What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2025-04-15 compared with 2024-04-01 · 248 added, 167 removed, 331 unchanged (56% of the section changed)

2 unchanged sentences

The Company’s Common Stock is traded on the Nasdaq Global Market under the Symbol “PNBK.”

There were approximately 243 shareholders of record of the Company’s Common Stock as of December 31, 2023.

There were approximately 260 registered shareholders of record of the Company’s Common Stock as of December 31, 2024.

This number does not reflect the number of persons or entities holding stock in nominee name through banks, brokerage firms or other nominees.

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The Bank can make payments to the Company pursuant to a dividend policy requiring compliance with the Bank's OCC-approved capital program, in compliance with applicable law, and with the prior written determination of no supervisory objection by the Assistant Deputy Comptroller.

In addition to the capital program, certain other restrictions exist regarding the ability of the Bank to transfer funds to the Company in the form of cash dividends, loans or advances.

In addition to the capital program, certain other restrictions exist regarding the ability of the Bank to transfer funds to the Company in the form of cash dividends or return of capital.

The approval of the OCC is required to make payments in excess of the Bank’s earnings retained in the current year plus retained net earnings for the preceding two years.

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Because of the nature of the judgments and assumptions made by management, actual results may differ from these judgments and assumptions.

Allowance for Credit Losses - Debt Securities Available for Sale

The Company receives estimated fair values of debt securities from independent valuation services and brokers.

In developing these fair values, the valuation services and brokers use estimates of cash flows based on historical performance of similar instruments in similar rate environments.

Available-for-sale debt securities consist primarily of U.S.

Government agency debt and mortgage-backed securities issued by the U.S.

government, corporate bonds, subordinated notes and SBA loan pools.

Effective January1, 2023, as a result of adopting ASU No.

2016-13, quarterly assessments are conducted to evaluate impairment credit losses on available-for-sale debt securities.

These evaluations consider factors like fair value deviation from cost, issuer financial health, and the Company's intent to hold securities for fair value recovery.

Impairments due to non-credit factors are recorded in other comprehensive income, while credit-related impairments are recognized as allowances for credit losses on the balance sheet.

If a security is likely to be sold before amortized cost basis recovery, the entire impairment is recognized in net income with an adjustment to the security's basis.

No allowance for ALC-Securities was recorded for available -for-sale securities as of December 31, 2023.

Deferred Income Taxes

The Company uses the asset and liability method of accounting for income taxes.

Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

The effect on deferred tax assets and liabilities of a change in tax laws is recognized in the consolidated statements of operations in the period that includes the enactment date.

Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more likely than not expected to be realized based on the weighting of positive and negative evidence.

Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback or carryforward periods available under the applicable tax law.

The Company regularly reviews the deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies.

The Company’s judgments regarding future profitability may change due to many factors, including future market conditions and the ability to successfully execute its business plans.

Should there be a change in the ability to recover deferred tax assets, the tax provision would increase or decrease in the period in which the assessment is changed.

Goodwill and Other Intangible Assets

Goodwill represents the excess of cost over the identifiable net assets of businesses acquired.

Goodwill is recognized as an asset and is to be reviewed for impairment annually and between annual tests when events and circumstances indicate that impairment may have occurred.

Impairment is a condition that exists when the carrying amount of goodwill exceeds its implied fair value.

Intangible assets, other than goodwill and indefinite-lived intangible assets, are amortized to expense over their estimated useful lives in a manner consistent with that in which the related benefits are expected to be realized, and are periodically reviewed by management to assess recoverability.

Impairment losses on other intangibles are recognized as a charge to expense if carrying amounts exceed fair values.

Servicing Assets

A servicing asset related to SBA loans is initially recorded when these loans are sold and the servicing rights are retained.

The servicing asset is recorded on the balance sheet and included in other assets.

Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions.

Impairment is evaluated based on stratifying the underlying financial assets by date of origination and term.

Any impairment, if temporary, would be reported as a valuation allowance.

Derivatives Instruments

The Company enters into interest rate swap agreements as part of the Company’s interest rate risk management strategy.

The Company has derivatives not designated as hedges.

Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain loan customers.

The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies.

Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions.

The swaps are reported at fair value in other assets or other liabilities.

The interest rate swaps qualify as 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 non-interest income.

Further discussion of the derivatives is set forth in Note 1, Note 11, and Note 21 to the consolidated financial statements.

FINANCIAL CONDITION

The Company’s total assets increased $50.1 million, or 4.8%, from $1.04 billion at December 31, 2022 to $1.09 billion at December 31, 2023.

The increase was primarily driven by a rise in cash, cash equivalents and restricted cash of $28.0 million, and an increase in loans held for sale of $15.6 million.

The Company’s total assets decreased $81.1 million, or 7.4%, from $1.09 billion at December 31, 2023 to $1.01 billion at December 31, 2024.

The decrease was primarily driven by a $141.4 million decline in gross loans held for investment, which was partially offset by a rise in cash, cash equivalents and restricted cash of $96.1 million.

Cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash increased $28.0 million or 72.9%, from $38.5 million at December 31, 2022 to $66.5 million as of December 31, 2023.

The increase in cash reflects the intention to boost balance sheet liquidity in connection with recent uncertainty in the banking sector.

The Company’s liquidity position is strong with liquid assets to total assets of 8.7% as of December 31, 2023.

Cash, cash equivalents and restricted cash increased $96.1 million or 144.4%, from $66.5 million as of December 31, 2023 to $162.6 million as of December 31, 2024.

The increase in cash reflects the Company’s efforts to increase balance sheet liquidity due to the cumulative losses incurred by the Company in the prior two years and decreases in borrowing capacity.

Investment securities

9 unchanged sentences

$ 84,442 $ 93,637 $ 88,970

Total investments increased $4.6 million or 5.2%, from $89.0 million at December 31, 2022 to $93.6 million at December 31, 2023.

This increase was primarily attributable to the purchases of available-for-sale securities of $10.4 million in 2023, which was partially offset by $4.3 million in repayments and maturity of principal on available-for-sale securities, and net unrealized loss of $216,000 for the available-for-sale securities, associated with rising market interest rates.

