For the three and six months ended June 30, 2025, the Company sold $15.9 million Home Equity Line of Credit loans and $28.9 million purchased residential restate loans, resulting a recognized net loss of $995,000 on the sale. No loans were sold during the three and six months ended June 30, 2024.
SBA loans held for investment were included in the commercial real estate loans and commercial and industrial loan classifications above. As of June 30, 2025 and December 31, 2024, SBA loans included in the commercial real estate loans were $10.5 million and $18.7 million, respectively. As of June 30, 2025 and December 31, 2024, SBA loans included in the commercial and industrial loans were $10.2 million and $11.2 million, respectively.
At June 30, 2025, the net loan to deposit ratio was 69.8% and the net loan to total assets ratio was 62.3%. At December 31, 2024, these ratios were 72.4% and 69.2%, respectively.
Commercial Real Estate Loans ("CRE")
The following table provides the composition of the commercial real estate loan portfolio segment as of June 30, 2025 and December 31, 2024:
| (In thousands) | June 30, 2025 | December 31, 2024 | |||||||||||||||||||||
| Amount | % | Amount | % | ||||||||||||||||||||
| Commercial Real Estate | |||||||||||||||||||||||
| 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 | % | |||||||||||||||
The following table provides the commercial real estate loan portfolio segment by geographic concentrations as of June 30, 2025 and December 31, 2024:
| (In thousands) | June 30, 2025 | December 31, 2024 | |||||||||||||||||||||
| Amount | % | Amount | % | ||||||||||||||||||||
| 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 (1) | 64,026 | 17.29 | % | 86,193 | 20.55 | % | |||||||||||||||||
| Total Commercial Real Estate | $ | 370,376 | 100.00 | % | $ | 419,489 | 100.00 | % | |||||||||||||||
(1) Outside Market consists of loans in all other states, none of which are greater than 5% of the total.
In accordance with OCC Bulletin 2006-46, "Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices: Interagency Guidance on CRE Concentration Risk Management", and the Joint Interagency Guidance (71 FR 74580), the Bank monitors its CRE lending relative to total capital. As of June 30, 2025, the Bank's CRE concentration was 301% of total Tier 1 capital plus allowance for credit loss, below the Bank's concentration policy limit of 350%. This concentration level is slightly above the 300% supervisory monitoring threshold outlined in the guidance. Exceeding this threshold does 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. For purposes of calculating the Bank's CRE concentration in accordance with this regulatory guidance, owner-occupied CRE loans are excluded from the CRE total and classified as commercial and industrial ("C&I") loans; however, the CRE portfolio tables above include owner-occupied CRE for presentation purposes.
Allowance for Credit Losses ("ACL") on Loans
The allowance for credit losses on loans was $7.8 million as of June 30, 2025, compared to $7.3 million as of December 31, 2024, an increase of $490,000. The increase in allowance was mainly attributed to qualitative factors incorporated into the ACL calculations, even though a reduction in loan balances and the recognition of charge-offs on the unsecured consumer loan portfolio would typically suggest a decrease. Based upon the overall assessment and evaluation of the loan portfolio as of June 30, 2025, management has determined that the $7.8 million allowance for credit loss, representing 1.33% of gross loans outstanding, is adequate to cover expected credit losses under current economic conditions. This assessment follows CECL guidance, which requires estimating expected losses over the life of the loans, considering historical data, current conditions, and future forecasts.
Pursuant to guidance provided in OCC Bulletin 2020-49 and Interagency Policy Statement on Allowances for Credit Losses (May 8, 2020), the Bank refined the use of qualitative factors ("Q-Factors") in its ACL methodology and calculations in the second quarter of 2025.
The application of the chosen Q-Factors added a net 12 bps to the overall reserves for Q2. The model-only ACL yielded 1.21% of total reserves - and the addition of 12 bps of Q-Factors increased the final ACL to 1.33% of total loans. The Q-Factors make up 9% of the total ACL calculation in Q2, a reasonable addition for the introduction.
The Q-Factors are applied to specific loan pools and are quantified using management's best estimates. As noted below, a total of 15 bps of Q-Factors was applied, but because the application is on a pool-by-pool basis, the net effect is only 12 bps across total loans.
The following table provides detail of activity in the allowance for credit losses on loans for the three and six months ended June 30, 2025 and 2024:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (In thousands) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||
| Balance at beginning of the period | $ | 6,729 | $ | 13,777 | $ | 7,305 | $ | 15,925 | |||||||||||||||
| Charge-offs: | |||||||||||||||||||||||
| Commercial Real Estate | - | - | (635) | (158) | |||||||||||||||||||
| Residential Real Estate | - | - | - | (21) | |||||||||||||||||||
| Commercial and Industrial | (11) | (404) | (130) | (814) | |||||||||||||||||||
| Consumer and Other | (754) | (1,849) | (1,670) | (4,372) | |||||||||||||||||||
| Total charge-offs | (765) | (2,253) | (2,435) | (5,365) | |||||||||||||||||||
| Recoveries: | |||||||||||||||||||||||
| Commercial and Industrial | 20 | 72 | 106 | 78 | |||||||||||||||||||
| Consumer and Other | 209 | 260 | 461 | 565 | |||||||||||||||||||
| Total recoveries | 229 | 332 | 567 | 643 | |||||||||||||||||||
| 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 the period | $ | 7,795 | $ | 14,989 | $ | 7,795 | $ | 14,989 | |||||||||||||||
| Ratios: | |||||||||||||||||||||||
| 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 | % | |||||||||||||||
For the three months ended June 30, 2025, net charge-offs decreased $1.4 million to $536,000, with a net charge-offs to average loans ratio of 0.08%, compared to $1.9 million and 0.24% for the three months ended June 30, 2024.
For the six months ended June 30, 2025, net charge-offs declined $2.9 million to $1.9 million, with a net charge-offs to average loans ratio of 0.55% , down from $4.7 million and 1.15% for the six months ended June 30, 2024.
The reduction in net charge-offs for both three and six months ended June 30, 2025 was primary driven by a $2.7 million decrease in charge-offs related to purchased unsecured consumer loans as the portfolio balances have declined.
The average loan balance decreased by $148.0 million, from $805.7 million for the three months ended June 30, 2024, to $657.7 million for the three months ended June 30, 2025. For the six-month period, the average loan balance decreased $139.4 million, from $823.4 million in 2024 to $684.0 million in 2025. This decrease in average loan balance for the three and six months ended June 30, 2025, reflects the Company's continued approach of limiting loan growth and allowing loans to pay down to strengthen capital ratios as the balance sheet is reduced.