During the year ended December 31, 2023, the Bank sold $1.8 million available-for-sale securities and recognized $24,000 net gain on sale.

There was no sale of available-for-sales securities during the year ended December 31, 2022.

Total investments decreased $9.2 million or 9.8%, from $93.6 million at December 31, 2023 to $84.4 million at December 31, 2024.

This decrease in 2024 was primarily attributable to $8.3 million sale of available-for-sale securities and $3.6 million in repayments and maturity of principal on available-for-sale securities, which was partially offset by the purchases of available-for-sale securities of $2.3 million, and net unrealized gain of $614,000 for the available-for-sale securities, associated with rising market interest rates.

During the year ended December 31, 2024, the Bank sold $8.3 million available-for-sale securities and recognized $334,000 net loss on sale.

In 2023, the Bank sold $1.8 million available-for-sale securities and recognized net gain on sale of securities of $24,000.

There was no sale of available-for-sale securities during the year ended December 31, 2022.

Loans held for investment

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Loans receivable, net $ 700,167 $ 832,934 $ 838,006

The gross loans receivable increased $543,000 or 0.1%, from $848.3 million at December 31, 2022 to $848.9 million at December 31, 2023.

The increase in loans was primarily attributable to $145.5 million in loan origination and $21.1 million in purchases of loans receivable which was partially offset by a net decrease in loan payoffs of $144.0 million for the year ended December 31, 2023.

During the second half of 2023 the Bank limited new loan originations to a minimal amount to bring down total assets in line with the objective to enhance its capital ratios.

During the second half of 2023, loans held for investment declined $80 million (9%) resulting in an improvement in the Bank’s year end capital ratios.

This trend is expected to continue during 2024.

The gross loans receivable decreased $141.4 million or 16.7%, from $848.9 million at December 31, 2023 to $707.5 million at December 31, 2024.

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.

SBA loans held for investment were included in the commercial real estate loans and commercial and industrial loan classifications above.

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At December 31, 2023, these ratios were 99.1% and 76.2%, respectively.

The net loan to deposit ratio and net loan to total assets improvement as of December 31, 2024 compared to as of December 31, 2023 was due to the loan runoff as well as increasing deposits and cash and cash equivalents to supplement liquidity at the Company during 2024.

The following table provides the composition of the commercial real estate loan portfolio segment as of December 31, for each of the years shown:

(In thousands) 2024 2023 2022

Amount % Amount % Amount %

Commercial Real Estate

CRE owner occupied $ 83,934 20.01 % $ 83,120 17.61 % $ 72,896 16.67 %

CRE multifamily 77,443 18.46 % 82,342 17.44 % 52,550 12.01 %

CRE office 55,900 13.33 % 61,368 13.00 % 50,179 11.47 %

CRE retail 46,946 11.19 % 63,918 13.54 % 56,471 12.91 %

Other CRE non-owner occupied 155,266 37.01 % 181,345 38.41 % 205,347 46.94 %

Total $ 419,489 100.00 % $ 472,093 100.00 % $ 437,443 100.00 %

The following table provides the commercial real estate loan portfolio segment by geographic concentrations as of December 31, for each of the years shown:

(In thousands) 2024 2023 2022

Amount % Amount % Amount %

New York $ 208,093 49.61 % $ 241,711 51.20 % $ 189,851 43.40 %

Connecticut 98,342 23.44 % 111,523 23.62 % 130,605 29.86 %

New Jersey 26,861 6.40 % 37,277 7.90 % 37,591 8.59 %

Outside Market (1) 86,193 20.55 % 81,582 17.28 % 79,396 18.15 %

Total Commercial Real Estate $ 419,489 100.00 % $ 472,093 100.00 % $ 437,443 100.00 %

(1) Outside Market consists of loans in all other states, none of which are greater than 5% of the total.

Maturities and Sensitivities of Loans to Changes in Interest Rates

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These loans generally are collateralized by the underlying real estate and supported by personal guarantees of the borrowers.

Allowance for credit losses

Allowance for Credit Losses on Loans

The Company adopted ASU 2016-13 effective January 1, 2023.

ASU 2016-13 requires the measurement of expected credit losses for financial assets, including loans and certain off-balance-sheet credit exposures, measured at amortized cost.

See Note 1 - Summary of Significant Accounting Policies to the Company's financial statements for a description of the adoption of ASU 2016-13 and the Company's allowance methodology.

The allowance for credit losses was $15.9 million at December 31, 2023, compared to allowance for loans and lease losses of $10.3 million at December 31, 2022.

The increase was primarily due to the adoption of CECL as the Company recorded a transition adjustment of $13.0 million effective January 1, 2023 and a provision for credit losses on loans of $9.9 million, which was partially offset by net charge-offs of $17.3 million for the year ended December 31, 2023.

The allowance for credit losses was $7.3 million at December 31, 2024, compared to the allowance for credit losses of $15.9 million at December 31, 2023.

The decrease was primarily driven by charge-offs totaling $13.6 million from two large commercial real estate loans in December 2024.

Based upon the overall assessment and evaluation of the loan portfolio at December 31, 2024, management believes the allowance for credit losses of $7.3 million, which represents 1.0% of gross loans outstanding, was adequate under prevailing economic conditions to absorb existing losses in the loan portfolio.

The following table provides detail of activity in the allowance for credit losses.

The Company used the CECL methodology in 2023 while the incurred loss methodology was used in prior years:

The Company used the CECL methodology in 2024 and 2023 while the incurred loss methodology was used in 2022:

Year Ended December 31,

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Net charge-offs (21,164) (17,289) (1,480)

Provision (credit) for credit losses 9,903 1,885 (500)

Provision for credit losses 12,544 9,903 1,885

Balance at end of the period $ 7,305 $ 15,925 $ 10,310

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Allowance for credit losses to total loans 1.03 % 1.88 % 1.22 %

Allowance for credit losses to nonaccrual loans 28.24 % 87.85 % 55.45 %

The net charge-offs increased $3.9 million from $17.3 million as of December 31, 2023 to $21.2 million as of December 31, 2024, with an increase in net charge-offs to average loans ratio of 2.66% for the year ended December 31, 2024 , from 1.93% for the year ended December 31, 2023.

The increase in net charge-offs for the year ended December 31, 2024 was primarily associated charge-offs totaling $13.6 million from two large commercial real estate loans in December 2024.

The average loan balance decreased by $101.3 million, from $896.5 million for the year ended December 31, 2023, to $795.2 million for the year ended December 31, 2024.

The decrease in average loan balance, 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 December 31, 2024 and December 31, 2023, the ACL was $7.3 million and $15.9 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 1.03% as of December 31, 2024, compared to ACL to loans ratio of 1.88% as of December 31, 2023.

Nonaccrual loans was $25.9 million as of December 31, 2024, compared to $18.1 million as of December 31, 2023.

The ACL to nonaccrual loans ratio was 28.24% as of December 31, 2024, compared to 87.85% as of December 31, 2023.

The rate at December 31, 2023 was significantly higher due to reserves on individually evaluated CRE loans that were subsequently charged-off in the fourth quarter of 2024.

Nonaccrual CRE loans of $13.6 million have been charged-off to net realizable value as of December 31, 2024.

The following table provides an allocation of allowance for credit losses by portfolio segment and the percentage of the loans to total loans:

(In thousands) 2023 2022 2021

Allowance for credit losses Percent of loans in each category to total loans Allowance for loan losses Percent of loans in each category to total loans Allowance for loan losses Percent of loans in each category to total loans

2024 2023 2022

(In thousands) 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 Allowance for loan losses Percent of loans in each category to total loans

Commercial Real Estate $ 2,241 59.30 % $ 6,089 55.62 % $ 6,966 51.57 %

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The following table presents non-accrual and accruing loans which were past due by over 90 days for the dates indicated:

(In thousands) December 31,

2023 2022 2021

(In thousands) 2024 2023 2022

Non-accruing loans:

4 unchanged sentences

Construction — 454 —

Construction to Permanent - CRE 2,357 — —

Total non-accruing loans 25,871 18,127 18,593

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Nonperforming loans to total loans, net 3.69 % 2.22 % 2.36 %

Non-accrual loans decreased $466,000, from $18.6 million at December 31, 2022 to $18.1 million at December 31, 2023.

Non-accrual loans increased $7.7 million, from $18.1 million at December 31, 2023 to $25.9 million at December 31, 2024.

The $25.9 million of non-accrual loans at December 31, 2024 was comprised of 335 borrowers.

Of these, 19 loans were individually evaluated and a specific reserve of $4.2 million was established as of December 31, 2023.

Of these, 14 loans were individually evaluated and a specific reserve of $463,000 was established as of December 31, 2024.

For 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.

For cash flow dependent loans, the Bank determined the reserve based on the present value of expected future cash flows discounted at the loan's effective interest rate.

As of December 31, 2022, the $18.6 million of non-accrual loans was comprised of twenty-eight borrowers, for which a specific reserve of $6.0 million was established.

As of December 31, 2023, the $18.1 million of non-accrual loans was comprised of 139 borrowers.

Of these, 19 loans were individually evaluated and a specific reserve of $4.2 million was established.

Loans held for sale

As of December 31, 2023, loans held for sale totaled $20.8 million, consisting of $9.9 million of SBA loans and $10.8 million loans held for sale for digital payments of credit cards.

In comparison, at December 31, 2022, loans held for sale solely for SBA loans amounted to $5.2 million.

As of December 31, 2024, loans held for sale totaled $15.7 million, consisting of nil of SBA loans, $11.4 million loans held for sale for digital payments of credit cards and $4.3 million residential mortgage loans held for sale.

In comparison, at December 31, 2023, loans held for sale totaled $20.8 million, consisting of $9.9 million SBA loans and $10.8 million loans held for sale for digital payments of credit cards.

SBA loans made by the Bank under the SBA 7(a) program generally are made to small businesses to provide working capital or to provide funding for the purchase of businesses, real estate, or equipment.

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Loans held for sale represent the guaranteed portion of SBA loans and are reflected at the lower of aggregate cost or market value.

SBA loans held for sale at December 31, 2023 consisted of $3.5 million SBA commercial and industrial loans and $6.4 million SBA commercial real estate.

No SBA loans held for sale were recorded as of December 31, 2024.

SBA loans held for sale at December 31, 2023, consisted of $3.5 million SBA commercial and industrial loans and $6.4 million SBA commercial real estate.

The Company sold $4.6 million SBA loans during the year ended December 31, 2023, compared to $21.6 million for the year ended December 31, 2022.

During 2023, 2022 and 2021, no loans held for investment were transferred to loans held for sale.

Other consumer loans held for sale

The Company sold $8.4 million SBA loans and recorded $378,000 gain on sale for the year ended December 31, 2024.

For the year ended December 31, 2023, the Company sold $4.6 million SBA loans and recorded $169,000 gain on sale.

Total servicing assets recognized as of December 31, 2024 and December 31, 2023 were $739,000 and $857,000, respectively.

During 2024, $4.3 million loans held for investment were transferred to loans held for sale, and sold in 2024.

In 2023 and 2022, no loans held for investment were transferred to loans held for sale.

In July 2023, Patriot Bank's Digital Payments Division has entered into a Program Management Agreement with a buyer.

Under the agreement, Patriot originates various types of consumer loans that are marketed by the buyer.

Under the agreement, Patriot originates credit card loans that are marketed by the buyer.

As of December 31, 2024 , the Bank had credit card loans held for sale totaling $11.4 million.

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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.

In 2024, the Bank reentered the residential mortgage business.

The Residential Mortgage Division, located in Jacksonville, FL, generates the loans and typically sells them to third parties.

As of December 31, 2024, the Company reported residential mortgage loans held for sale totaling $4.3 million.

These loans are recorded at the lower of aggregate cost or market value.

For the year ended December 31, 2024, a total gain on sale of $62,000 was recorded.