As of June 30, 2025 and June 30, 2024, the ACL was $7.8 million and $15.0 million, respectively. The decrease was due to significant charge-offs of reserved CRE and consumer loans in 2024, which also impacted the ACL to loans ratio of 1.33% as of June 30, 2025, compared to an ACL of $15.0 million and an ACL to loans ratio of 1.93% as of June 30, 2024.
The nonaccrual loan balance was $24.2 million as of June 30, 2025, compared to $37.4 million as of June 30, 2024. The allowance for credit losses to nonaccrual loans ratio was 32.15% as of June 30, 2025, compared to 40.11% as of June 30, 2024. The rate at June 30, 2024 was significantly higher due to reserves on individually evaluated CRE loans that were subsequently charged-off after June 30, 2024.
The following table provides an allocation of allowance for credit losses on loans by portfolio segment:
| (In thousands) | June 30, 2025 | December 31, 2024 | |||||||||||||||||||||
| Allowance for credit losses | Percent of loans in each category to total loans | Allowance for credit losses | Percent of loans in each category to total loans | ||||||||||||||||||||
| Commercial Real Estate | $ | 2,436 | 63.04 | % | $ | 2,241 | 59.30 | % | |||||||||||||||
| Residential Real Estate | 519 | 10.23 | % | 596 | 13.03 | % | |||||||||||||||||
| Commercial and Industrial | 1,785 | 20.79 | % | 1,077 | 18.32 | % | |||||||||||||||||
| Consumer and Other | 3,050 | 5.68 | % | 3,386 | 8.48 | % | |||||||||||||||||
| Construction | 5 | 0.25 | % | 5 | 0.54 | % | |||||||||||||||||
| Construction to permanent - CRE | - | 0.01 | % | - | 0.33 | % | |||||||||||||||||
| Total Allowance for credit losses | $ | 7,795 | 100.00 | % | $ | 7,305 | 100.00 | % | |||||||||||||||
Non-performing Assets
The following table presents non-performing assets as of June 30, 2025 and December 31, 2024:
| June 30, 2025 | December 31, 2024 | ||||||||||
| Non-accruing loans: | |||||||||||
| Commercial Real Estate | $ | 20,893 | $ | 19,334 | |||||||
| Residential Real Estate | - | 109 | |||||||||
| Commercial and Industrial | 2,869 | 3,341 | |||||||||
| Consumer and Other | 453 | 730 | |||||||||
| Construction to Permanent - CRE | 31 | 2,357 | |||||||||
| 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 | % | |||||||
As of June 30, 2025, non-accrual loans decreased to $24.2 million, compared to $25.9 million as of December 31, 2024. The non-accrual loans at June 30, 2025 was comprised of 166 borrowers. Of these, 14 loans were individually evaluated, and the specific reserve was zero. All individually evaluated loans were collateral dependent loans, the Bank has obtained appraisal reports from independent licensed appraisal firms and discounted those values based on the Bank's experience selling OREO properties and for estimated selling costs to determine estimated impairment. No individually evaluated loans were cash flow dependent loans.
As of December 31, 2024, the $25.9 million of non-accrual loans was comprised of 335 borrowers. Of which, 14 loans were individually evaluated, and a specific reserve of $463,000 was established.
Loans held for sale
SBA loans held for sale totaled zero as of June 30, 2025 and December 31, 2024. SBA loans held for sale represent the guaranteed portion of SBA loans and are reflected at the lower of aggregate cost or market value.
As of June 30, 2025 and December 31, 2024, the credit card loans held for sale from Digital Payments division totaled $15.0 million and $11.4 million, respectively. The credit card loans expected to be held for no longer than three days before being sold. The credit card receivable are fully cash-secured by deposits at Patriot. The credit card loans are sold to the third party as a whole loan sale transaction, priced at Par, thus there is no servicing asset or gain or loss on sale.
As of June 30, 2025 and December 31, 2024, the Company reported residential mortgage loans held for sale totaling $283,000 and $4.3 million, respectively. These loans are recorded at the lower of aggregate cost or market value. For the three and six months ended June 30, 2025, a total gain on sale of $43,000 was recorded. A servicing asset of $62,000 was recognized as of June 30, 2025. In April 2025, the Company decided to close the Residential Mortgage Division.
Deferred Taxes
Patriot accounts for income taxes under the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The liability method requires that any tax benefits recognized for net operating loss carry forwards and other items be reduced by a valuation allowance when it is more likely than not that the benefits may not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under the liability method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Deferred tax assets ("DTA") were zero both at June 30, 2025 and December 31, 2024 as Patriot recorded a full valuation allowance against all of the DTAs as of September 30, 2024. Patriot evaluates its ability to realize its deferred tax assets on a quarterly basis. In doing so, management considers all available evidence, both positive and negative, to determine whether it is more likely than not that the deferred tax assets will be realized. The Company will continue to evaluate its ability to realize its deferred tax assets. If future evidence suggests that it is more likely than not that additional deferred tax assets will be realized, the valuation allowance will be adjusted.
The effective tax benefit rate for the three months ended June 30, 2025 was (0.97)%, compared to the effective tax benefit rate for the three months ended June 30, 2024 of (23.07)%. The effective tax benefit rates for the six months ended June 30, 2025 and June 30, 2024 were (0.61)% and (20.25)%, respectively. The Company's effective rate for the three and six months ended June 30, 2025 was affected by the change in the valuation allowance and for the three and six months ended June 30, 2024 was affected by state taxes and non-deductible expenses.
As of June 30, 2025, Patriot had available approximately $48.4 million of Federal net operating loss carryforwards ("NOL") that are offset by $15.5 million in §382 limitations imposed by the Internal Revenue Code. After applying the limitation, Patriot has $32.9 million post-change NOL which do not expire. Patriot has not performed an analysis on the post-change NOL, but the potential impact of any additional limitation would not be material to the financial statements due to the fact that the NOL are fully offset by a valuation allowance.
Patriot has approximately $66.7 million of NOLs available for Connecticut tax purposes at June 30, 2025, which may be used to offset up to 50% of taxable income in any year. Approximately $63.2 million of the NOL will expire between 2030 and 2044 and approximately $3.3 million of the NOL will expire in 2055.
On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. We are currently assessing its impact on our Consolidated Financial Statements.