A servicing asset of $27,000 was recognized as of December 31, 2024.

Premises and equipment

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Other Real Estate Owned (“OREO”)

As of December 31, 2023, the Bank recorded one OREO of $2.8 million.

As of December 31, 2024 and 2023, the Bank recorded one OREO of $2.8 million.

The OREO balance represents the lower of the carrying value of loan receivable due from the mortgage of the foreclosed residential property or the estimated net realized value of the underlying property acquired through foreclosure.

As of December 31, 2022, no OREO balance was record on the balance sheet.

In 2021, Patriot sold one OREO of $1.9 million and recognized a gain of $2,000.

The Company performed its annual impairment analysis of goodwill as of October 31, 2023.

The analysis determined that the estimated fair value of the reporting unit was less than its carrying value as of October 31, 2023.

As a result, the goodwill was considered impaired, leading to a $1.1 million impairment charge recorded in the other non-interest expense on the Consolidated Statements of Operations for the year ended December 31, 2023.

As of December 31, 2022, the Company’s goodwill remained unchanged at $1.1 million.

During 2024 and 2023, no OREO balance was sold.

The Company performs its annual impairment analysis of goodwill.

In 2023, the impairment analysis determined that the estimated fair value of the reporting unit was less than its carrying value as of October 31, 2023.

As a result, a full impairment charge of $1.1 million was recorded for the year ended December 31, 2023.

As of December 31, 2024 and 2023, the goodwill balance was zero.

Core deposit intangible (“CDI”)

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Deferred Taxes

As of December 31, 2024 the carrying value of the deferred tax assets (“DTAs”) is nil as there is a full valuation allowance against all of the DTAs.

As of December 31, 2023, DTAs were $24.1 million, consisting predominately of Federal and state net operating losses, capitalized costs and allowance for credit losses.

As of December 31, 2024, Patriot had available approximately $41.9 million of Federal net operating loss carryforwards (“NOL”) that are offset by $15.5 million in Internal Revenue Code §382 limitations.

After applying the limitation, at December 31, 2022, Patriot has no post-change net operating loss carry-forwards.

After applying the limitation, at December 31, 2024, Patriot has $26.4 million post-change net operating loss carry-forwards which do not expire.

For the years ended December 31, 2024 and 2023, the Bank did not record any uncertain tax position (“UTP”) related to the utilization of certain federal net operating losses.

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The NOLs will expire between 2030 and 2044.

As of December 31, 2023, Patriot had a $24.1 million deferred tax asset, comprised of multiple temporary differences, in addition to the previously aforementioned NOLs.

The assessment of the potential realizability of the deferred tax assets is based on observation of the condition and future of the Bank, including cumulative pre-tax profit from the last three years, forecasted taxable income for 2024 and future periods, and net operating loss carry-forwards that do not begin to expire until 2030.

Patriot evaluates its ability to realize its net 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.

In 2023, management noted forecasted future period taxable income, the overall quality of the loan portfolio, continued efforts to reduce and control operating expenses, and net operating loss carryforwards that do not begin to expire until the year 2030.

Based upon this evidence, management concluded there was no need for a valuation allowance as of December 31, 2023.

Patriot will continue to evaluate its ability to realize its net deferred tax assets.

If future evidence suggests that it is more likely than not that a portion of the deferred tax assets will not be realized, a valuation allowance will be established.

In December 2023, two back to back interest rate swaps were terminated.

As of December 31, 2023, total two interest rate swaps remained outstanding.

The Company recognizes deferred tax assets to the extent we believe it is more likely than not the asset will be realized.

Quarterly, management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of existing deferred tax assets, including future reversals of existing taxable temporary differences, projected taxable income, tax-planning strategies, carryback potential if permitted, and the results of recent operations.

A significant piece of objective negative evidence is the existence of a three or four year cumulative loss.

Such objective negative evidence limits the ability of management to consider other subjective evidence, such as projected taxable income.

When appropriate, the Company records a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized.

A valuation allowance is subject to ongoing adjustment based on changes in circumstances that affect management’s judgment about the realizability of the deferred tax asset.

Adjustments to increase or decrease the valuation allowance are charged or credited to the deferred tax component of the income tax provision or benefit or, in certain circumstances, to accumulated other comprehensive income.

Based on our assessment performed in September 2024, we determined that a full valuation allowance was appropriate against the Company’s U.S.

federal and state deferred tax assets.

For the year ended December 31, 2024, the Company recorded income tax expense of $23.8 million which includes $25.1 million of expense from the initial recognition of the full valuation allowance.

The key factor for providing a full valuation allowance was our 3-year cumulative operating losses.

Once the Company begins generating profits, we will re-evaluate whether a full valuation allowance remains appropriate or if the allowance should be reduced.

As deferred tax assets associated with NOL carryforwards are already a direct reduction to Tier 1 Capital, the valuation allowance at September 30, 2024 resulted in a reduction of Tier 1 Capital of $19.9 million.

As of December 31, 2024, the Company had two interest rate swaps outstanding.

One swap is held with a loan customer to provide a facility to mitigate the fluctuations in the variable rate on the respective loan.

3 unchanged sentences

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 non-interest income.

No gain on the swaps was recognized for the year ended December 31, 2023, 2022 and 2021.

The Company did not recognize any unrealized and realized gain or loss for the year ended December 31, 2024, 2023 and 2022.

During the year ended December 31, 2021, the Company recognized $149,000 of accumulated other comprehensive income that was reclassified into interest income.

The interest swap interest income is included in interest and fees on loans on the Consolidated Statements of Operations.

A gain of $512,000 was recognized from the termination of the interest rate swap cash flow hedge for the year ended December 31, 2021, which is included in other income on the Consolidated Statements of Operations.

Further discussion of the final derivatives is set forth in Note 11 and Note 21 to the Consolidated Financial Statements.

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Savings 38,743 44,104 71,002

Interest bearing DDA 19,630 7,127 —

Interest bearing DDA - Digital Payments 186,365 164,450 —

1 unchanged sentence

Money market - Digital Payments 66,654 33,986 46,173

Certificates of deposit, less than $250,000 175,988 165,793 142,246

Certificates of deposit, $250,000 or greater 64,745 59,877 53,584

Certificates of deposit, $250,000 or less 174,095 175,988 165,793

Certificates of deposit, more than $250,000 65,278 64,745 59,877

Brokered deposits 69,702 40,526 48,698

2 unchanged sentences

Total Digital Payments deposits $ 265,542 $ 213,383 $ 197,268

Total retail bank deposits $ 394,819 $ 430,650 $ 493,066

As of December 31, 2023, total deposits decreased $20.1 million, primarily due to a decline in retail branch deposits partially offset by a growth in digital payments deposits.

The decline in non-interest bearing deposits was the result of the transfer of most of the digital payments deposits from non-interest bearing to interest bearing due to the growth of that business and decrease in savings.

Total retail branch bank deposits $ 412,960 $ 394,819 $ 430,650

Total uninsured deposits $ 297,845 $ 334,300 $ 343,980

Uninsured deposits to total deposits 30.81 % 39.78 % 39.98 %

Non-GAAP uninsured deposits to total deposits excluding Digital Payments deposits 15.80 % 20.06 % 22.35 %

Total deposits increased by $126.3 million during 2024, rising from $840.3 million as of December 31, 2023, to $966.6 million as of December 31, 2024.

The growth was primarily driven by higher deposits in the Digital Payments Division, an increase in brokered deposits, increased online money market deposits and higher retail branch deposits.

The Company raised additional deposits to lower borrowings, including the Fed Bank Term Funding Program (“BTFP”) as $70 million of BTFP borrowings were repaid during 2024, as well as a reduction in outstanding advances with the FHLB.

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:

(Dollars in thousands) 2024 2023 2022

Non-GAAP Uninsured deposits to total deposits excluding Digital Payments deposits

Total deposits $ 966,597 $ 840,311 $ 860,446

Digital Payments deposits 265,542 213,383 197,268

Non-GAAP total deposits excluding Digital Payments deposits $ 701,055 $ 626,928 $ 663,178

Total uninsured deposits $ 297,845 $ 334,300 $ 343,980

Total uninsured Digital Payments deposits 187,048 208,524 195,778

Total uninsured deposits excluding Digital Payments deposits $ 110,797 $ 125,776 $ 148,202

Non-GAAP uninsured deposits to total deposits excluding Digital Payments deposits 15.80 % 20.06 % 22.35 %

As of December 31, 2024 and 2023, total borrowings were $33.1 million and $201.1 million, respectively.

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Equity decreased $40.1 million from $44.4 million at December 31, 2023 to $4.3 million at December 31, 2024.

The decrease was primarily due to a cumulative adjustment to the opening balance of accumulated deficit of $11.5 million upon adoption of CECL effective January 1, 2023, and $4.2 million net loss for the year ended December 31, 2023.

The decrease was primarily due to a net loss of $39.9 million for the year ended December 31, 2024.

For more information on the net loss for the year ended December 31, 2024 see Results of Operations section of this Management’s Discussion and Analysis.

Average Balances

The following table presents average balance sheets, interest income, interest expense and the corresponding yields earned, and rates paid for each of the years in the three-year period ended December 31, 2024.

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Subordinated debt 18,024 1,596 8.83 % 17,985 1,481 8.23 % 17,947 1,066 5.94 %

Note Payable and other 469 8 1.71 % 678 12 1.77 % 881 15 1.70 %

Note Payable 258 5 1.93 % 469 8 1.71 % 678 12 1.77 %

Total interest bearing liabilities 840,953 32,285 3.83 % 876,157 30,457 3.48 % 709,214 10,753 1.52 %

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Total interest bearing liabilities (4,512) 6,340 1,828 3,336 16,368 19,704

Net interest income $ 464 $ (5,223) $ (4,759) $ 4,065 $ 3,933 $ 7,998

(Decrease) increase in net interest income $ (1,219) $ (7,204) $ (8,423) $ 464 $ (5,223) $ (4,759)

RESULTS OF OPERATIONS

A discussion regarding the financial condition and results of operations for fiscal 2024 compared to fiscal 2023 is presented below.

Discussions of fiscal 2022 items and year-to-year comparisons between fiscal 2022 and fiscal 2021 that are not included in this Form 10-K can be found under Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the SEC on March 29, 2023.

Discussions of fiscal 2023 items and year-to-year comparisons between fiscal 2023 and fiscal 2022 that are not included in this Form 10-K can be found under Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the SEC on April 1, 2024.

Comparison of Results of Operations for the years 2024 and 2023

For the year ended December 31, 2023, the Company recorded net loss of $4.2 million ($(1.05) basic and diluted loss per share) compared to net income of $6.2 million ($1.56 basic and diluted loss per share) for the year ended December 31, 2022.

Pre-tax loss was $5.6 million for the year ended December 31, 2023, compared to pre-tax income of $7.8 million for the year ended December 31, 2022.

For the year ended December 31, 2024, the Company recorded net loss of $39.9 million ($(10.03) basic and diluted loss per share) compared to net loss of $4.2 million ($(1.05) basic and diluted loss per share) for the year ended December 31, 2023.

The results for the year of 2024 were significantly impacted by a $25.1 million full valuation allowance on the Company's deferred tax assets ("DTA") recorded as of September 30, 2024.

The accounting guidance under generally accepted accounting principles ("GAAP") require an assessment of the realizability of a DTA if the Company has had a recent history of cumulative losses.

Given the losses in the previous year and a half, management determined the need for a valuation allowance on the Company's DTAs.

The valuation allowance lowers the balance sheet asset with a charge to tax provision, but does not limit the potential future usage of the DTAs.

Pre-tax loss was $16.1 million for the year ended December 31, 2024, compared to pre-tax loss of $5.6 million for the year ended December 31, 2023.