Deposits
The following table is a summary of the Company's deposits at the dates shown:
| (In thousands) | June 30, | December 31, | Increase/(Decrease) | ||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||
| Non-interest bearing: | |||||||||||||||||||||||
| Non-interest bearing | $ | 73,204 | $ | 106,689 | $ | (33,485) | (31.39) | % | |||||||||||||||
| Non-interest bearing DDA- Digital Payments | 33,746 | 12,523 | 21,223 | 169.47 | % | ||||||||||||||||||
| Total non-interest bearing | 106,950 | 119,212 | (12,262) | (10.29) | % | ||||||||||||||||||
| Interest bearing: | |||||||||||||||||||||||
| Negotiable order of withdrawal accounts (NOW) | 23,865 | 31,549 | (7,684) | (24.36) | % | ||||||||||||||||||
| Savings | 34,081 | 38,743 | (4,662) | (12.03) | % | ||||||||||||||||||
| Interest bearing DDA (net of $ 2,067 in deposits sold as of June 30, 2025) | 19,251 | 19,630 | (379) | (1.93) | % | ||||||||||||||||||
| Interest bearing DDA - Digital Payments (net of $26,671 in deposits sold as of June 30, 2025) | 167,341 | 186,365 | (19,024) | (10.21) | % | ||||||||||||||||||
| Money market | 178,448 | 195,369 | (16,921) | (8.66) | % | ||||||||||||||||||
| Money market - Digital Payments | 15,778 | 66,654 | (50,876) | (76.33) | % | ||||||||||||||||||
| Certificates of deposit, $250,000 or less | 159,260 | 174,095 | (14,835) | (8.52) | % | ||||||||||||||||||
| Certificates of deposit, more than $250,000 | 58,761 | 65,278 | (6,517) | (9.98) | % | ||||||||||||||||||
| Brokered deposits | 67,122 | 69,702 | (2,580) | (3.70) | % | ||||||||||||||||||
| 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 retail branch bank deposits | $ | 364,749 | $ | 412,960 | $ | (48,211) | (11.67) | % | |||||||||||||||
| Total uninsured deposits | 194,842 | 297,845 | (103,003) | (34.58) | % | ||||||||||||||||||
| Uninsured deposits to total deposits | 23.45 | % | 30.81 | % | |||||||||||||||||||
| Non-GAAP uninsured deposits to total deposits excluding Digital Payments deposits | 16.02 | % | 15.80 | % | |||||||||||||||||||
Total deposits decreased by $135.7 million, from $966.6 million as of December 31, 2024, to $830.9 million as of June 30, 2025. The reduction was primarily driven by management focus on allowing high-cost non-relationship deposits to decrease, along with $28.7 million in deposits which were sold through the IntraFi network as of June 30, 2025. There were no such deposit sales as of December 31, 2024.
Non-GAAP Financial Measures:
In addition to evaluating the Company's financial performance in accordance with U.S. generally accepted accounting principles ("GAAP"), management may evaluate certain non-GAAP financial measures, such as uninsured deposits to total deposits excluding Digital Payments deposits. A computation and reconciliation of non-GAAP financial measures used for these purposes is contained in the accompanying Reconciliation of GAAP to Non-GAAP Measures tables. We believe that by excluding Digital Payments deposits, management can present a view of uninsured deposits that better reflects the Company's traditional deposit base, providing investors with useful information for understanding our uninsured deposits position and financial stability. Digital Payments deposits are analyzed for FDIC insurance at the Program Manager level. Certain accounts are reciprocal deposits through the IntraFi network and therefore the entire deposit balances qualify for FDIC insurance. The remaining deposit balances are aggregated at the Program Manager level, and any deposits exceeding $250,000 are considered uninsured.
The non-GAAP financial measures should not be considered a substitute for GAAP basis measures and results, and we strongly encourage investors to review our consolidated financial statements in their entirety and not to rely on any single financial measure.
Reconciliation of GAAP to Non-GAAP Measures (unaudited):
| (Dollars in thousands) | June 30, 2025 | December 31, 2024 | |||||||||
| Non-GAAP Uninsured deposits to total deposits excluding Digital Payments deposits | |||||||||||
| Total deposits | $ | 830,857 | $ | 966,597 | |||||||
| Digital Payments deposits | 216,865 | 265,542 | |||||||||
| Non-GAAP total deposits excluding Digital Payments deposits | 613,992 | 701,055 | |||||||||
| Total uninsured deposits | $ | 194,842 | $ | 297,845 | |||||||
| Total uninsured Digital Payments deposits | 96,481 | 187,048 | |||||||||
| Total uninsured deposits excluding Digital Payments deposits | 98,361 | 110,797 | |||||||||
| Non-GAAP uninsured deposits to total deposits excluding Digital Payments deposits | 16.02 | % | 15.80 | % | |||||||
Borrowings
Total borrowings were $22.3 million and $33.1 million as of June 30, 2025 and December 31, 2024, respectively. Borrowings consist primarily of FHLB advances, senior notes, subordinated notes, junior subordinated debentures and a note payable. The senior notes, subordinated notes and junior subordinated debentures contain affirmative covenants that require the Company to maintain its and its subsidiaries' legal entity and tax status, pay its income tax obligations on a timely basis, and comply with SEC and FDIC reporting requirements.
Federal Home Loan Bank borrowings
As of June 30, 2025, the Company had $135.6 million in book value and $93.3 million in discounted value of pledged collateral with the FHLB-B. The pledged collateral consisted of a mixture of residential and commercial real estate loans and lines of credit. The maximum borrowing capacity is limited to the lesser of 5.00% of the Bank's most recently reported Call Report total assets or the discount value of the pledged collateral. Accordingly, as of June 30, 2025 the Company's maximum borrowing capacity with the FHLB-B is $46.5 million. Of this amount, $45.0 million was used by a standby letter of credit, as described further in Note 10 Financial Instruments with Off-Balance-Sheet Risk. Additionally, $250,000 of the maximum borrowing capacity was used by an overnight line of credit designed to cover the Bank for temporary overdraft positions. As of June 30, 2025 and December 31, 2024, no funds had been borrowed under the overnight line of credit.
FHLB-B advances are structured to facilitate the Bank's management of its balance sheet and liquidity requirements. Outstanding advances from the FHLB-B decreased from $3.0 million at December 31, 2024 to zero at June 30, 2025.
Interest expense incurred for the three and six months ended June 30, 2025 were $1,000 and $3,000, respectively. Interest expense incurred for the three and six months ended June 30, 2024 were $362,000 and $721,000, respectively.
Correspondent Bank - Line of Credit
Patriot has entered into unsecured federal funds sweep and federal funds line of credit facility agreements with certain correspondent banks. As of June 30, 2025, no unsecured lines of credit were available. Borrowings available under the agreements totaled $5.0 million December 31, 2024. The purpose of the agreements is to provide a credit facility intended to satisfy overnight federal account balance requirements and to provide for daily settlement of FRB, Automated Clearing House (ACH), and other clearinghouse transactions.
There was no outstanding balance under the agreements at June 30, 2025 and December 31, 2024. No Interest expense incurred for the three and six months ended June 30, 2025. For three and six months ended June 30, 2024, interest expense incurred was nil and $2,000, respectively.
Other Borrowing
The Federal Reserve Bank of New York ("FRBNY") accepts securities and loan pledges from qualifying depository institutions to secure borrowings from the Federal Reserve Discount Window ("Discount Window"). Patriot has pledged eligible securities and loans as collateral to support its borrowing capacity at the FRBNY. As of June 30, 2025, Patriot had pledged eligible securities and loans with a book value of $137.7 million and a collateral value of $90.4 million. During the three and six months ended June 30, 2025, the Company borrowed $10.0 million and $70.0 million, respectively, from the Discount Window and repaid the amounts in full within the same periods. Related interest expense was $2,000 and $98,000, respectively. In the corresponding 2024 periods, no borrowings were made and no interest expense was incurred.
In July 2023, the Bank established a collateralized funding line of $73.8 million at par value under the Federal Reserve's temporary Bank Term Funding Program ("BTFP"). The program provided additional funding to eligible depository institutions, assuring they can meet the needs of all their depositors. The program served as an additional source of liquidity against high-quality securities, eliminating the need of an institution to quickly sell those securities in times of stress. The line allowed for a fixed rate borrowing at market rates, for up to one year, with repayment permitted at any time without penalty. The BTFP ceased allowing any new advances after March 11, 2024. The outstanding BTFP borrowing was paid off as of December 31, 2024. No interest expense incurred for the three and six months ended June 30, 2025. Interest expense incurred for the three and six months ended June 30, 2024 was $852,000 and $1.7 million, respectively.
Senior notes
On December 22, 2016, the Company issued $12 million of senior notes ("2016 Senior Notes") bearing interest at 7% per annum. On November 17, 2021, the original maturity date of the 2016 Senior Notes was extended from December 22, 2021 to June 30, 2022.
On June 22, 2022, the Company amended and restated the 2016 Senior Notes. The maturity date of the Senior Notes was further extended to December 31, 2022, and the interest rate increased from (i) 7% to 7.25% from July 1, 2022 until September 30, 2022 and (ii) from 7.25% to 7.50% thereafter. The 2016 Senior Notes was repaid in December 2022.
On December 21, 2022, the Company completed an issuance and sale of $12 million in aggregate principal amount of 8.50% fixed rate senior notes due January 15, 2026 ("2022 Senior Notes"). In connection with the issuance of the 2022 Senior Notes, the Company incurred $326,000 of costs, which are being amortized over the term of the 2022 Senior Notes to recognize a constant rate of interest expense. At June 30, 2025 and December 31, 2024, $44,000 and $139,000 of unamortized debt issuance costs were deducted from the face amount of the 2022 Subordinated Notes included in the Consolidated Balance Sheet, respectively.
The 2022 Senior Note Purchase Agreement contains certain customary representations, warranties, and covenants made by each of the Company and the Purchasers. The 2022 Senior Notes are not subject to any sinking fund and are not convertible into or exchangeable for any other securities or assets of the Company or any of its subsidiaries. The 2022 Senior Notes are not subject to redemption at the option of the holders. Principal and interest on the 2022 Senior Notes are subject to acceleration only in limited circumstances. The 2022 Senior Notes are an unsecured, unsubordinated obligation and ranks equally in right of payment to all of the Company's existing and future unsecured indebtedness, liabilities and other obligations that are not subordinated in right of payment to the Senior Note, and will be effectively subordinated to any of the Company's existing and future secured indebtedness, to the extent of the value of the collateral securing such indebtedness. The 2022 Senior Notes are the obligations of the Company only and are not obligations of, and are not guaranteed by, any of the Company's affiliates.
The Senior Notes were amended in March 2025. The amendment to the Senior Notes provides that (i) the maturity date of the Senior Notes will be extended to April 15, 2028, (ii) the interest rate will be increased to 10.0% effective as of January 1, 2026, and (iii) at any time prior to the maturity date, the Company may repay any amount of the outstanding principal amount of the Senior Notes, in whole or in part, without penalty. In addition, pursuant to such amendment, the noteholders agreed to convert into shares of Common Stock an amount of the outstanding Senior Notes, on a pro rata basis, equal to $5.0 million based on the terms of the amendment and the closing of the Private Placement, and all accrued and unpaid interest payments as of the closing date of the Private Placement and for future scheduled interest payments owed through the January 15, 2026 payment may be PIK.
On May 13, 2025, two noteholders of the Senior Notes converted a total of $1.90 million of the aggregate principal and accrued unpaid interest due on the Senior Notes into 2,529,275 shares of Common Stock.
For the three and six months ended June 30, 2025, the Company recognized interest expense of $183,000 and $505,000, respectively. Interest expense incurred for the three and six months ended June 30, 2024 was $289,000 and $579,000, respectively.
Subordinated notes
On June 29, 2018, the Company entered into certain subordinated note purchase agreements with two institutional accredited investors and completed a private placement of $10 million of fixed-to-floating rate subordinated notes with the maturity date of September 30, 2028 (the "Subordinated Notes") pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506(b) of Regulation D promulgated thereunder.
The Subordinated Notes initially bore interest at 6.25% per annum, from and including June 29, 2018, to but excluding, June 30, 2023, payable semi-annually in arrears. From and including June 30, 2023, until but excluding June 30, 2028 or an early redemption date, the interest rate shall reset quarterly to an interest rate per annum equal to the then current three-month LIBOR, which was replaced by SOFR in 2023 (but not less than zero) plus 332.5 basis points, payable quarterly in arrears. The Company may, at its option, beginning on June 30, 2023 and on any scheduled interest payment date thereafter, redeem the Subordinated Notes.
In connection with the issuance of the Subordinated Notes, the Company incurred $291,000 of debt issuance costs, which are being amortized over the term of the Subordinated Notes to recognize a constant rate of interest expense. At June 30, 2025 and December 31, 2024, $70,000 and $102,000 of unamortized debt issuance costs were deducted from the face amount of the Subordinated Notes included in the Consolidated Balance Sheets, respectively.