Significant variances are summarized below and discussed in detail subsequently:

• Interest and dividend income increased $14.9 million;

• Interest and dividend income decreased $6.6 million;

• Interest expense increased $1.8 million;

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• Non-interest income increased $2.4 million;

• Non-interest expense increased $5.5 million.

• Non-interest expense decreased $628,000.

Net interest income

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Net interest income depends on the relative amounts of interest earning assets and interest-bearing liabilities and the interest rates earned or paid on them, respectively.

For the year ended December 31, 2023, interest income increased to $59.0 million, as compared to $44.0 million for the year ended December 31, 2022, which was primarily attributable to an increase of $64.9 million in average loan balances, along with an increase in rates earned on loans reflecting the increase in interest rates during 2023.

For the year ended December 31, 2024, interest income decreased to $52.4 million, as compared to $59.0 million for the year ended December 31, 2023, which was primarily attributable to a reduction of $101.3 million in average loan balances in 2024, and narrower net interest margin due to higher deposit costs and increase in nonaccrual loans.

For the year ended December 31, 2024, total interest expense increased to $32.3 million, as compared to $30.5 million for the year ended December 31, 2023, primarily due to an increase in average deposits balance of $19.4 million.

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The Bank’s net interest margin decreased to 2.1% for the year ended December 31, 2024, compared with 2.8% for the year ended December 31, 2023.

The decline in net interest margin was primarily associated with an increase in the cost of deposits and other borrowings due to the significant rise in market interest rates, only partially mitigated by the rise in variable rate interest earning assets.

The decline in net interest margin was primarily associated with an increase in the cost of deposits due to the significant rise in market interest rates, only partially mitigated by the rise in variable rate interest earning assets.

Provision (Credit) for credit losses

Beginning January 1, 2023, the Company adopted the CECL accounting standard.

For the year ended December 31, 2023, the Bank recorded total provision for credit losses of $7.4 million, consisting of a $9.9 million provision for credit loss on loans and a credit in reserve for the off-balance sheet exposure of $(2.5) million.

For the year ended December 31, 2022, a provision for loan losses of $1.9 million was recorded, with no recorded reserve for the off-balance-sheet exposure .

The increase in the provision for credit losses for the year ended December 31, 2023 was primarily due to an additional reserve of $4.0 million associated with a single loan balance while the higher provisions also included additional charges associated with the unsecured consumer loan and SBA portfolios.

For the year ended December 31, 2024, the provision for credit losses was $12.5 million, consisting of a $12.5 million provision for credit loss on loans and a $89,000 credit in reserve for the off-balance sheet exposure.

For the year ended December 31, 2023, the provision for credit losses was $7.4 million, consisting of a $9.9 million provision for loan losses and a $2.5 million credit in reserve for the off-balance-sheet exposure.

The Bank has been selectively managing down its credit exposure in certain higher-risk areas in 2024.

The loan portfolio declined from $848.9 million as of December 31, 2023, to $707.5 million as of December 31, 2024.

This reduction in credit exposure (which included $13.6 million of charge-offs against the Bank’s two largest problem credits) has required a lower level of reserves.

Consequently, the ACL for loans outstanding decreased from $15.9 million as of December 31, 2023, to $7.3 million as of December 31, 2024.

Non-interest income

For the year ended December 31, 2024, non-interest income increased to $8.4 million, as compared to $6.0 million in 2023.

The increase was primarily attributable to higher non-interest income from the digital payments program in 2023, partially offset by a lower gain on sale of SBA loans.

The increase was primarily attributable to higher non-interest income from the digital payments program.

Non-interest expense

For the year ended December 31, 2023, non-interest expense increased to $32.7 million, as compared to $27.2 million for the year ended December 31, 2022.

The primary drivers of this increase in 2023 were a $1.1 million goodwill impairment recorded in the fourth quarter of 2023, and increased salaries and benefit expenses in 2023, some of which related to the build up of the mortgage origination business expected to begin operations in the first quarter of 2024.

For the year ended December 31, 2024, non-interest expense decreased to $32.1 million, as compared to $32.7 million for the year ended December 31, 2023.

The decrease primary associated with a $1.1 million goodwill impairment recorded in the fourth quarter of 2023, which was offset by increased salaries and benefit expenses and professional services in 2024, some of which related to the buildup of the mortgage origination business.

Provision for income taxes

The Company reported a provision for income taxes of $23.8 million for the year ended December 31, 2024, compared to a benefit for income taxes of $1.5 million for the year ended December 31, 2023.

The provision for income taxes for year 2024 included a valuation allowance recorded against all deferred tax assets of $27.6 million, See Note 14 - Income Taxes.

Other financial measures and ratios:

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Net interest income 5,404 5,023 4,999 4,651

Provision (credit) for credit losses 2,220 1,325 4,688 (804) (1)

Provision for credit losses 658 3,092 1,026 7,679 (1)

Non-interest income 2,247 2,063 2,115 1,937

Non-interest expense 7,226 7,999 8,396 8,460

(Loss) income before income taxes (956) (846) (5,103) 1,272

(Benefit) provision for income taxes (257) (231) (1,333) 367

Net (loss) income $ (699) $ (615) $ (3,770) $ 905 (4)

(Loss) earnings per share

Loss before income taxes (233) (4,005) (2,308) (9,551)

Provision (benefit) for income taxes 66 (924) 24,646 (3) (2)

Net loss $ (299) $ (3,081) $ (26,954) $ (9,548) (3)

Loss per share

Basic $ (0.08) $ (0.77) $ (6.78) $ (2.40)

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Weighted average shares outstanding - Diluted 3,976,073 3,976,073 3,976,073 3,976,673 (4)

(1) I n the fourth quarter of 2023, the provision for credit loss decreased to a credit , primarily due to decrease in loan balance and the reversal of a commitment reserve associated with its consumer loan portfolio that was no longer needed as the result of the termination of the commitments.

(2) The non-interest income was primarily attributable to an income of $1.3 million resulted from a credit loss sharing agreement entered with a seller/servicer of consumer loans.

(3) During the fourth quarter of 2023, the increase in non-interest expense was primarily attributable to an impairment charge for goodwill totaled $1.1 million.