The Subordinated Notes were amended in March 2025. The amendment to the Subordinated Note provides that the interest on the Subordinated Note will be PIK and the aggregate outstanding principal amount of the Subordinated Note will be automatically increased on each interest payment date by the amount of such PIK interest for all accrued and unpaid interest payments as of the closing date of the Private Placement and for future scheduled interest payments owed through and including the March 30, 2026 interest payment date. In addition, pursuant to such amendment, the noteholder agreed to convert $2.0 million of the outstanding principal amount of the Subordinated Note into shares of Common Stock effective on the closing date of the Private Placement.
For the three and six months ended June 30, 2025, the Company recognized interest expense of $164,000 and $377,000, respectively. Interest expense incurred for the three and six months ended June 30, 2024 was $224,000 and $451,000, respectively.
Junior subordinated debt owed to unconsolidated trust
In 2003, the Patriot National Statutory Trust I ("the Trust"), which has no independent assets and is wholly-owned by the Company, issued $8.0 million of trust preferred securities. The proceeds, net of a $240,000 placement fee, were invested in junior subordinated debentures issued by the Company, which invested the proceeds in the Bank. The Bank used the proceeds to fund its operations.
Trust preferred securities currently qualify for up to 25% of the Company's Tier I Capital, with the excess qualifying as Tier 2 Capital.
The junior subordinated debentures are unsecured obligations of the Company. The debentures are subordinate and junior in right of payment to all present and future senior indebtedness of the Company. In addition to its obligations under the junior subordinated debentures and in conjunction with the Trust, the Company issued an unconditional guarantee of the trust preferred securities.
The junior subordinated debentures bear interest at three-month SOFR plus 3.15% and mature on March 26, 2033, at which time the principal amount borrowed will be due. The placement fee of $240,000 is amortized and included as a component of the periodic interest expense on the junior subordinated debentures, in order to produce a constant rate of interest expense. As of June 30, 2025 and December 31, 2024, the unamortized placement fee deducted from the face amount of the junior subordinated debt owed to the unconsolidated trust amounted to $96,000 and $101,000, respectively, and accrued interest on the junior subordinated debentures was $494,000 and $174,000, respectively.
For the three and six months ended June 30, 2025, the Company recognized interest expense of $163,000 and $325,000, respectively. Interest expense incurred for the three and six months ended June 30, 2024 was $180,000 and $359,000, respectively.
At its option, exercisable on a quarterly basis, the Company may redeem the junior subordinated debentures from the Trust, which would then redeem the trust preferred securities.
Note Payable
In September 2015, the Bank purchased the property in which its Fairfield, Connecticut branch is located for approximately $2.0 million, a property it had been leasing until that date. The purchase price was primarily satisfied by issuing the seller a $2.0 million, nine-year, promissory note bearing interest at a fixed rate of 1.75% per annum. As of June 30, 2025 and December 31, 2024, the outstanding balance on the note was $54,000 and $162,000, respectively. The note is secured by a first Mortgage Deed and Security Agreement on the purchased property. The note originally set to mature in August 2024, was extended from August 25, 2024 to September 1, 2025, with the Bank continuing its scheduled principal and interest payments. The note is secured by a first mortgage deed and security agreement on the purchased property.
For the three and six months ended June 30, 2025, the Company recognized interest expense of nil and $1,000, respectively. Interest expense incurred for the three and six months ended June 30, 2024 was $2,000 and $3,000, respectively.
Derivatives
As of June 30, 2025, Patriot has two interest rate swaps ("swaps"). One swap is with a loan customer to provide a facility to mitigate the fluctuations in the variable rate on the respective loan. The other swap is with an outside third party. The customer interest rate swap is matched in offsetting terms to the third party interest rate swap. The swaps are reported at fair value in other assets or other liabilities on the consolidated balance sheets. Patriot's swaps are derivatives, but are not designated as hedging instruments, thus any net gain or loss resulting from changes in the fair value is recognized in other noninterest income. The Company recognized no gain on the swaps for the three and six months ended June 30, 2025 and 2024.
Further discussion of the fair value of derivatives is set forth in Note 7 Derivatives to the Consolidated Financial Statements.
Equity
Equity increased $61.9 million, from $4.3 million at December 31, 2024 to $66.2 million at June 30, 2025. This increase was primarily due to a net capital raise of $57.75 million from the Private Placement on March 20, 2025, and a net proceeds of $10.47 million from a registered direct offering on June 3, 2025, and a net unrealized gain in investments of $2.2 million, partially offset by a net loss of $7.8 million for the six months ended June 30, 2025.
Off-Balance Sheet Commitments
The Company's off-balance sheet commitments primarily consist of commitments to lend of $53.7 million and $87.6 million as of June 30, 2025 and December 31, 2024, respectively.
As of June 30, 2025, the Bank has an irrevocable stand-by letter of credit for a maximum of $45 million, issued by the Federal Home Loan Bank of Boston on behalf of the Bank, with Mastercard as the beneficiary. This letter of credit was originally set to expire on April 30, 2025, but in April 2025, the expiration date was extended to April 30, 2026.
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 June 30, 2025 and 2024:
| (In thousands) | Three Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||||||||
| Average Balance | Interest | Yield | Average Balance | Interest | Yield | ||||||||||||||||||||||||||||||
| ASSETS | |||||||||||||||||||||||||||||||||||
| Interest Earning Assets: | |||||||||||||||||||||||||||||||||||
| Loans | $ | 657,729 | $ | 9,103 | 5.55 | % | $ | 805,682 | $ | 11,993 | 5.97 | % | |||||||||||||||||||||||
| Investments | 87,193 | 586 | 2.69 | % | 94,956 | 710 | 2.99 | % | |||||||||||||||||||||||||||
| Cash equivalents and other | 162,714 | 1,805 | 4.45 | % | 39,422 | 514 | 5.23 | % | |||||||||||||||||||||||||||
| Total interest earning assets | 907,636 | 11,494 | 5.08 | % | 940,060 | 13,217 | 5.64 | % | |||||||||||||||||||||||||||
| Cash and due from banks | 2,340 | 12,949 | |||||||||||||||||||||||||||||||||
| Allowance for credit losses | (6,523) | (12,980) | |||||||||||||||||||||||||||||||||
| OREO | 2,590 | 2,843 | |||||||||||||||||||||||||||||||||
| Other assets | 41,976 | 59,418 | |||||||||||||||||||||||||||||||||
| Total Assets | $ | 948,019 | $ | 1,002,290 | |||||||||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||||||
| Interest bearing liabilities: | |||||||||||||||||||||||||||||||||||
| Deposits | $ | 770,389 | $ | 6,793 | 3.54 | % | $ | 706,327 | $ | 6,285 | 3.57 | % | |||||||||||||||||||||||
| Borrowings | 121 | 3 | 9.94 | % | 112,335 | 1,214 | 4.33 | % | |||||||||||||||||||||||||||
| Senior notes | 6,674 | 183 | 10.97 | % | 11,770 | 289 | 9.82 | % | |||||||||||||||||||||||||||
| Subordinated debt | 16,266 | 327 | 8.06 | % | 18,019 | 404 | 8.99 | % | |||||||||||||||||||||||||||
| Note Payable | 70 | - | - | % | 286 | 2 | 2.80 | % | |||||||||||||||||||||||||||
| Total interest bearing liabilities | 793,520 | 7,306 | 3.69 | % | 848,737 | 8,194 | 3.87 | % | |||||||||||||||||||||||||||
| Demand deposits | 86,353 | 103,158 | |||||||||||||||||||||||||||||||||
| Other liabilities | 7,598 | 7,038 | |||||||||||||||||||||||||||||||||
| Total Liabilities | 887,471 | 958,933 | |||||||||||||||||||||||||||||||||
| Shareholders' equity | 60,548 | 43,357 | |||||||||||||||||||||||||||||||||
| Total Liabilities and Shareholders' Equity | $ | 948,019 | $ | 1,002,290 | |||||||||||||||||||||||||||||||
| Net interest income | $ | 4,188 | $ | 5,023 | |||||||||||||||||||||||||||||||
| Interest margin | 1.85 | % | 2.14 | % | |||||||||||||||||||||||||||||||
| Interest spread | 1.39 | % | 1.77 | % | |||||||||||||||||||||||||||||||
The following tables present daily average balance sheets, interest income, interest expense and the corresponding yields earned and rates paid for the six months ended June 30, 2025 and 2024:
| (In thousands) | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||||||||
| Average Balance | Interest | Yield | Average Balance | Interest | Yield | ||||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||
| Interest earning assets: | |||||||||||||||||||||||||||||||||||
| Loans | $ | 683,959 | $ | 19,083 | 5.63 | % | $ | 823,380 | $ | 24,641 | 6.00 | % | |||||||||||||||||||||||
| Investments | 86,895 | 1,161 | 2.67 | % | 95,984 | 1,442 | 3.00 | % | |||||||||||||||||||||||||||
| Cash equivalents and restricted cash | 171,509 | 3,798 | 4.47 | % | 43,079 | 1,135 | 5.28 | % | |||||||||||||||||||||||||||
| Total interest earning assets | 942,363 | 24,042 | 5.14 | % | 962,443 | 27,218 | 5.67 | % | |||||||||||||||||||||||||||
| Cash and due from banks | 2,632 | 7,814 | |||||||||||||||||||||||||||||||||
| Allowance for credit losses | (8,306) | (13,868) | |||||||||||||||||||||||||||||||||
| OREO | 2,714 | 2,843 | |||||||||||||||||||||||||||||||||
| Other assets | 42,273 | 64,608 | |||||||||||||||||||||||||||||||||
| Total Assets | $ | 981,676 | $ | 1,023,840 | |||||||||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||||||
| Interest bearing liabilities: | |||||||||||||||||||||||||||||||||||
| Deposits | $ | 817,188 | $ | 14,591 | 3.60 | % | $ | 726,214 | $ | 12,971 | 3.58 | % | |||||||||||||||||||||||
| Borrowings | 4,503 | 101 | 4.52 | % | 112,204 | 2,428 | 4.34 | % | |||||||||||||||||||||||||||
| Senior notes | 8,932 | 505 | 11.31 | % | 11,752 | 579 | 9.85 | % | |||||||||||||||||||||||||||
| Subordinated debt | 17,021 | 702 | 8.32 | % | 18,014 | 810 | 9.02 | % | |||||||||||||||||||||||||||
| Note Payable | 97 | 1 | 2.08 | % | 312 | 3 | 1.93 | % | |||||||||||||||||||||||||||
| Total interest bearing liabilities | 847,741 | 15,900 | 3.78 | % | 868,496 | 16,791 | 3.88 | % | |||||||||||||||||||||||||||
| Demand deposits | 90,192 | 104,485 | |||||||||||||||||||||||||||||||||
| Other liabilities | 7,241 | 6,795 | |||||||||||||||||||||||||||||||||
| Total Liabilities | 945,174 | 979,776 | |||||||||||||||||||||||||||||||||
| Shareholders' equity | 36,502 | 44,064 | |||||||||||||||||||||||||||||||||
| Total Liabilities and Shareholders' Equity | $ | 981,676 | $ | 1,023,840 | |||||||||||||||||||||||||||||||
| Net interest income | $ | 8,142 | $ | 10,427 | |||||||||||||||||||||||||||||||
| Interest margin | 1.74 | % | 2.17 | % | |||||||||||||||||||||||||||||||
| Interest spread | 1.36 | % | 1.79 | % | |||||||||||||||||||||||||||||||
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 six months ended June 30, 2025 and 2024.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| 2025 compared to 2024 | 2025 compared to 2024 | ||||||||||||||||||||||||||||||||||
| (In thousands) | Increase/(Decrease) | Increase/(Decrease) | |||||||||||||||||||||||||||||||||
| Volume | Rate | Total | Volume | Rate | Total | ||||||||||||||||||||||||||||||
| Interest earning assets: | |||||||||||||||||||||||||||||||||||
| Loans | $ | (2,251) | $ | (639) | $ | (2,890) | $ | (4,463) | $ | (1,095) | $ | (5,558) | |||||||||||||||||||||||
| Investments | (73) | (51) | (124) | (167) | (114) | (281) | |||||||||||||||||||||||||||||
| Cash equivalents and other | 1,607 | (316) | 1,291 | 3,357 | (694) | 2,663 | |||||||||||||||||||||||||||||
| Total interest earning assets | (717) | (1,006) | (1,723) | (1,273) | (1,903) | (3,176) | |||||||||||||||||||||||||||||
| Interest bearing liabilities: | |||||||||||||||||||||||||||||||||||
| Deposit | 794 | (286) | 508 | 1,967 | (347) | 1,620 | |||||||||||||||||||||||||||||
| Borrowings | (1,211) | - | (1,211) | (2,330) | 3 | (2,327) | |||||||||||||||||||||||||||||
| Senior notes | (125) | 19 | (106) | (138) | 64 | (74) | |||||||||||||||||||||||||||||
| Subordinated debt | (40) | (37) | (77) | (47) | (61) | (108) | |||||||||||||||||||||||||||||
| Note payable and other | (2) | - | (2) | (2) | - | (2) | |||||||||||||||||||||||||||||
| Total interest bearing liabilities | (584) | (304) | (888) | (550) | (341) | (891) | |||||||||||||||||||||||||||||
| Decrease in net interest income | $ | (133) | $ | (702) | $ | (835) | $ | (723) | $ | (1,562) | $ | (2,285) | |||||||||||||||||||||||
Results of Operations
For the three months ended June 30, 2025, interest income and dividend income was $11.5 million, which decreased $1.7 million as compared to $13.2 million for the quarter ended June 30, 2024. Total interest expense was $7.3 million for the three months ended June 30, 2025, which decreased $888,000 as compared to $8.2 million for the three months ended June 30, 2024. Net interest income decreased $835,000 from $5.0 million for the three months ended June 30, 2024 to $4.2 million for the three months ended June 30, 2025.
For the six months ended June 30, 2025, interest income and dividend income was $24.0 million, which decreased $3.2 million as compared to $27.2 million for the six months ended June 30, 2024. Total interest expense was $15.9 million, which decreased $891,000 as compared to $16.8 million for the six months ended June 30, 2024. Net interest income was $8.1 million for the six months ended June 30, 2025, which decreased $2.3 million from $10.4 million for the six months ended June 30, 2024.
The decline for both three and six months ended June 30, 2025 reflects a lower loan balance and narrower net interest margin due to higher deposit costs.
The net interest margin was 1.85% for the quarter ended June 30, 2025, compared to 2.14% for the quarter ended June 30, 2024. For the six months ended June 30, 2025 and 2024, the net interest margin was 1.74% and 2.17%, respectively. The decline in interest margins for the three and six months ended June 30, 2025 compared to the same periods in 2024, was primarily associated with an increase in the cost of deposits and other borrowings due to the significant rise in market interest rates and a decline in loan interest income due to the declining loan balance, partially mitigated by the rise in variable rate interest earning assets.
Provision for Credit Losses ("PCL")
For the three months ended June 30, 2025, the provision for credit losses was $1.5 million, consisting of a $1.6 million loan provision and a $78,000 credit for off-balance-sheet exposure reserves. In comparison, for the three months ended June 30, 2024, the provision for credit losses was $3.1 million, including a $3.1 million loan provision and a $41,000 credit for off-balance-sheet exposure reserves.
For the six months ended June 30, 2025, the PCL was $2.3 million, which included a $2.4 million loan provision and a $101,000 credit for off-balance-sheet exposure reserves. For the six months ended June 30, 2024, the provision was $3.8 million, consisting of a $3.8 million provision and a $36,000 credit for off-balance-sheet exposure reserves.
In 2025, the Bank has been selectively managing down its credit exposure in certain higher-risk areas. The loan portfolio declined from $810.3 million as of June 30, 2024, to $587.5 million as of June 30, 2025. This reduction in credit exposure has required a lower level of reserves. Consequently, the ACL for loans outstanding decreased from $13.8 million as of June 30, 2024, to $7.8 million as of June 30, 2025.
One key driver in both the level of outstanding loans and reserves is the pool of purchased unsecured consumer loans, which decreased from $32.3 million as of June 30, 2024 to $12.4 million as of June 30, 2025. Correspondingly, the reserves for this pool also fell, declining from $4.6 million as of June 30, 2024 to $2.7 million as of June 30, 2025.
Non-interest income
Non-interest income for the three months ended June 30, 2025 was $2.0 million, compared to $2.1 million for the three months ended June 30, 2024. Over the six months ended June 30, 2025, non-interest income reached $4.8 million, up from $4.3 million in the corresponding period of 2024. 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.
Non-interest expense
Non-interest expense for the three months ended June 30, 2025 increased to $9.7 million, up from $8.0 million for the three months ended June 30, 2024. For the six months ended June 30, 2025, non-interest expense totaled $18.5 million, compared to $15.2 million for the six months ended June 30, 2024. The increase in 2025 is primarily attributed to the higher salaries and benefits, along with other operating expense.
Provision for income taxes
The Company reported a benefit for income taxes of $49,000 and $48,000 for the three and six months ended June 30, 2025, respectively, compared to a benefit for income taxes of $924,000 and $858,000 for the three and six months ended June 30, 2024, respectively.
Liquidity
The Company measures liquidity in two primary ratios: 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 total available credit lines, plus availability of brokered deposits which is subject to internal limitations. The Company monitors other metrics in addition to on-hand liquidity and total liquidity to manage concentration risk in certain types of liabilities.
The Company's on-hand liquidity and total liquidity ratios as of June 30, 2025 and December 31, 2024, are as follows:
| (In thousands) | June 30, 2025 | December 31, 2024 | |||||||||
| On-hand liquidity | |||||||||||
| Interest-bearing cash and cash equivalents | $ | 185,010 | $ | 144,273 | |||||||
| Available-for-sale securities, at fair value | 80,627 | 79,992 | |||||||||
| Less: pledged available-for-sale securities | (72,372) | (60,223) | |||||||||
| Total on-hand liquidity | 193,265 | 164,042 | |||||||||
| Borrowing capacity | |||||||||||
| FHLB borrowing capacity | 46,509 | 48,692 | |||||||||
| FRB borrowing capacity | 65,986 | 64,742 | |||||||||
| Unsecured credit lines from correspondent banks | - | 5,000 | |||||||||
| Brokered deposit capacity | 67,122 | 69,702 | |||||||||
| Total borrowing capacity | 179,617 | 188,136 | |||||||||
| Less: used borrowing capacity | |||||||||||
| FHLB capacity used (including the standby letter of credit) | (45,671) | (48,459) | |||||||||
| FRB capacity used | - | - | |||||||||
| Outstanding brokered deposits | (67,122) | (69,702) | |||||||||
| Total used borrowing capacity | (112,793) | (118,161) | |||||||||
| Total liquidity | $ | 260,089 | $ | 234,017 | |||||||
| Total liabilities | $ | 863,752 | $ | 1,008,027 | |||||||
| On-hand liquidity to total liabilities | 22.38 | % | 16.27 | % | |||||||
| Total liquidity to total liabilities | 30.11 | % | 23.22 | % | |||||||
On-hand liquidity increased $29.2 million from December 31, 2024 to June 30, 2025 primarily driven by higher cash balances maintained after the completion of the Private Placement as the risk of deposit flight subsided.
Liquidity is a measure of the Company's ability to generate adequate cash to meet its financial obligations. The principal cash requirements of a financial institution are to cover downward fluctuations in deposit accounts. Management believes the Company's liquid assets are sufficient to cover probable and reasonable fluctuations in deposit accounts, and to meet other anticipated operational cash requirements at the Bank.
The Private Placement on March 20, 2025, provided additional liquidity to both the Bank and the Company and alleviated the liquidity risk. The Private Placement provided additional operating cash to the Bank and the Company and the amendment of the Company's Senior Notes deferred interest payments until 2026 and extended the maturity to April 15, 2028 and the amendment of the Company's Subordinated Notes deferred interest payment until 2026.
Net cash provided by operating activities decreased by $12.7 million for the six months ended June 30, 2025 compared to the three months ended June 30, 2024. Within this activity there was a decrease in originations of loans held for sale and proceeds from sale of assets held for sale. This activity is primarily related to the Digital Payments Division credit card loans. This program started in the third quarter of 2023 and continues today. The activity generates non-interest income and only requires short term liquidity as the loans are originated and expected to be sold within three days.
Net cash provided by investing activities increased by $50.3 million for the six months ended June 30, 2025 compared to the compared to the six months ended June 30, 2024. The increase is primarily due to higher payments received on loans receivable portfolio.
Net cash provided by financing activities decreased by $24.3 million for the six months ended June 30, 2025 compared to the compared to the six months ended June 30, 2024. The decrease is primarily due to utilizing the proceeds from the Common and Preferred stock issuances and excess cash to lower deposits. This was offset by lower repayments on FHLB advances, net as the Bank did not require as much FHLB funding due to the net cash provided by lower loan originations and loan purchases.
Management manages its capital resources by seeking to maintain a capital structure that will ensure an adequate level of capital to support anticipated asset growth and absorb potential losses while effectively leveraging capital to enhance profitability and return to shareholders. Dividends have not been paid to shareholders since 2020.
The primary source of liquidity at the Company is returns of capital from the Bank. The Private Placement provided liquidity to the Company for future debt service and payment of expenses. The capital returns from the Bank are subject to OCC approval and are needed periodically to provide funds needed to service debt payments at the Company.
Regulatory Capital Requirements
The following tables illustrate the Company's and the Bank's regulatory capital ratios at June 30, 2025 and December 31, 2024:
| June 30, 2025 | December 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Patriot National Bancorp, Inc. | Patriot Bank, N.A. | Patriot National Bancorp, Inc. | Patriot Bank, N.A. | |||||||||||||||||||||||||||||||||||||||||||||||
| (Dollar amounts in thousands) | Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||||||||||||||||||||||||||
| Total Capital (to risk weighted assets) | $ | 103,357 | 16.48 | % | $ | 102,531 | 16.34 | % | $ | 44,534 | 6.07 | % | $ | 56,536 | 7.71 | % | ||||||||||||||||||||||||||||||||||
| Individual minimum capital ratio | - | - | % | 72,141 | 11.50 | % | - | - | % | 84,306 | 11.50 | % | ||||||||||||||||||||||||||||||||||||||
| Tier 1 Capital (to risk weighted assets) | 90,380 | 14.41 | % | 97,902 | 15.61 | % | 33,545 | 4.57 | % | 55,546 | 7.58 | % | ||||||||||||||||||||||||||||||||||||||
| Individual minimum capital ratio | - | - | % | 62,731 | 10.00 | % | - | - | % | 73,309 | 10.00 | % | ||||||||||||||||||||||||||||||||||||||
| Common Equity Tier 1 Capital (to risk weighted assets) | 82,380 | 13.14 | % | 97,902 | 15.61 | % | 25,545 | 3.48 | % | 55,546 | 7.58 | % | ||||||||||||||||||||||||||||||||||||||
| Individual minimum capital ratio | - | - | % | 62,731 | 10.00 | % | - | - | % | 73,309 | 10.00 | % | ||||||||||||||||||||||||||||||||||||||
| Tier 1 Leverage Capital (to average assets) | 90,380 | 9.32 | % | 97,902 | 10.10 | % | 33,545 | 3.50 | % | 55,546 | 5.79 | % | ||||||||||||||||||||||||||||||||||||||
| Individual minimum capital ratio | - | - | % | 87,262 | 9.00 | % | - | - | % | 86,306 | 9.00 | % | ||||||||||||||||||||||||||||||||||||||
Capital adequacy is one of the most important factors used to determine the safety and soundness of individual banks and the banking system. Under the regulatory framework for prompt correction action, to be considered "well capitalized," an institution must generally have a leverage capital ratio of at least 5.0%, CET1 capital ratio at least 6.5%, a Tier 1 risk-based capital ratio of at least 8.0% and a total risk-based capital ratio of at least 10%. However, the OCC has the discretion to require increased capital ratios.
On April 17, 2024, based on its supervisory profile, the Bank was notified by the OCC that it established individual minimum capital ratios ("IMCR") for the Bank. Specifically, the Bank is required to maintain the following ratios: a common equity tier 1 capital ratio of 10.00%, a Tier 1 capital ratio of 10.00%, a Tier 1 leverage ratio of 9.00% and a total capital ratio of 11.50%.
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, pursuant to which the Bank agreed, through its board of directors to take certain actions in the areas of strategic planning, capital planning, Bank Secrecy Act / Anti-Money Laundering risk management, payment activities oversight, credit administration and concentrations risk management. The Bank's Board appointed a Compliance Committee in January 2025, as required, to oversee the progress and compliance with the OCC Agreement. OnJanuary 17, 2025, the OCC notified the Bank that, in connection with the entry into the OCC Agreement, the individual minimum capital ratios previously established on April 17, 2024 for the Bank has been terminated.
As of June 30, 2025, the Private Placement proceeds were utilized to infuse $49.5 million in capital into the Bank which resulted in capital ratios that are in excess of the minimums required by the OCC Agreement.
Patriot National Bancorp Inc. published this content on August 14, 2025, and is solely responsible for the information contained herein. Distributed via SEC EDGAR on August 14, 2025 at 20:14 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]