(4) Due to significant changes above, the net income increased to $905,000, compared to net losses in the first three quarters of 2023.

(5) The sum of Earnings (loss) per share - Basic and Diluted of each of the quarters in the year ended December 31, 2023 does not agree to the amount of Basic and Diluted earnings per share presented on the Consolidated Statement of Operations for the year ended December 31, 2023, due to the impact of rounding to the nearest cent on the amount of Earnings per share - Basic and Diluted for the three months ended December 31, 2023 (i.e., the "Fourth Quarter").

(6) The weighted average diluted shares outstanding did not include 491, 1,528, 1,651, and 15,622 anti-dilutive restricted common shares as of March 31, 2023, June 30, 2023, September 30, 2023 and December 31, 2023, respectively.

(1) I n the fourth quarter of 2024, the provision for credit loss increased , primarily attributable to significant charge-offs for two individually evaluated commercial real estate loans.

(2) In the third quarter of 2024, a full valuation allowance on the Company’s U.S.

federal and state deferred tax assets was recorded.

This resulted in an increase in the Company’s income tax expense of approximately $25 million.

(3) Due to significant changes above, the net loss in the fourth quarter of 2024 decreased to $9.5 million, compared to a $27.0 million net loss in the third quarter of 2024.

(4) The weighted average diluted shares outstanding did not include 22,269, 8,695, 91,697, and 93,710 anti-dilutive restricted shares of common stock as of March 31, 2024, June 30, 2024, September 30, 2024 and December 31, 2024, respectively.

The following tables present the summarized quarterly results of operations (unaudited) to the Consolidated Financial Statements for the calendar year 2023:

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Net interest income 8,013 7,713 6,525 6,249

Provision for loan losses — 275 200 1,410

Provision (credit) for credit losses 2,220 1,325 4,688 (804) (1)

Non-interest income 835 829 1,169 3,172 (2)

Non-interest expense 7,584 8,063 8,109 8,953 (3)

Income before income taxes 1,111 1,741 2,483 2,422

Provision for income taxes 311 476 157 652

Net income $ 800 $ 1,265 $ 2,326 $ 1,770

Earnings per share

(Loss) income before income taxes (956) (846) (5,103) 1,272

(Benefit) provision for income taxes (257) (231) (1,333) 367

Net (loss) income $ (699) $ (615) $ (3,770) $ 905 (4)

(Loss) earnings per share

Basic $ (0.18) $ (0.16) $ (0.95) $ 0.23

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Weighted average shares outstanding - Diluted 3,965,186 3,965,186 3,965,186 3,965,733 (6)

(2) The non-interest income was primarily attributable to an income of $1.3 million resulted from a credit loss sharing agreement entered with a seller/servicer of consumer loans.

(3) During the fourth quarter of 2023, the increase in non-interest expense was primarily attributable to an impairment charge for goodwill totaled $1.1 million.

(4) Due to significant changes above, the net income increased to $905,000, compared to net losses in the first three quarters of 2023.

(6) The weighted average diluted shares outstanding did not include 491, 1,528, 1,651, and 15,622 anti-dilutive restricted shares of common stock as of March 31, 2023, June 30, 2023, September 30, 2023 and December 31, 2023, respectively.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2023, the Company’s balance sheet liquidity was $94.9 million, which was 8.7% of total assets of $1.09 billion.

At December 31, 2022, the balance sheet liquidity was $97.4 million, which was 9.3% of total assets of $1.04 billion.

Liquidity including readily available off-balance sheet funding sources was 18.6% at December 31, 2023 compared to 18.0% at December 31, 2022.

The following categories of assets are considered balance sheet liquidity:

cash and due from banks, federal funds sold (if any), short-term investments (if any), unpledged available-for-sale securities, and loans held for sale.

In addition, off-balance sheet funding sources include collateral based borrowing available from the FHLB, correspondent bank borrowing lines, and advised borrowing lines through an interbank borrowing network.

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 for the year ended December 31, 2024 and December 31, 2023, are as follows:

(In thousands) December 31, 2024 December 31, 2023

On-hand liquidity

Interest-bearing cash and cash equivalents $ 144,273 $ 50,322

Available-for-sale securities, at fair value 79,992 89,187

pledged available-for-sale securities (60,223) (68,465)

Total on-hand liquidity 164,042 71,044

Borrowing capacity

FHLB borrowing capacity 48,692 174,533

FRB borrowing capacity 64,742 81,401

Unsecured credit lines from correspondent banks 5,000 22,000

Brokered deposit capacity 69,702 126,047

Total borrowing capacity 188,136 403,981

used borrowing capacity

FHLB capacity used (including the standby letter of credit) (48,459) (173,147)

FRB capacity used — (70,000)

Outstanding brokered deposits (69,702) (40,526)

Total used borrowing capacity (118,161) (283,673)

Total liquidity $ 234,017 $ 191,352

Total liabilities $ 1,008,027 $ 1,049,042

On-hand liquidity to total liabilities 16.27 % 6.77 %

Total liquidity to total liabilities 23.22 % 18.24 %

On-hand liquidity increased $93.0 million from December 31, 2023 to December 31, 2024 as the Company increased its cash balances to provide available liquidity since the borrowing capacity had been reduced.

The Company’s decline in financial performance resulted in less borrowing capacity from the FHLB and the brokered deposit channel.

The Company paid off the BTFP in September 2024 which has a slight benefit on the Company's Net Interest Income as the rate on the BTFP was slightly higher than the current replacement funding.

Both on-hand liquidity to total liabilities and total liquidity to total liabilities increased at December 31, 2024 compared to December 31, 2023 due to the increased cash balances and the reduction in total liabilities as the overall balance sheet has shrunk in an effort to improve the Bank's capital ratios.

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 provide sufficient coverage to satisfy loan demand, cover potential fluctuations in deposit accounts, and to meet other anticipated operational cash requirements for next 12 months and beyond.

The Company is a member of the Federal Home Loan Bank of Boston ("FHLB-B").

At December 31, 2023, the outstanding advances from the FHLB-B aggregated $171.0 million.

The additional borrowing capacity available from FHLB-B was $73.4 million, which is comprised of $71.4 million of advances and a $2.0 million overnight line of credit.

Additionally, the Bank retains a collateralized borrowing line with the Federal Reserve Bank which totaled $15.5 million at December 31, 2023 and correspondent bank borrowing lines totaling $17.0 million at December 31, 2023.

In July 2023, the Bank established a collateralized funding line of $80.0 million at par value under the Federal Reserve's newly established Bank Term Funding Program ("BTFP").

The program provides additional funding to eligible depository institutions, assuring they can meet the needs of all their depositors.

The program serves 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 allows for a fixed rate borrowing at market rates, for up to one year, with repayment permitted at any time without penalty.

As of December 31, 2023, the collateral value of the pledged securities was $72.4 million.

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.

As of December 31, 2024, due to the decline in borrowing capacity, the Bank’s ability to fund significant unexpected deposit outflows was limited.

The Private Placement closing 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 increased by $13.4 million for the year ended December 31, 2024, compared to the year ended December 31, 2023.

Within this activity there was a significant increase 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 $162.2 million for the year ended December 31, 2024 compared to the year ended December 31, 2023.

The increase is primarily due to lower originations of loans receivable and purchases of loans receivable as the Company is focused on lowering total assets to improve the Company's capital ratios.

Net cash provided by financing activities decreased by $107.6 million for the year ended December 31, 2024 compared to the year ended December 31, 2023.

The decrease is primarily due to activity in proceeds from FRB and correspondent bank borrowings and repayments of FRB and correspondent bank borrowings.

The Company did not require as much funding from FRB and correspondent bank borrowings due to the net cash provided by lower loan originations and loan purchases.

As of December 31, 2024, the maturities of Patriot’s contractual obligations are as follows:

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These capital returns are subject to OCC approval and are needed periodically to provide funds needed to service debt payments at the Company.

Return of Capital payments from the Bank to the Company totaled $2.5 million for the year ended December 31, 2023, $900,000 for the year ended December 31, 2022, and $500,000 for the year ended December 31, 2021.

Return of capital payments from the Bank to the Company totaled $950,000 for the year ended December 31, 2024, $2.5 million for the year ended December 31, 2023, and $900,000 for the year ended December 31, 2022.

The return of capital payments for the year ended December 31, 2024 compared to the year ended December 31, 2023 were lower as the Company obtained an interest deferral on its senior notes until April 1, 2025, which is described in Note 25 Subsequent Events.

OFF-BALANCE SHEET ARRANGEMENTS

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As of December 31, 2024 and 2023, the Bank’s off-balance sheet commitments were $87.6 million and $92.5 million, respectively.

As of December 31, 2024, 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, which expires on April 30, 2025.

REGULATORY CAPITAL REQUIREMENTS

The following tables illustrate the Company’s and the Bank’s regulatory capital ratios at December 31, 2023:

December 31, 2023

The following tables illustrate the Company’s and the Bank’s regulatory capital ratios at December 31, 2024 and 2023:

December 31, 2024 December 31, 2023

Patriot National Bancorp, Inc.

Patriot Bank, N.A.

(Dollar amounts in thousands) Amount Ratio Amount Ratio

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) $ 44,534 6.07 % $ 56,536 7.71 % $ 89,727 10.00 % $ 100,683 11.22 %

Individual minimum capital ratio $ — — % $ 84,306 11.50 % $ — — % N/A N/A

Tier 1 Capital (to risk weighted assets) 33,545 4.57 % 55,546 7.58 % 73,282 8.17 % 94,238 10.50 %

Individual minimum capital ratio — — % 73,309 10.00 % — — % N/A N/A

Common Equity Tier 1 Capital (to risk weighted assets) 25,545 3.48 % 55,546 7.58 % 65,282 7.27 % 94,238 10.50 %

Individual minimum capital ratio — — % 73,309 10.00 % — — % N/A N/A

Tier 1 Leverage Capital (to average assets) 33,545 3.50 % 55,546 5.79 % 73,282 6.76 % 94,238 8.70 %

Individual minimum capital ratio — — % 86,306 9.00 % — — % N/A N/A

Capital adequacy is one of the most important factors used to determine the safety and soundness of individual banks and the banking system.

From September 2021 to September 30, 2023, the Company elected to adopt the CBLR framework.

In the fourth quarter of 2023, the Company elected to use the instituted regulatory risk-based capital approach.

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.

As of December 31, 2023, the Bank established minimum required capital ratios under a Board approved Capital plan which determined those ratios using a Comprehensive Capital Analysis and Review (“CCAR’)-based stress capital buffer.

That plan established the following capital limits which the Bank exceeded at December 31, 2023:

Total Capital to risk weighted assets 10.50%

Tier 1 Capital to Risk weighted assets 9.30%

Common Equity Tier 1 Capital to Risk weighted assets 9.30%

Tier 1 Leverage Capital to average assets 8.10%

Management continuously assesses the adequacy of the Bank’s capital with the goal to maintain a “well capitalized” classification.

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.

The common equity tier 1 capital was $55.5 million, or 7.58% of risk-weighted assets, below the required level of 10.00%.

The Tier 1 capital was $55.5 million, or 7.58% of risk-weighted assets, also below the required level of 10.00%.

The Tier 1 leverage capital was $55.5 million, or 5.79% of average assets, falling short of the required 9.00%.

The total risk-based capital was $56.5 million or 7.71% of risk-weighted assets, below the required 11.50%.

During 2024, the Bank significantly reduced its average and risk-based assets to work towards achieving the IMCR targets.

Average assets are down $124.4 million to $959.0 million as of December 31, 2024 from $1.1 billion as of December 31, 2023, reflecting the actions of the Company during the year to lower assets.

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.

The Capital Plan and Higher Minimums Article in the OCC Agreement established capital minimums that need to be met and maintained.

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 all of its regulatory capital requirements.

The Private Placement results in capital ratios that are in excess of the minimums required by the OCC Agreement.

On January 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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity