What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-04-15 compared with 2024-04-01 · 554 added, 496 removed, 1709 unchanged (38% of the section changed)

4 unchanged sentences

- Consolidated Statements of Operations for each of the years in the three-year period ended December 31, 2024

- Consolidated Statements of Comprehensive (Loss) Income for each of the years in the three-year period ended December 31, 2023

- Consolidated Statements of Comprehensive Loss for each of the years in the three-year period ended December 31, 2024

- Consolidated Statements of Shareholders’ Equity for each of the years in the three-year period ended December 31, 2024

5 unchanged sentences

We have audited the accompanying consolidated balance sheets of Patriot National Bancorp, Inc.

and its subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive (loss) income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes to the consolidated financial statements (collectively, the financial statements).

and its subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive loss, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses in 2023 due to the adoption of Accounting Standard Codification Topic 326, Financial Instruments ‑ Credit Losses.

Basis for Opinion

13 unchanged sentences

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses for Loans

1 unchanged sentence

The recorded allowance was established based on an allowance of $6.8 million related to loans collectively evaluated and on an allowance of $0.5 million relating to loans individually evaluated as of December 31, 2024.

For loans that are collectively evaluated for impairment, the Company evaluates loans with similar risk characteristics in pools and uses a model and methodology that forecasts the probability of default (PD), loss given default (LGD), and exposure at default (EAD) for loans in a given pool over their remaining life, thereby deriving an allowance capable of absorbing estimated losses over the remaining life of the portfolio.

For loans that are collectively evaluated, the Company analyzes loans with similar risk characteristics in pools and uses a model and methodology that forecasts the probability of default (PD), loss given default (LGD), and exposure at default (EAD) for loans in a given pool over their remaining life, thereby deriving an allowance capable of absorbing estimated losses over the remaining life of the portfolio.

For all loan segments collectively evaluated, losses are predicted over a period of time determined to be reasonable and supportable, and at the end of the reasonable and supportable forecast period losses are reverted to long-term historical averages.

11 unchanged sentences

The factors include lending practices, the ability and experience of the credit staff, the overall lending environment and external factors such as the regulatory environment and competition.

Credit losses for loans that no longer share similar risk characteristics with the collectively evaluated pools are excluded from the collective evaluation and estimated on an individual basis (individually evaluated loans).

Credit losses for loans that do not share similar risk characteristics with the collectively evaluated pools are excluded from the collective evaluation and estimated on an individual basis (individually evaluated loans).

Individual evaluations are performed for nonaccrual loans and loans rated substandard that are in excess of $100,000.

4 unchanged sentences

Our audit procedures related to management’s determination of reasonable and supportable forecasts, prepayment speeds, the LGD floor, and qualitative factors applied to the quantitative model included the following:

- We obtained an understanding of the relevant controls related to management’s determination of reasonable and supportable forecasts, prepayment speeds, the LGD floor, and qualitative factors applied to the quantitative model.

- We obtained an understanding and tested the relevant controls for design and operating effectiveness related to management’s determination of reasonable and supportable forecasts, prepayment speeds, the LGD floor, and qualitative factors applied to the quantitative model.

- We tested the completeness and accuracy of data used by management in determining the selection and weighting of reasonable and supportable economic forecast scenarios by agreeing on a sample basis the underlying data and components to their appropriate internal or external sources.

- We evaluated the completeness and accuracy of data used by management in determining the prepayment speeds used in its calculation of PD and LGD by agreeing the underlying data to internal sources.

- We evaluated the completeness and accuracy of data used by management in determining the application of a minimum LGD floor in the calculation of LGD by agreeing the underlying data to internal sources.

- We evaluated the completeness and accuracy of data and assessed assumptions used by management in determining the prepayment speeds used in its calculation of PD and LGD by agreeing the underlying data to internal sources.

- We evaluated the completeness and accuracy of data and assessed assumptions used by management in determining the application of a minimum LGD floor in the calculation of LGD by agreeing the underlying data to internal and external sources.

- We tested the completeness and accuracy of data used by management in determining the qualitative factor adjustments to the quantitative model by agreeing the underlying data to appropriate internal and external sources.

- We evaluated management’s determination of the magnitude and extent of qualitative factors applied to the model for reasonableness in relation to the underlying data tested.

Goodwill Impairment Assessment

As described in Notes 1 and 8 of the consolidated financial statements, the Company recognized goodwill impairment of $1.1 million and had no goodwill balance as of December 31, 2023.

The Company performs a goodwill impairment test annually as of October 31, or whenever certain triggering events occur or there are circumstances that would more likely than not reduce the fair value of the reporting unit below its carrying amount are identified.

Management estimates the fair value of the reporting unit by considering multiple valuation techniques, which include subjective assumptions about the future cash flows of the Company, assumptions within the capitalization rate, valuation multiples, and market data used.

We identified the impairment assessment of goodwill as a critical audit matter due to the high degree of auditor judgment and subjectivity in order to evaluate the fair value of the reporting unit due to the judgments made by management in the estimation of the Company’s reporting unit fair value, including those related to future cash flows, the capitalization rate, the valuation multiples used, and the market data incorporated into the estimate.

In addition, the increased audit effort involved the use of internal professionals with specialized skill and knowledge in the field of business valuation.

Our audit procedures related to goodwill impairment assessment included the following for the impairment test performed for the year:

- We obtained an understanding of the relevant controls relating to management’s process for developing the fair value estimates of the reporting unit, including an assessment of the appropriateness of the valuation techniques used.

- We evaluated management’s cash flow projections and significant assumptions incorporated into the business plan by considering the current and past performance by the Company, the Company’s ability to meet financial projections, and the consistency of these assumptions with evidence obtained in other areas of the audit.

- We used the assistance of internal professionals with specialized skill and knowledge to assist in the evaluation of significant assumptions used in the valuation methodology.

This included:

– Testing the fair value of the reporting unit through testing of the completeness and accuracy of the data used by management to develop the estimate.

– Evaluating the reasonableness of the cash flow projection calculations used to develop the estimate.

– Evaluating the capitalization rate, the valuation multiples used, and the market data incorporated into the estimate by assessing the reasonableness, comparability and appropriateness of the market-based information used by agreeing the components to independent source data.

/s/ RSM US LLP

25 unchanged sentences

Deferred tax asset — 24,134

Goodwill — 1,107

Core deposit intangible, net 156 203

48 unchanged sentences

Net interest income 20,077 28,500 33,259

Provision (credit) for credit losses 7,429 1,885 ( 500 )

Net interest income after provision (credit) for credit losses 21,071 31,374 25,761

Provision for credit losses 12,455 7,429 1,885

Net interest income after provision for credit losses 7,622 21,071 31,374

Non-interest Income

3 unchanged sentences

Rental income 302 395 566

Gain on sale of investment securities 24 — 76

(Loss) gain on sale of investment securities, net ( 334 ) 24 —

Digital Payments income 5,109 2,294 683

16 unchanged sentences

(Loss) income before income taxes ( 16,097 ) ( 5,633 ) 7,757

(Benefit) provision for income taxes ( 1,454 ) 1,596 ( 81 )

Provision (benefit) for income taxes 23,785 ( 1,454 ) 1,596

Net (loss) income $ ( 39,882 ) $ ( 4,179 ) $ 6,161

1 unchanged sentence

Diluted (loss) earnings per share $ ( 10.03 ) $ ( 1.05 ) $ 1.55

See Accompanying Notes to Consolidated Financial Statements.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

See Accompanying Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands) Year Ended December 31,

1 unchanged sentence

Net (loss) income $ ( 39,882 ) $ ( 4,179 ) $ 6,161

Other comprehensive income (loss)

Other comprehensive income

Unrealized holding gain (loss) on securities 280 240 ( 18,879 )

Income tax effect ( 108 ) 4,871 369

Reclassification for realized gain on sale of investment securities ( 24 ) — ( 76 )

Income tax effect 6 — 20

Impact of update to effective tax rate 270 — —

384 ( 14,008 ) ( 1,119 )

Derivative instruments:

Unrealized holding gain on cash flow hedge — — 149

Income tax effect — — ( 39 )

Reclassification adjustment for net gain included in net income — — ( 149 )

Income tax effect — — 39

Total other comprehensive income (loss) 384 ( 14,008 ) ( 1,119 )

Comprehensive (loss) income $ ( 3,795 ) $ ( 7,847 ) $ 3,975

Reclassification for realized loss (gain) on sale of investment securities 334 ( 24 ) —

Net change in unrealized gain (loss) 614 216 ( 18,879 )

Income tax (expense) benefit ( 1,034 ) 168 4,871

Unrealized (loss) gain on securities, net of tax ( 420 ) 384 ( 14,008 )

Total other comprehensive (loss) income ( 420 ) 384 ( 14,008 )

Comprehensive loss $ ( 40,302 ) $ ( 3,795 ) $ ( 7,847 )

See Accompanying Notes to Consolidated Financial Statements.

16 unchanged sentences

Balance at December 31, 2022 3,965,186 106,565 ( 31,337 ) ( 15,645 ) 59,583

Comprehensive income (loss):

Net income — — 6,161 — 6,161

Unrealized holding loss on available-for-sale securities, net of tax — — — ( 14,008 ) ( 14,008 )

Total comprehensive income (loss) — — 6,161 ( 14,008 ) ( 7,847 )

Share-based compensation expense — 86 — — 86

Vesting of restricted stock 8,694 — — — —

Balance at December 31, 2022 3,965,186 106,565 ( 31,337 ) ( 15,645 ) 59,583

Transition adjustment related to adoption of ASC326, net of tax — — ( 11,510 ) — ( 11,510 )

6 unchanged sentences

Balance at December 31, 2023 3,976,073 106,670 ( 47,026 ) ( 15,261 ) 44,383

Comprehensive (loss) income:

Net loss — — ( 39,882 ) — ( 39,882 )

Unrealized holding loss on available-for-sale securities, net of tax — — — ( 420 ) ( 420 )

Total comprehensive loss — — ( 39,882 ) ( 420 ) ( 40,302 )

Share-based compensation expense — 184 — — 184

Vesting of restricted stock 15,779 — — — —

Balance at December 31, 2024 3,991,852 $ 106,854 $ ( 86,908 ) $ ( 15,681 ) $ 4,265

See Accompanying Notes to Consolidated Financial Statements.

6 unchanged sentences

Net (loss) income $ ( 39,882 ) $ ( 4,179 ) $ 6,161

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

(Accretion) amortization of investment premiums and discounts, net ( 116 ) ( 51 ) 267

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Accretion of investment premiums and discounts, net ( 160 ) ( 116 ) ( 51 )

Amortization and accretion of purchase loan premiums and discounts, net 17 1,902 2,722

3 unchanged sentences

Impairment of intangible assets — 1,107 —

Provision (credit) for credit losses 7,429 1,885 ( 500 )

Provision for credit losses 12,455 7,429 1,885

Depreciation and amortization 1,078 1,193 1,325

Gain on sales of available-for-sale securities ( 24 ) — ( 76 )

Loss (gain) on sales of available-for-sale securities 334 ( 24 ) —

Gain on sale of premises and equipment ( 3 ) — —

Share-based compensation 184 105 86

(Increase) decrease in deferred income taxes, net ( 4,211 ) 1,490 ( 261 )

Decrease (increase) in deferred tax assets 23,100 ( 4,211 ) 1,490

Increase in deferred tax liabilities 724 — —

Originations of loans held for sale, net ( 577,242 ) ( 189,453 ) ( 23,972 )

1 unchanged sentence

Gains on sale of loans held for sale, net ( 440 ) ( 169 ) ( 1,461 )

Net gain on sale and write-down of other real estate owned — — ( 2 )

Changes in assets and liabilities:

Decrease (increase) in accrued interest and dividends receivable 48 ( 1,445 ) 798

Decrease (increase) in other assets 1,750 ( 879 ) ( 2,124 )

(Decrease) increase in accrued expenses and other liabilities ( 500 ) ( 2,085 ) 3,160

Net cash (used in) provided by operating activities ( 10,715 ) 7,036 7,596

Decrease in accrued interest and dividends receivable 1,731 48 ( 1,445 )

(Increase) decrease in other assets ( 1,123 ) 1,750 ( 879 )

Decrease in accrued expenses and other liabilities ( 103 ) ( 500 ) ( 2,085 )

Net cash provided by (used in) operating activities 2,683 ( 10,715 ) 7,036

Cash Flows from Investing Activities:

2 unchanged sentences

Purchases of available-for-sale securities ( 2,319 ) ( 10,415 ) ( 19,330 )

Redemptions (purchases) of Federal Reserve Bank stock 537 216 ( 60 )

(Purchases) redemptions of Federal Home Loan Bank stock ( 328 ) 310 319

Redemptions of FRB stock 713 537 216

Redemptions (purchases) of FHLB stock 3,423 ( 328 ) 310

Origination of loans receivable ( 48,936 ) ( 145,531 ) ( 211,383 )

3 unchanged sentences

Proceeds from sale of premises and equipment 13 — —

Proceeds from sale of other real estate owned — — 1,908

Net cash used in investing activities ( 27,176 ) ( 122,051 ) ( 55,205 )

Net cash provided by (used in) investing activities 135,011 ( 27,176 ) ( 122,051 )

Cash Flows from Financing Activities:

(Decrease) increase in deposits, net ( 20,135 ) 111,884 62,906

Increase (decrease) in FHLB, FRB and correspondent bank borrowings 86,000 ( 5,000 ) —

Repayments of senior notes — ( 12,000 ) —

Increase (decrease) in deposits, net 126,286 ( 20,135 ) 111,884

(Repayments) proceeds from FHLB daily borrowing, net ( 68,000 ) 16,000 ( 5,000 )

Repayments of FHLB long term borrowings ( 30,000 ) — —

Proceeds from FRB and correspondent bank borrowings 42,000 285,500 40,000

Repayments of FRB and correspondent bank borrowings ( 112,000 ) ( 215,500 ) ( 40,000 )

Principal repayments of senior notes — — ( 12,000 )

Proceeds from issuance of senior notes — — 12,000

Principal repayments of note payable ( 214 ) ( 209 ) ( 206 )

Increase (decrease) in advances from borrowers for taxes and insurance 278 ( 215 ) ( 2,685 )

Net cash provided by financing activities 65,934 106,463 60,018

Increase in advances from borrowers for taxes and insurance 308 278 ( 215 )

Net cash (used in) provided by financing activities ( 41,620 ) 65,934 106,463

Net increase (decrease) in cash, cash equivalents and restricted cash 96,074 28,043 ( 8,552 )

Cash, cash equivalents and restricted cash at beginning of period 38,493 47,045 34,636

Cash, cash equivalents and restricted cash at end of period $ 66,536 $ 38,493 $ 47,045

PATRIOT NATIONAL BANCORP, INC.

3 unchanged sentences

2024 2023 2022

Cash, cash equivalents and restricted cash at beginning of period 66,536 38,493 47,045

Cash, cash equivalents and restricted cash at end of period $ 162,610 $ 66,536 $ 38,493

Supplemental Disclosures of Cash Flow Information:

2 unchanged sentences

Non-cash transactions:

Net change in unrealized (gain) loss on available-for-sale securities $ ( 384 ) $ 14,008 $ 1,119

Change in unrealized loss (gain) on available-for-sale securities, net of tax $ 420 $ ( 384 ) $ 14,008

Transfers of SBA loans held for sale to loans receivable $ 5,526 $ — $ 274

Transfers of loans receivable to loans held for sale $ ( 4,339 ) $ — $ —

Transfers of loans receivable to OREO $ — $ 2,843 $ —

Capitalized servicing assets $ 138 $ 85 $ 400

Operating lease right-of-use assets $ 16 $ 80 $ 373

(Decrease) increase in interest rate swaps $ ( 129 ) $ ( 535 ) $ 449

Operating lease right-of-use assets / liabilities $ 177 $ 16 $ 80

Increase (decrease) in interest rate swaps $ 9 $ ( 129 ) $ ( 535 )

Deferred cost for capital raise $ ( 120 ) $ — $ ( 825 )

Deferred debt issuance costs $ — $ 56 $ 360

Increase in premises and equipment $ — $ — $ 10

Reclassification of premises and equipment to implementation cost $ — $ — $ 52

Increase in accrued expense and other liabilities $ — $ — $ ( 62 )

Decrease in premises and equipment recorded under other liabilities $ ( 65 ) $ — $ —

Expected credit loss for loans - ASC 326 adoption $ — $ 13,001 $ —

11 unchanged sentences

(the "Bank") (collectively, “Patriot”) is a wholly owned subsidiary of the Company.

The Bank is a nationally chartered commercial bank whose deposits are insured under the Bank Insurance Fund, which is administered by the Federal Deposit Insurance Corporation.

The Bank provides a full range of banking services to commercial and consumer customers through its main office in Stamford, Connecticut, eight branch offices in Connecticut and one branch office in New York.

The Bank is a nationally chartered commercial bank whose deposits are insured by the Federal Deposit Insurance Company (“FDIC”), which manages the Deposit Insurance Fund.

The Bank provides a full range of banking services to commercial and consumer customers through its main office in Stamford, Connecticut, seven branch offices in Connecticut and one branch office in New York.

The Bank's customers are concentrated in Fairfield and New Haven Counties in Connecticut and Westchester County in New York.

On March 11, 2003, the Company formed Patriot National Statutory Trust I (the “Trust”) for the purpose of issuing trust preferred securities and investing the proceeds in subordinated debentures issued by the Company, and on March 26, 2003, the first series of trust preferred securities were issued.

In accordance with accounting principles generally accepted in the United States of America (“US GAAP”), the Trust is not included in the Company’s consolidated financial statements.

On May 10, 2018, the Bank completed its acquisition of Prime Bank, a Connecticut bank headquartered in Orange, CT (“Prime Bank”).

The closing of the transaction added a new Patriot branch located in the Town of Orange, New Haven County, Connecticut.

The results of Prime Bank’s operations are included in the Company’s consolidated financial statements from the date of acquisition.

In accordance with generally accepted accounting principles in the United States of America (“US GAAP”), the Trust is not included in the Company’s consolidated financial statements.

The preparation of consolidated financial statements in accordance with US 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.

14 unchanged sentences

Patriot has not experienced any losses from such concentrations.

The Company maintains cash on deposit at another depository institution as collateral for the Bank’s Digital Payments business, which is considered as restricted cash.

The Company maintains cash on deposit at other depository institutions as collateral for the Bank’s Digital Payments business, which is considered as restricted cash.

PATRIOT NATIONAL BANCORP, INC.

2 unchanged sentences

Federal Reserve Bank and Federal Home Loan Bank stock

The Bank is required to maintain an investment in capital stock of the Federal Home Loan Bank of Boston (“FHLB-B”), as collateral, in an amount equal to a percentage of its outstanding mortgage loans and loans secured by residential properties, including mortgage-backed securities.

Additionally, the Bank is required to maintain an investment in the capital stock of the Federal Reserve Bank (“FRB”), as collateral, in an amount equal to one percent of five percent of the Bank’s total equity capital as per its latest Report of Condition (“Call Report”) filed with the Federal Deposit Insurance Corporation.

The Bank is required to maintain an investment in capital stock of the Federal Home Loan Bank of Boston (“FHLB-B”), as collateral, in an amount equal to a percentage of its total assets, plus a percentage of its activity with FHLB-B.

Additionally, the Bank is required to maintain an investment in the capital stock of the Federal Reserve Bank (“FRB”), as collateral, in an amount equal to three percent of the Bank’s total equity capital as per its latest Report of Condition (“Call Report”) filed with the Federal Deposit Insurance Corporation.

The FRB requires that one-half of the investment in its stock be funded currently, with the remaining amount subject to call when deemed necessary by the FRB Board of Governors.

34 unchanged sentences

Loans receivable

Loans that Patriot has the intent and ability to hold until maturity or for the foreseeable future generally are reported at their outstanding unpaid principal balances adjusted for deferred costs, an allowance for loan and lease losses, if any, and any unamortized discount, premium and deferred fees.

Loans that Patriot has the intent and ability to hold until maturity or for the foreseeable future generally are reported at their outstanding unpaid principal balances adjusted for deferred costs, an allowance for credit losses, if any, and any unamortized discount, premium and deferred fees.

Interest income is accrued based on unpaid principal balances.

15 unchanged sentences

2016-13, Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments (“ASC 326”).

ASC 326 amends guidance on reporting credit losses for financial assets held at amortized cost basis and available-for-sale debt securities.

ASC 326 eliminates the probable initial recognition threshold in current US GAAP and instead, requires an entity to reflect its current estimate of all expected credit losses based on historical experience, current conditions and reasonable and supportable forecasts.

ASC 326 requires an entity to reflect its current estimate of all expected credit losses based on historical experience, current conditions and reasonable and supportable forecasts.

The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected.

1 unchanged sentence

In addition, entities need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination.

The Company adopted ASC 326 using the modified retrospective approach.

Results for the periods beginning after January 1, 2023 are presented under Accounting Standards Codification 326 while prior period amounts continue to be reported in accordance with previously applicable US GAAP.

The Company recorded a net reduction of retained earnings of $ 11.5 million upon adoption.

The transition adjustment includes an increase in credit related reserves of $ 13.0 million and the recording of an unfunded commitment reserve of $ 2.7 million, respectively, net of the corresponding increase in deferred tax assets of $ 4.2 million.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

January 1, 2023

(In thousands) Post ASC 326 Adoption Pre-ASC 326 Adoption Pre-tax impact of ASC 326 Adoption

Commercial Real Estate $ 8,592 $ 6,966 $ 1,626

Residential Real Estate 854 665 189

Commercial and Industrial 1,622 1,403 219

Consumer and Other 12,184 1,207 10,977

Construction 20 24 ( 4 )

Construction to permanent - CRE 39 10 29

Unallocated — 35 ( 35 )

Total Allowance for credit losses $ 23,311 $ 10,310 $ 13,001

Unfunded commitment reserve $ 2,745 $ 8 $ 2,737

The allowance for credit losses (“ACL”) is based on the Company’s evaluation of the loan portfolios, current asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations.

The allowance for credit losses (“ACL”) is based on the Company’s evaluation of the loan portfolios, current asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations.

The process is inherently subjective and subject to significant change as it requires material estimates.

2 unchanged sentences

Such agencies may require the Company to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

Credit losses are estimated on the amortized cost basis of loans, which includes the principal balance outstanding, purchase discounts and premiums and deferred loan fees and costs.

5 unchanged sentences

The factors include lending practices, the ability and experience of the credit staff, the overall lending environment and external factors such as the regulatory environment and competition.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

In addition, a risk rating system is utilized to evaluate the collectively evaluated component of the ACL.

1 unchanged sentence

Risk ratings are assigned based upon the recommendation of the credit analyst and the originating loan officer.

The risk ratings are reviewed and confirmed by the management loan committee of the Board of Directors (the “Loan Committee”).

The risk ratings are reviewed and confirmed by the loan committee of the Board of Directors (the “Loan Committee”).

Risk ratings are established at the initiation of transactions and are reviewed and changed, when necessary, during the life of the loan.

3 unchanged sentences

All appraisals are reviewed by qualified independent parties to the firm preparing the appraisals.

Generally, management obtains updated appraisals when a loan is under nonaccrual status and evaluated individually.

Generally, management obtains updated appraisals when a loan is on nonaccrual status and evaluated individually.

These appraisals may be more limited than those prepared for the underwriting of a new loan.

16 unchanged sentences

The Company adopted ASU 2022-02 effective January 1, 2023 and the impact was immaterial.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

Accrued Interest Receivable

1 unchanged sentence

• Presenting accrued interest receivable balances separately on the Consolidated Balance Sheet.

• Continuing our policy to fully reserve accrued interest receivable by reversing interest income.

• Continuing our policy to fully reserve accrued interest receivable by reversing interest income on nonaccrual loans.

For commercial loans, the reserve is established upon becoming 90 days past due except for instances where it can be clearly documented that the loan is both well secured and in the process of collection.

2 unchanged sentences

• Not measuring an allowance for credit losses for accrued interest receivable due to the Company’s policy of fully reserving uncollectible accrued interest receivable balances in a timely manner, as described above.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

ACL for Unfunded Commitments

9 unchanged sentences

Patriot originates loans to customers under the SBA program, historically providing for SBA guarantees of 75% of the principal balance of each loan.

Due to the pandemic, in 2021, the SBA increased the guaranteed percentage to 90% during one of the rounds of stimulus.

Due to the pandemic, in December 2020, the SBA temporarily increased the guaranteed percentage to 90% during one of the rounds of stimulus.

As of October 1, 2021, the guaranteed percentage reverted back to 75% of the loan.

6 unchanged sentences

The estimated fair value for SBA loans held for sale is based on pricing information from secondary markets and brokers, when available.

Patriot originates various types of consumer loans include credit card loans that are marketed by the buyer.

Patriot originates commercial credit card loans that are marketed by the buyer.

The credit card loans are expected to be held for no longer than three days before being sold to the buyer.

2 unchanged sentences

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.

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

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

Servicing Assets

11 unchanged sentences

Gains or losses are included in non-interest expenses upon disposal.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

Write-downs of foreclosed properties that are required upon transfer to OREO are charged to the ACL.

23 unchanged sentences

It also requires use of a discount rate that reflects the current return requirements of the market in relation to present risk-free interest rates, required equity market premiums, peer volatility indicators, and company-specific risk indicators.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

CDI is amortized on straight-line basis over a 10-year period because that is managements’ estimate of the period Patriot will benefit from Prime Bank’s deposit base comprised of funds associated with long-term customer relationships.

4 unchanged sentences

The fair value of each reporting unit is compared to the carrying amount of such reporting unit in order to determine if impairment is indicated.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

Derivatives are recognized at fair value and included in other assets and other liabilities in the accompanying Consolidated Balance Sheets.

2 unchanged sentences

Derivatives Not Designated in Hedge Relationships:

Patriot enters into interest rate swap agreements (“swaps”), to provide a facility to mitigate for the borrower the fluctuations in the variable rate on the respective loan.

Patriot enters into interest rate swap agreements (“swaps”) on a limited basis, to provide a facility to mitigate for the borrower the fluctuations in the variable rate on the respective loan.

The customer swaps are simultaneously hedged by offsetting derivatives that Patriot entered into with an outside third party.

4 unchanged sentences

The positions of customer derivatives are recorded at fair value and changes in value are included in non-interest income on the consolidated statement of operations.

Derivatives Designated in Hedge Relationships:

The Company uses derivatives to hedge exposures, or to modify interest rate characteristics, for certain balance sheet accounts under its interest rate risk management strategy.

The Company designates derivatives in qualifying hedge relationships as cash flow hedges for accounting purposes.

Derivative financial instruments receive hedge accounting treatment if they are qualified and properly designated as a hedge and remain highly effective in offsetting changes in the cash flows attributable to the risk being hedged both at hedge inception and on an ongoing basis throughout the life of the hedge.

Quarterly prospective and retrospective assessments are performed to ensure hedging relationships continue to be highly effective.

If a hedge relationship were no longer highly effective, hedge accounting would be discontinued.

The gain or loss on a derivative designated and qualifying as a cash flow hedge is initially recorded as a component of accumulated other comprehensive income or loss, net of tax and subsequently reclassified to interest income as hedged interest payments are received or to interest expense as hedged interest payments are made in the same period during which the hedged transaction affects earnings.

Patriot recognizes income taxes under the asset and liability method.

Under this method, deferred tax assets and liabilities are recognized for the estimated tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and loss carry forwards.

Deferred tax assets (“DTA”s) and liabilities (“DTL”s) 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.

The Company recognizes income taxes under the asset and liability method.

Under this method, deferred tax assets (“DTAs”) and liabilities (“DTLs”) are recognized for the estimated tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and loss carry forwards.

DTAs and DTLs 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.

The effect on DTAs and DTLs of a change in tax rates is recognized in income in the period that includes the enactment date.

In certain circumstances DTAs are subject to reduction by a valuation allowance.

The Company recognize 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.

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 addition, management assesses tax attributes including available tax planning strategies and net operating loss carry-forwards that do not begin to expire until the year 2030.

As of December 31, 2023, no valuation allowance was recorded.

See Note 14 for more information on the deferred tax valuation allowance.

Management will continue to evaluate its ability to realize the net deferred tax asset.

Future evidence may indicate that it is more likely than not that a portion of the net deferred tax asset will not be realized at which point the valuation allowance may need to be increased.

Patriot had a net deferred tax asset of $ 24.1 million at December 31, 2023 as compared to a net deferred tax asset of $ 15.5 million at December 31, 2022.

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 as of September 30, 2024, we determined that a full valuation allowance was appropriate against the Company’s U.S.

federal and state deferred tax assets.

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 if a full valuation allowance remains appropriate or if the allowance should be reduced.

PATRIOT NATIONAL BANCORP, INC.

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Patriot’s returns for tax years 2021 through 2024 are subject to examination by the Internal Revenue Service (“IRS”) for U.S.

Federal tax purposes and, for State tax purposes, by the Department of Revenue Services for the State of Connecticut and the State of New York Department of Taxation and Finance.

Federal tax purposes and, for State tax purposes, by the taxing authorities of Connecticut, New York and New Jersey.

As of December 31, 2024 and 2023, the Bank did not record any uncertain tax positions (“UTP”).

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Earnings per Share

Basic earnings per share represent earnings accruing to common shareholders and are computed by dividing net income by the weighted average number of common shares outstanding.

Diluted earnings per share reflects additional common shares that would have been outstanding if potentially dilutive securities had been converted to common stock, as well as any adjustments to earnings resulting from the assumed conversion, unless such effect is anti-dilutive.

Potential common shares that may be issued by Patriot include any unvested restricted stock awards, stock options, and stock warrants and are determined using the treasury stock method.

Basic earnings per share represent earnings accruing to common shareholders and are computed by dividing net income by the weighted average number of shares of common stock outstanding.

Diluted earnings per share reflects additional shares of common stock that would have been outstanding if potentially dilutive securities had been converted to common stock, as well as any adjustments to earnings resulting from the assumed conversion, unless such effect is anti-dilutive.

Potential shares of common stock that may be issued by Patriot include any unvested restricted stock awards, stock options, and stock warrants and are determined using the treasury stock method.

Share-based compensation plan

13 unchanged sentences

During the years ended December 31, 2024, 2023 and 2022, this segment represented all the revenues and income of Patriot.

While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed, and financial performance is evaluated on a Company-wide basis.

Operating segments are aggregated into one as operating results for all segments are similar.

Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

PATRIOT NATIONAL BANCORP, INC.

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Notes to consolidated financial statements

The Financial Accounting Standards Board amended the segment reporting requirements to add disclosures of incremental segment expense categories.

The Company adopted this guidance effective December 31, 2024 on a retrospective basis.

The additional disclosures are included in Note 23 – Segment Information.

Related Party Transactions

24 unchanged sentences

Notes to consolidated financial statements

Non-interest income - Digital Payments Division

The Digital Payments Division ("DPD") provides solutions to our customers in the form of acceptance, processing and settlement of prepaid, debit, and charge card payments and accounts.

Each of our customers, called Program Managers (“PMs”), signs a services agreement with the Bank with customized terms and fees.

The typical fees include start-up fees and transaction fees, and the fees will vary by relationship.

The start-up fees are to compensate the Bank for costs of due diligence on the PMs and the programs, and to onboard the PMs and programs onto our infrastructure.

The transaction fees are typically based on a charge per transaction settled, or a rate on the total dollar settlement volume in a month.

The fees are billed after the activities occur and collected monthly.

The Bank receives interchange revenue from the networks, both MasterCard and Visa.

The interchange revenue is a unique amount per transaction that settles to the Bank through their networks on a daily basis.

As a part of the Program Manager services agreement, the Bank may share part or all of the interchange revenue with the PM.

The interchange revenue is recognized as point in time transactions for the Bank and records a reduction of the revenue for any part of the interchange revenue that is shared with the PM.

The networks, both MasterCard and Visa, charge fees to the merchant for utilization of the network, and the fees that are collected are paid to the Bank.

The interchange rate may vary, as most transaction types have their own unique rate charged by the network at the time the purchase is completed.

Recently Adopted and Issued Accounting Standards

Accounting Standards Adopted During 2023

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses:

Measurement of Credit Losses on Financial Instruments (Topic 326).

The ASU changes the methodology for measuring credit losses on financial instruments measured at amortized cost to a CECL model.

Under the CECL model, entities are required to estimate credit losses over the entire contractual term of a financial instrument from the date of initial recognition of the instrument.

The ASU also changes the existing impairment model for available-for-sale debt securities.

In cases where there is neither the intent nor a more-likely-than-not requirement to sell the debt security, an entity should record credit losses as an allowance rather than a direct write-down of the amortized cost basis.

Additionally, ASU 2016-13 notes that credit losses related to available-for-sale debt securities and purchased credit impaired loans should be recorded through an allowance for credit losses.

ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2018.

In November 2019, the FASB issued ASU 2019-10, which amended the effective date of ASU 2016-13 for smaller reporting companies, as defined by the SEC, and other non-SEC reporting entities, and delayed the effective date to fiscal years beginning after December 31, 2022, including interim periods within those fiscal periods.

As the Company is a small reporting company, the delay was applicable to the Company.

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

For further discussion regarding the impact of ASU 2016-13 adoption, see section “Allowance for Credit Losses” under Summary of Significant Accounting Policies in Note 1 above.

In January 2020, the FASB issued ASU No.

2020-02, Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842):

Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No.

2016-02, Leases (Topic 842).

This ASU adds and amends SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Staff Accounting Bulletin No.

119, related to the new credit losses standard, and comments by the SEC staff related to the revised effective date of the new leases standard.

This ASU is effective upon issuance.

The Company adopted ASU 2016-13 and ASU 2020-02 effective January 1, 2023.

In March 2020, the FASB issued ASU No.

2020-03, Codification Improvements to Financial Instruments .

This ASU clarifies various financial instruments topics, including the CECL standard issued in 2016.

Amendments related to ASU 2016-13 for entities that have not yet adopted that guidance are effective upon adoption of the amendments in ASU 2016-13.

Early adoption is not permitted before an entity’s adoption of ASU 2016-13.

Other amendments are effective upon issuance of this ASU.

See the discussion regarding the adoption of ASU 2016-13 above.

In March 2022, the FASB issued ASU No.

2022-02, Financial Instruments—Credit Losses (Topic 326) :

Troubled Debt Restructurings ("TDR") and Vintage Disclosures .

ASU 2022-02 updates guidance in Topic 326, to eliminate the accounting guidance for TDRs by creditors in Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors , while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty and to require entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost .

ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted if an entity has adopted the amendments in ASU 2016-03, including adoption in an interim period.

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

The adoption of this guidance did not have any material impact on the Company's Consolidated Financial Statements.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

On December 21, 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848 .

This ASU defers the sunset date of the temporary, optional expedients related to the accounting for contract modifications and hedging transactions as a result of the anticipated transition away from the use of LIBOR and other interbank offered rates to alternative reference rates.

In response to the United Kingdom’s Financial Conduct Authority's extension of the cessation date of LIBOR in the United States to June 30, 2023, the FASB has deferred the expiration date of these optional expedients to December 31, 2024.

The ASU became effective upon issuance and affords the Company an extended period to utilize the currently available optional expedients related to the accounting for contract modifications and hedging transactions as a result of the anticipated transition away from the use of LIBOR and other inter-bank offered rates.

The adoption of this guidance did not have a material impact on the Company's Consolidated Financial Statements.

Accounting Standards Adopted in 2024

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

The amendments are intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

Additionally, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment and define other disclosure requirements.

A public entity must apply the amendments retrospectively to all prior periods presented in the financial statements.

Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption.

This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

The Company adopted this guidance effective December 31, 2024 on a retrospective basis.

The additional disclosures are included in Note 23 – Segment Information.

Accounting Standards Issued But Not Yet Adopted

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The Company will continue to monitor for SEC action, and plan accordingly for adoption.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

In December 2023, the FASB issued ASU 2023‑09 Income Taxes (Topic 740):

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We do not expect adoption of this standard to have a material impact on the Company’s Consolidated Financial Statements.

In November 2024, the FASB issued ASU 2024-03:

Income Statement-Reporting Comprehensive Income Expense Disaggregation Disclosures (Subtopic 220-40);

Disaggregation of Income Statement Expenses .

This ASU requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements.

This ASU does not change the expense captions an entity presents on the face of the income statement.

ASU 2024-03 can be applied prospectively, and it is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027.

Early adoption and retrospective applications are permitted.

We do not expect adoption of this standard to have a material impact on the Company’s Consolidated Financial Statements.

Restrictions on Cash and Due from Banks

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The collateral serves to protect a payment processor in the event of the Bank’s inability to fulfill its obligations regarding transactions processed through the payment processor on behalf of Digital Payments.

The restricted cash was $ 15.0 million and $ 14.0 million as of December 31, 2024 and 2023, respectively.

PATRIOT NATIONAL BANCORP, INC.

9 unchanged sentences

SBA loan pools 4,562 — ( 989 ) 3,573

Municipal bonds 559 — ( 73 ) 486

$ 100,247 $ — $ ( 20,255 ) $ 79,992

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SBA loan pools — — 3,573 ( 989 ) 3,573 ( 989 )

Municipal bonds — — 486 ( 73 ) 486 ( 73 )

$ 4,170 $ ( 160 ) $ 75,822 $ ( 20,095 ) $ 79,992 $ ( 20,255 )

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Notes to consolidated financial statements

At December 31, 2023 and 2022, fifty of fifty and forty-six of forty-seven available-for-sale securities had unrealized losses with an aggregate depreciation of ( 19.0 )% and ( 20.3 )% from amortized cost, respectively.

As of December 31, 2023, no allowance for credit losses has been recognized on available for sale debt securities in an unrealized loss position as the Company does not believe any of the debt securities are credit impaired.

As of December 31, 2024, all forty-four available-for-sale securities were in an unrealized loss position, with an aggregate depreciation of 20.2 % from amortized cost.

As of December 31, 2023, fifty of fifty available-for-sale securities had unrealized losses, with an aggregate depreciation of 19.0 % from amortized cost.

As of December 31, 2024 and 2023, no allowance for credit losses has been recognized on available-for-sale debt securities in an unrealized loss position as the Company does not believe any of the debt securities are credit impaired.

This is based on the Company’s analysis of the risk characteristics, including credit ratings, and other qualitative factors related to available-for-sale debt securities.

15 unchanged sentences

All debt securities in an unrealized loss position continue to perform as scheduled and the Company does not believe there is a possible credit loss or that an allowance for credit loss on these debt securities is necessary.

As of December 31, 2023 and 2022, available-for-sale securities of $ 68.5 million and $ 30.8 million, respectively, were pledged primarily to secure municipal deposits, and as collateral for FRB and FHLB borrowings.

As of December 31, 2024 and 2023, available-for-sale securities of $ 60.2 million and $ 68.5 million, respectively, were pledged primarily as collateral for FRB and FHLB borrowings, and to secure municipal deposits.

The securities were pledged to the FRB and FHLB.

15 unchanged sentences

SBA loan pools — — 4,562 4,562 — — 3,573 3,573

Municipal bonds 153 406 — 559 140 346 — 486

Available-for-sale securities with stated maturity dates 3,000 16,996 4,562 24,558 2,610 13,586 3,573 19,769

41 unchanged sentences

Where the owner occupies the property, Patriot also evaluates the business’ ability to repay the loan on a timely basis and may require personal guarantees, lease assignments, and/or the guarantee of the operating company.

In 2023, Patriot did not purchase any commercial real estate loans.

There were $ 20.7 million commercial real estate loans purchased during 2022.

Residential Real Estate Loans

Patriot’s residential real estate loan portfolio consists primarily of purchased residential loans.

The repayment of residential real estate loans, as well as the loans secured by residential real estate, may be negatively impacted if borrowers experience financial difficulties, if there is a significant decline in the value of the property securing the loan, or if there are declines in general economic conditions.

In 2023 and 2022, Patriot did not purchase any residential real estate loans.

Patriot did not purchase any commercial real estate loans in 2024 and 2023.

PATRIOT NATIONAL BANCORP, INC.

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Notes to consolidated financial statements

Residential Real Estate Loans

Patriot’s residential real estate loan portfolio consists primarily of purchased residential loans.

In 2024, Patriot purchased $ 187,000 residential real estate loans.

In 2023, Patriot did not purchase any residential real estate loans.

In 2024, the Bank reentered the residential mortgage business, began originating mortgage loans through its mortgage origination unit, Residential Mortgage Division, based in Jacksonville, Florida.

These mortgage loans are typically sold to third parties and classified as Loans Held for Sale.

For further details, refer to disclosures in Note 5 - Loans Held for Sale.

Commercial and Industrial Loans

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The Company has purchased unsecured consumer loans from a third party which are higher yielding loans of 2 - 5 year terms that are expected to incur an increased level of charge-offs.

Loans purchased under this program totaled $ 15.4 million and $ 90.1 million for the year ended December 31, 2023 and 2022, respectively.

Loans purchased under this program totaled zero and $ 15.4 million for the year ended December 31, 2024 and 2023, respectively.

Loans outstanding under this program totaled $ 20.7 million and $ 48.5 million as of December 31, 2024 and 2023, respectively.

1 unchanged sentence

Subprime lending generally targets borrowers with weakened credit histories that are typically characterized by payment delinquencies, previous charge-offs, judgments against the consumer, a history of bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burdened ratios.

Patriot purchased home equity line of credit loans (“HELOC”) of $ 5.7 million and $ 30.6 million for the year ended December 31, 2023 and 2022, respectively.

Patriot purchased home equity line of credit loans (“HELOC”) of nil and $ 5.7 million for the year ended December 31, 2024 and 2023, respectively.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

Construction Loans

5 unchanged sentences

The construction loans outstanding at December 31, 2024 and 2023 totaled $ 3.8 million and $ 4.3 million, respectively.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

Construction to Permanent - Commercial Real Estate (“CRE”)

3 unchanged sentences

Construction facilities are typically variable rate instruments that, upon conversion to an amortizing mortgage loan, reset to a fixed rate instrument that is the greater of the in-force variable rate plus a predetermined spread over a reference rate (e.g., prime) or a minimum interest rate.

Patriot originates SBA 7(a) loans, on which the SBA has historically provided guarantees of 75 % of the principal balance.

However, during the pandemic in 2021, the SBA temporarily increased the guarantees to 90 % and reverted to 75 % on October 1, 2021.

Patriot originated SBA 7(a) loans, on which the SBA has historically provided guarantees of 75 % of the principal balance.

From December 27, 2020, to September 31, 2021, the SBA temporarily increased the guarantees to 90 %.

On October 1, 2021, the guaranty percentage automatically reverted to its previous level of 75 % .

The guaranteed portion of the Company’s SBA loans is generally sold in the secondary market with the unguaranteed portion held in the portfolio as a loan held for investment.

8 unchanged sentences

Paycheck Protection Program loans totaled $ 129,000 and $ 133,000 as of December 31, 2024 and 2023, respectively, which are included in the commercial and industrial loan classifications.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

Allowance for Credit Losses

As described in Note 1, “Summary of Significant Accounting Policies,” the Company adopted ASU 2016-13 on January 1, 2023, which introduced the CECL methodology for estimating all expected losses over the life of a financial asset.

The Company adopted ASU 2016-13 on January 1, 2023, which introduced the CECL methodology for estimating all expected losses over the life of a financial asset.

Under the CECL methodology, the ACL is measured on a collective basis for pools of loans with similar risk characteristics.

2 unchanged sentences

The estimated credit losses for all loan segments are adjusted for changes in qualitative factors not inherently considered in the quantitative analyses.

The Company estimates expected credit losses for pooled loans using a modeling method that incorporates probability of default and loss given default.

The Company estimates expected credit losses for pooled loans using a modeling method that incorporates probability of default (“PD”) and loss given default (“LGD”).

The PD model employs a quarterly risk-rating transition method to estimate the probability of default by simulating loan downgrades and assigning increasing default probabilities to each loan.

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This calculation is forecasted for every year remaining in the life of each loan, and the results are aggregated to determine the necessary level of ACL for the pooled loans.

Forecasted exposure at default can be influenced by prepayments speeds, which management elected to discount in part to reflect the expectation of slower voluntary prepayments in the face of an increasing interest rate environment.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

Forecasted exposure at default can be influenced by prepayments speeds, which management had elected to discount in part since CECL adoption to reflect the expectation of slower voluntary prepayments in the face of an increasing interest rate environment and now a stable to slightly declining interest rate environment.

Commercial and industrial loans include risks associated with borrower’s cash flow, debt service coverage and management’s expertise.

21 unchanged sentences

The ACL on unfunded loan commitments is classified as a liability account on the Consolidated Balance Sheets within other liabilities, while the corresponding provision for these credit losses is recorded as a component of provision for credit losses.

The allowance for credit losses on unfunded commitments was $ 271,000 at December 31, 2023.

The allowance for credit losses on unfunded commitments was $ 182,000 and $ 271,000 as of December 31, 2024 and 2023.

PATRIOT NATIONAL BANCORP, INC.

1 unchanged sentence

Notes to consolidated financial statements

The following tables summarize the activity in the allowance for loan and lease losses, allocated to segments of the loan portfolio, for each year in the three-year period ended December 31, 2023:

The following tables summarize the activity in the allowance for credit losses, allocated to segments of the loan portfolio, for each year in the three-year period ended December 31, 2024:

(In thousands) Commercial

6 unchanged sentences

December 31, 2023 $ 6,089 $ 607 $ 1,269 $ 7,843 $ 4 $ 113 $ — $ 15,925

Impact of ASC 326 Adoption 1,626 189 219 10,977 ( 4 ) 29 ( 35 ) 13,001

Charge-offs ( 13,889 ) ( 21 ) ( 1,252 ) ( 7,431 ) — — — ( 22,593 )

Recoveries — — 369 1,060 — — — 1,429

Provisions 3,843 254 540 5,058 134 74 — 9,903 (1)

Provisions (credits) 10,041 10 691 1,914 1 ( 113 ) — 12,544 (1)

December 31, 2024 $ 2,241 $ 596 $ 1,077 $ 3,386 $ 5 $ — $ — $ 7,305

As of and for the year ended December 31, 2023

Allowance for loan and lease losses:

Allowance for credit losses:

December 31, 2022 $ 6,966 $ 665 $ 1,403 $ 1,207 $ 24 $ 10 $ 35 $ 10,310

Impact of ASC 326 Adoption 1,626 189 219 10,977 ( 4 ) 29 ( 35 ) 13,001

Charge-offs ( 6,346 ) ( 515 ) ( 927 ) ( 10,479 ) ( 150 ) — — ( 18,417 )

Recoveries — 14 34 1,080 — — — 1,128

(Credits) provisions 1,749 ( 1,039 ) ( 1,128 ) 2,523 14 ( 31 ) ( 203 ) 1,885

Provisions 3,843 254 540 5,058 134 74 — 9,903 (2)

December 31, 2023 $ 6,089 $ 607 $ 1,269 $ 7,843 $ 4 $ 113 $ — $ 15,925

6 unchanged sentences

December 31, 2022 $ 6,966 $ 665 $ 1,403 $ 1,207 $ 24 $ 10 $ 35 $ 10,310

The allowance and provision for the year ended December 31, 2023 are not comparable to prior periods due to the adoption of CECL.

(1) The provision on credit losses included in the above table for the year ended December 31, 2023 does not include the credit on unfunded loan commitments of $( 2.5 ) million for the year ended December 31, 2023.

(1) The provision on credit losses included in the above table does not include the credit on unfunded loan commitments of $ 89,000 for the year ended December 31, 2024.

(2) The provision on credit losses included in the above table does not include the credit on unfunded loan commitments of $ 2.5 million for the year ended December 31, 2023.

(3) No provision on unfunded loan commitments is included in the provision on allowance for loan and lease losses for the year ended December 31, 2022.

PATRIOT NATIONAL BANCORP, INC.

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Notes to consolidated financial statements

The following tables summarize, by loan portfolio segment, the amount of loans receivable evaluated individually and collectively for allowance for credit losses as of December 31, 2023:

The following tables summarize, by loan portfolio segment, the amount of loans receivable evaluated individually and collectively for allowance for credit losses as of December 31, 2024 and 2023:

(In thousands) Commercial

3 unchanged sentences

Other Construction Construction to

- CRE Unallocated Total

December 31, 2024

7 unchanged sentences

Total loans receivable, gross $ 419,489 $ 92,215 $ 129,608 $ 59,973 $ 3,830 $ 2,357 $ 707,472

The following tables presents the balance in the allowance for loan and lease losses and the recorded investment in loans by portfolio segment based on impairment method as of December 31, 2022:

(In thousands) Commercial

3 unchanged sentences

Other Construction Construction to

- CRE Unallocated Total

December 31, 2023

Allowance for loan and lease losses:

Individually evaluated for impairment $ 5,430 $ 5 $ 608 $ — $ — $ — $ — $ 6,043

Collectively evaluated for impairment 1,536 660 795 1,207 24 10 35 4,267

Total allowance for loan losses $ 6,966 $ 665 $ 1,403 $ 1,207 $ 24 $ 10 $ 35 $ 10,310

Allowance for credit losses:

Individually evaluated loans $ 3,813 $ — $ 392 $ — $ — $ — $ 4,205

Collectively evaluated loans 2,276 607 877 7,843 4 113 11,720

Total allowance for credit losses $ 6,089 $ 607 $ 1,269 $ 7,843 $ 4 $ 113 $ 15,925

Loans receivable, gross:

Individually evaluated for impairment $ 11,241 $ 2,508 $ 4,653 $ 514 $ — $ — $ — $ 18,916

Collectively evaluated for impairment 426,202 121,632 134,134 140,577 4,922 1,933 — 829,400

Individually evaluated loans $ 12,775 $ — $ 3,904 $ — $ 454 $ — $ 17,133

Collectively evaluated loans 459,318 106,783 159,661 99,688 3,812 2,464 831,726

Total loans receivable, gross $ 472,093 $ 106,783 $ 163,565 $ 99,688 $ 4,266 $ 2,464 $ 848,859

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

Patriot monitors the credit quality of its loans receivable on an ongoing basis.

5 unchanged sentences

In addition, the risk ratings on all commercial loans over $250,000 are reviewed by the Credit Department either annually or biannually, or every 4 years, depending upon the amount of the bank’s exposure and other credit metrics.

Additionally, Patriot retains an independent third-party loan review expert to perform a quarterly analysis of the results of its risk rating process.

Additionally, Patriot retains an independent third-party loan review expert to perform a semi-annual analysis of the results of its risk rating process.

The semi-annual review is based on a randomly selected sample of loans within established parameters (e.g., value, concentration), in order to assess and validate the risk ratings assigned to individual loans.

Any changes to the assigned risk ratings, based on the semi-annual review, are required to be reported to the Audit Committee of the Board of Directors.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

When assigning a risk rating to a loan, management utilizes the Bank’s internal eleven-point risk rating system.

10 unchanged sentences

Any amount that may be recovered on the sale of collateral underlying a loan is recognized as a “recovery” in the period in which the collateral is sold.

Loans receivable that are part of the unsecured loan purchase program are charged-off in full when the loan is 90 days past due.

The allowance for credit losses may increase to reflect the decline in the performance of the loan portfolio and the higher level of incurred losses.

In accordance with Federal Financial Institutions Examination Council published policies establishing uniform criteria for the classification of retail credit based on delinquency status, “Open-ended” credits are typically charged off once they reach 180 days past dues and “Closed-end” credits are typically charged off once they reach 120 days past due, with limited exceptions for loans secured by 1-4 family residential real estate.

The allowance for credit losses may increase to reflect the decline in the performance of the loan portfolio and the higher level of expected losses.

PATRIOT NATIONAL BANCORP, INC.

2 unchanged sentences

Loan Portfolio Vintage Analysis

The following tables summarize loan amortized cost by vintage, credit quality indicator and class of loans based on year of origination:

Term of Loans by Origination

The following tables summarize loan amortized cost by vintage, credit quality indicator and class of loans based on year of origination as of December 31, 2024:

(In thousands) Term of Loans by Origination

As of December 31, 2024:

6 unchanged sentences

— 107,702 136,834 96,890 2,318 75,745 — 419,489

Current period gross charge-offs — — — — — 13,889 — 13,889

Residential Real Estate:

Pass 372 — 1,218 2,811 9,546 74,937 792 89,676

Special mention — — — — 1,053 1,377 — 2,430

Substandard — — — — — 109 — 109

372 — 1,218 2,811 10,599 76,423 792 92,215

Current period gross charge-offs — — — — — 21 — 21

Commercial and Industrial:

3 unchanged sentences

843 2,996 14,111 20,775 6,508 7,471 76,904 129,608

Current period gross charge-offs — — — — — 1,252 — 1,252

Consumer and Other:

2 unchanged sentences

290 2,586 16,300 1,859 — 15,305 23,633 59,973

Current period gross charge-offs — 313 5,997 635 — 486 — 7,431

Construction:

Pass — — — 3,830 — — — 3,830

— — — 3,830 — — — 3,830

Construction to Permanent - CRE:

Substandard — — — 2,357 — — — 2,357

— — — 2,357 — — — 2,357

Total loans $ 1,505 $ 113,284 $ 168,463 $ 128,522 $ 19,425 $ 174,944 $ 101,329 $ 707,472

Total Current period gross charge-offs $ — $ 313 $ 5,997 $ 635 $ — $ 15,648 $ — $ 22,593

Loans receivable, gross:

Pass 1,505 107,869 160,875 116,654 12,470 166,510 93,635 659,518

Special mention — 3,986 18 39 1,053 2,380 7,389 14,865

Substandard — 1,429 7,570 11,829 5,902 6,054 305 33,089

Total Loans receivable, gross $ 1,505 $ 113,284 $ 168,463 $ 128,522 $ 19,425 $ 174,944 $ 101,329 $ 707,472

Total Current period gross charge-offs $ — $ 313 $ 5,997 $ 635 $ — $ 15,648 $ — $ 22,593

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

The following tables summarize loan amortized cost by vintage, credit quality indicator and class of loans based on year of origination as of December 31, 2023:

(In thousands) Term of Loans by Origination

As of December 31, 2023:

2023 2022 2021 2020 2019 Prior Revolving Total Loans

Loan portfolio segment:

Commercial Real Estate:

Pass $ 104,683 $ 138,091 $ 111,308 $ 3,401 $ 31,832 $ 63,526 $ — $ 452,841

Special mention — 6,482 — — — — — 6,482

Substandard — 1,799 — 280 10,000 691 — 12,770

Total 104,683 146,372 111,308 3,681 41,832 64,217 — 472,093

Current period gross charge-offs — — — — 6,341 5 — 6,346

Residential Real Estate:

Pass — 1,251 2,975 11,577 15,770 74,596 614 106,783

Total — 1,251 2,975 11,577 15,770 74,596 614 106,783

Current period gross charge-offs — — — — — 515 — 515

Commercial and Industrial:

Pass 2,696 13,916 23,099 8,004 9,578 7,024 96,431 160,748

Special mention 6 348 — — 37 11 104 506

Substandard 16 — 801 — 401 1,093 — 2,311

Total 2,718 14,264 23,900 8,004 10,016 8,128 96,535 163,565

Current period gross charge-offs — 182 85 — 516 144 — 927

Consumer and Other:

Pass 6,470 36,668 4,724 — 5,590 14,314 30,945 98,711

Substandard 197 645 61 — — — 74 977

Total 6,667 37,313 4,785 — 5,590 14,314 31,019 99,688

Current period gross charge-offs 114 9,013 1,280 — 6 66 — 10,479

Construction:

Pass — — 3,812 — — — — 3,812

Substandard — — — — 454 — — 454

Total — — 3,812 — 454 — — 4,266

Current period gross charge-offs — — 150 — — — — 150

Construction to Permanent - CRE:

Special mention — — 2,464 — — — — 2,464

— — 2,464 — — — — 2,464

Total — — 2,464 — — — — 2,464

Total loans $ 114,068 $ 199,200 $ 149,244 $ 23,262 $ 73,662 $ 161,255 $ 128,168 $ 848,859

Total Current period gross charge-offs $ 114 $ 9,195 $ 1,515 $ — $ 6,863 $ 730 $ — $ 18,417

Loans receivable, gross:

3 unchanged sentences

Loans receivable, gross $ 114,068 $ 199,200 $ 149,244 $ 23,262 $ 73,662 $ 161,255 $ 128,168 $ 848,859

Total Current period gross charge-offs $ 114 $ 9,195 $ 1,515 $ — $ 6,863 $ 730 $ — $ 18,417

PATRIOT NATIONAL BANCORP, INC.

14 unchanged sentences

Pass 838 — — 838 88,838 89,676 — 89,676

Special mention — — — — 2,430 2,430 — 2,430

Substandard — — — — — — 109 109

838 — — 838 91,268 92,106 109 92,215

10 unchanged sentences

Pass — — — — 3,830 3,830 — 3,830

Substandard — — — — — — 454 454

— — — — 3,830 3,830 — 3,830

Construction to Permanent - CRE:

Special mention — — — — 2,464 2,464 — 2,464

Substandard — — — — — — 2,357 2,357

— — — — — — 2,357 2,357

20 unchanged sentences

Pass 1,439 — — 1,439 105,344 106,783 — 106,783

Special mention — — —

1,439 — — 1,439 105,344 106,783 — 106,783

Substandard — — — — — — 2,470 2,470

330 — — 330 121,340 121,670 2,470 124,140

Commercial and Industrial:

9 unchanged sentences

Pass — — — — 3,812 3,812 — 3,812

Special mention — — — — 524 524 — 524

Substandard — — — — — — 454 454

— — — — 3,812 3,812 454 4,266

Construction to Permanent - CRE:

Pass — — — — 1,933 1,933 — 1,933

Special mention — — — — 2,464 2,464 — 2,464

— — — — 2,464 2,464 — 2,464

18 unchanged sentences

Substandard 974 — 7,947 8,921 4,442 13,363

Residential Real Estate:

Substandard — — 109 109 — 109

Commercial and Industrial:

3 unchanged sentences

Substandard — 6 724 730 — 730

Construction:

Construction to permanent - CRE:

Substandard — — 2,357 2,357 — 2,357

3 unchanged sentences

Commercial Real Estate:

Substandard $ — $ — $ 11,241 $ 11,241 $ — $ 11,241

Residential Real Estate:

Pass $ — $ — $ 1,629 $ 1,629 $ — $ 1,629

Substandard — 770 439 1,209 9,937 11,146

Commercial and Industrial:

Pass — — 2,054 2,054 929 2,983

Substandard — 371 535 906 32 938

1 unchanged sentence

Substandard — 16 887 903 74 977

Construction:

Substandard — — — — 454 454

Total non-accruing loans $ — $ 1,157 $ 5,544 $ 6,701 $ 11,426 $ 18,127

If non-accrual loans had been performing in accordance with the original contractual terms, additional interest income (net of cash collected) of approximately $ 938,000 , $ 372,000 , and $ 802,000 would have been recognized in income for the years ended December 31, 2023, 2022, and 2021, respectively.

Interest income collected and recognized on non-accruing loans for the year ended December 31, 2023, 2022 and 2021 was $ 255,000 , $ 329,000 and $ 377,000 , respectively.

The accrual of interest on loans is discontinued at the time the loan is 90 days past due for payment unless the loan is well-secured and in process of collection.

Consumer installment loans are typically charged off no later than 180 days past due.

Consumer installment loans are typically charged off when they become 120 days past due ( 180 days for open ended consumer credit).

Past due status is based on contractual terms of the loan.

1 unchanged sentence

All interest accrued, but not collected for loans that are placed on non-accrual status or charged off, is reversed against interest income.

The interest on these loans is accounted for on the cash-basis method until qualifying for return to accrual status.

The interest on these loans is generally accounted for on the cash-basis method until qualifying for return to accrual status.

Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, future payments are reasonably assured, after at least six months of timely payment history.

3 unchanged sentences

Notes to consolidated financial statements

If non-accrual loans had been performing in accordance with the original contractual terms, additional interest income (net of cash collected) of approximately $ 3.1 million, $ 938,000 , and $ 372,000 would have been recognized in income for the years ended December 31, 2024, 2023, and 2022, respectively.

Interest income collected and recognized on non-accruing loans for the year ended December 31, 2024, 2023 and 2022 was $ 1.3 million, $ 255,000 and $ 329,000 , respectively.

Individually Evaluated Loans

6 unchanged sentences

Commercial Real Estate $ 18,361 $ 34,224 $ — $ 2,838 $ 5,879 $ —

Residential Real Estate — — — 2,402 2,224 —

Commercial and Industrial 1,831 2,251 — 2,266 2,899 —

Consumer and Other — — — 514 514 —

Construction — — — 454 461 —

Construction to permanent - CRE 2,357 2,476 — — — —

22,549 38,951 — 5,558 9,239 —

1 unchanged sentence

Commercial Real Estate $ 974 $ 969 $ 403 $ 9,937 $ 10,137 $ 3,813

Residential Real Estate — — — 106 105 5

Commercial and Industrial 1,492 1,810 60 1,638 3,159 392

2 unchanged sentences

Commercial Real Estate $ 19,335 $ 35,193 $ 403 $ 12,775 $ 16,016 $ 3,813

Residential Real Estate — — — 2,508 2,329 5

Commercial and Industrial 3,323 4,061 60 3,904 6,058 392

Consumer and Other — — — 514 514 —

Construction — — — 454 461 —

Construction to permanent - CRE 2,357 2,476 — — — —

Total $ 25,015 $ 41,730 $ 463 $ 17,133 $ 22,535 $ 4,205

2 unchanged sentences

Notes to consolidated financial statements

For each year in the three-year period ended December 31, 2023, the average recorded investment in and interest income recognized on impaired loans without and with a related allowance, by loan portfolio segment, was as follows:

For each year in the three-year period ended December 31, 2024, the average recorded investment in and interest income recognized on the individually evaluated loans without and with a related allowance, by loan portfolio segment, was as follows:

Year Ended December 31,

7 unchanged sentences

Construction — — 753 34 — —

Construction to permanent - CRE 2,410 — — — — —

28,750 1,171 5,189 220 9,839 208

10 unchanged sentences

Construction — — 753 34 — —

Construction to permanent - CRE 2,410 — — — — —

Total $ 30,695 $ 1,252 $ 22,661 $ 1,130 $ 21,601 $ 355

19 unchanged sentences

Loans Held for Sale

SBA Loans Held for Sale

Loans Held for Sale - SBA Loans

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

There were $ 9.9 million of SBA loans held for sale at December 31, 2023, consisting of $ 3.5 million SBA commercial and industrial loans and $ 6.4 million SBA commercial real estate loans.

There were no SBA loans held for sale at December 31, 2024.

As of December 31, 2023, SBA loans held for sale totaled $ 9.9 million, consisting of $ 3.5 million of SBA commercial and industrial loans and $ 6.4 million SBA commercial real estate loans.

During 2023 and 2022, zero and $ 274,000 SBA loans previously classified as held for sale were transferred to held for investment, respectively.

During 2024 and 2023, $ 5.5 million and zero SBA loans previously classified as held for sale were transferred to held for investment, respectively.

The Company generally sells the guaranteed portion of its SBA loans to a third party and retains the servicing, holding the unguaranteed portion in its portfolio.

7 unchanged sentences

The total amount of such loans serviced, but owned by third party, amounted to approximately $ 43.8 million and $ 47.5 million at December 31, 2024 and 2023, respectively.

As of December 31, 2023 and 2022, the servicing asset has a carrying value of $ 857,000 and $ 886,000 , respectively, and fair value of $ 932,000 and $ 1.0 million, respectively.

As of December 31, 2024 and 2023, the servicing asset has a carrying value of $ 739,000 and $ 857,000 , respectively, and fair value of $ 825,000 and $ 932,000 , respectively.

Income and fees collected for loan servicing are credited to non-interest income when earned, net of amortization on the related servicing assets.

The servicing asset is included in other assets on the Consolidated Balance Sheets.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

The following table presents an analysis of the activity in the SBA servicing assets for the years ended December 31, 2024, 2023 and 2022:

6 unchanged sentences

Ending balance $ 739 $ 857 $ 886

Loans held for sale - Consumer Loans

Patriot Bank's Digital Payments Group 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.

As of December 31, 2023, the Bank had credit card loans held for sale totaling $ 10.8 million.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

Loans held for sale - Digital Payments Loans

Patriot's Digital Payments Division has entered into a Program Management Agreement with a Buyer.

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

As of December 31, 2024 and 2023, the Bank had credit card loans held for sale totaling $ 11.4 million and $ 10.8 million, respectively.

The credit card loans are expected to be held for no longer than three days before being sold to the buyer.

The credit card loans are fully cash-secured by deposits at Patriot.

The credit card loans are fully cash-secured by deposits at the Bank.

The credit card loans are sold to the buyer as a whole loan sale transaction, priced at par, thus there is no servicing asset or gain or loss on sale.

Loans held for sale - Residential Mortgage Loans

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 for the year ended December 31, 2024.

No residential mortgage loans held for sale was recorded as of December 31, 2023.

Premises and Equipment

10 unchanged sentences

For the years ended December 31, 2024, 2023 and 2022, depreciation and amortization expense related to premises and equipment totaled $ 1.1 million, $ 1.2 million, and $ 1.3 million, respectively.

In 2021, the Bank sold a building located in the City New Haven, Connecticut for cash proceeds of $ 1.5 million, and recognized a gain of $ 550,000 , which is included in other income of the consolidated statements of operations.

For the year ended December 31, 2024, $ 13,000 worth of furniture and equipment was sold, and a $ 3,000 gain was recorded on the sale.

No property was sold in 2023 and 2022.

9 unchanged sentences

Additions — 2,843 —

Sold — — ( 1,906 )

Write-downs — — —

Ending balance $ 2,843 $ 2,843 $ —

As of December 31, 2023, the Bank acquired one OREO property 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 recorded.

For the year ended December 31, 2021, the Bank sold one OREO property of $ 1.9 million for a gain on sales of OREO properties of $ 2,000 , which was included as a reduction to the other operating expenses on the Consolidated Statements of Operations.

There was no sale in 2022 and 2023.

Business Combination, Goodwill and Other Intangible Assets

Acquisition of Prime Bank

As of December 31, 2024, the Bank’s OREO balance was $ 2.8 million, representing property acquired in 2023.

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

For the years ended December 31, 2024, 2023 and 2022, the Bank did not sell any OREO properties.

Goodwill and Other Intangible Assets

The Company’s acquisitions are accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations.

14 unchanged sentences

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 a result, the goodwill was considered impaired, and a full impairment charge of $ 1.1 million was recorded in 2023.

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

PATRIOT NATIONAL BANCORP, INC.

1 unchanged sentence

Notes to consolidated financial statements

CDI was recorded as part of the Prime Bank business combination in May 2018.

The CDI is amortized over a 10-year period using the straight-line method.

For the year ended December 31, 2023, 2022 and 2021 the amortization was $ 46,000 , $ 47,000 and 47,000 , respectively.

The Company performed a quantitative assessment for CDI as of October 31, 2023, and concluded that the CDI was not impaired as of December 31, 2023.

The amortization expense and impairment charge were included in the other operating expenses on the Consolidated Statements of Operations.

The table below provides information regarding the carrying amounts and accumulated amortization of amortized intangible assets as of the dates set forth below.

The table below provides information regarding the carrying amounts and accumulated amortization of amortized Core deposit intangible assets as of the dates set forth below.

(In thousands) As of December 31,

3 unchanged sentences

Net carrying amount $ 156 $ 203

Merger and acquisition with American Challenger

On November 15, 2021, the Company and American Challenger Development Corp., a Delaware corporation (“American Challenger”), entered into an Agreement and Plan of Merger (the “Original Merger Agreement”), which was subsequently amended on January 26, 2022 and February 28, 2022 (the Original Merger Agreement, as amended, referred to as the “Merger Agreement”).

On July 18, 2022, Patriot and American Challenger entered into a Termination and Release Agreement pursuant to which the parties mutually agreed to terminate the Merger Agreement.

The parties mutually determined that not all closing conditions of the Merger Agreement could be satisfied under the current structure and agreement.

In connection with the merger, the Company has recognized expenses of $ 1.9 million for the year ended December 31, 2021, $ 112,000 for the year ended December 31, 2022 and zero for the year ended December 31, 2023.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

CDI was recorded as part of the Prime Bank business combination in May 2018.

The CDI is amortized over a 10-year period using the straight-line method.

For the year ended December 31, 2024, 2023 and 2022 the amortization was $ 47,000 , $ 46,000 and 47,000 , respectively.

The amortization expense was included in the other operating expenses on the Consolidated Statements of Operations.

The following table presents the balance of deposits held, by category, and the related weighted average stated interest rate as of December 31, 2024 and 2023.

December 31, 2024 December 31, 2023

(In thousands) Balance Weighted Avg.

Stated Interest Rate Balance Weighted Avg.

(In thousands) Deposit Balance Weighted Avg.

Stated Interest Rate Deposit Balance Weighted Avg.

Stated Interest Rate

2 unchanged sentences

Negotiable order of withdrawal accounts 31,549 0.09 % 33,035 0.94 %

Savings 44,104 0.83 % 71,002 0.61 %

Savings deposits 38,743 1.41 % 44,104 0.83 %

Interest bearing DDA 205,995 2.07 % 171,577 2.46 %

Money market 262,023 3.73 % 200,280 1.92 %

Certificates of deposit, less than $250,000 175,988 4.16 % 165,793 1.72 %

Certificates of deposit, $250,000 or greater 64,745 4.63 % 59,877 1.72 %

Certificates of deposit, $250,000 or less 174,095 4.31 % 175,988 4.16 %

Certificates of deposit, more than $250,000 65,278 4.62 % 64,745 4.63 %

Brokered deposits 69,702 4.34 % 40,526 5.34 %

2 unchanged sentences

The Company’s total deposits includes digital payment deposits of prepaid debit cards for corporate, consumer and government clients.

The digital payment deposits are included in the non-interest-bearing deposits, negotiable order of withdrawal accounts and money market deposits, which totaled approximately $ 213.4 million and $ 197.3 million as of December 31, 2023 and 2022, respectively.

The digital payment deposits are included in the non-interest-bearing deposits, negotiable order of withdrawal accounts, interest bearing DDA and money market deposits, which totaled approximately $ 265.5 million and $ 213.4 million as of December 31, 2024 and 2023, respectively.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

The following table presents interest expense, by deposit category, and the related weighted average effective interest rate for each of the years in the three-year period ended December 31, 2024.

15 unchanged sentences

$ 26,049 3.55 % $ 21,668 3.05 % $ 5,300 0.93 %

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

As of December 31, 2024, contractual maturities of Certificates of Deposit (“CDs”) and brokered deposits are summarized as follows:

(In thousands) CDs

or greater Brokered

(In thousands) Certificates of Deposit

$250,000 or less Certificates of Deposit

more than $250,000 Brokered

Deposits Total

5 unchanged sentences

$ 174,095 $ 65,278 $ 69,702 $ 309,075

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

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

4 unchanged sentences

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

Borrowings from the FHLB-B are limited to a percentage of the value of qualified collateral, as defined on the FHLB-B Statement of Products Policy.

Borrowings from the FHLB-B are limited to the lesser of a percentage of the value of qualified collateral or a percentage of the Bank’s total assets per the most recently-filed Call Report, as defined on the FHLB-B Statement of Products Policy.

Qualified collateral, as defined, primarily consists of mortgage-backed securities and loans receivable that are required to be free and clear of liens and encumbrances, and may not be pledged for any other purposes.

As of December 31, 2023, the Bank had $ 71.4 million of available borrowing capacity from the FHLB-B.

As of December 31, 2024, the Company had $ 60.2 million in discounted value of pledged collateral with the FHLB-B.

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, the Company’s maximum borrowing capacity with the FHLB-B is $ 48.7 million.

Of this amount, $ 45.0 million was used by a standby letter of credit, as described further in Note 18, 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 December 31, 2024 and 2023, no funds had been borrowed under the line of credit.

FHLB-B advances are structured to facilitate the Bank’s management of its balance sheet and liquidity requirements.

At December 31, 2023 and 2022, outstanding advances from the FHLB-B aggregated $ 101.0 million and $ 85.0 million, respectively.

At December 31, 2023, FHLB-B advances of $ 101.0 million outstanding bore fixed rates of interest ranging from 2.40 % to 5.56 % with maturities ranging from 2 days to 0.8 years, and have a weighted average interest rate of 4.62 %.

At December 31, 2023, collateral for FHLB-B borrowings consisted of a mixture of real estate loans and securities with book value of $ 263.4 million.

Remaining borrowing capacity under this line totaled $ 71.4 million at December 31, 2023.

In addition, Patriot has a $ 2.0 million revolving line of credit with the FHLB-B.

At December 31, 2023 and 2022, no funds had been borrowed under the line of credit.

In 2024, the Company repaid $ 30.0 million in long-term advances and $ 68.0 million in short-term borrowings.

As a result, the outstanding advances decreased from $ 101.0 million as of December 31, 2023, to $ 3.0 million as of December 31, 2024.

At December 31, 2024, the FHLB-B advances carried a fixed interest rate of 4.55 % with a remaining maturity of 9 days.

Interest expense incurred for FHLB-B borrowing for the years ended December 31, 2024, 2023 and 2022 were $ 1.1 million, $ 4.2 million and $ 3.5 million, respectively.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

Correspondent Bank - Lines of Credit

1 unchanged sentence

As of December 31, 2024 and 2023, borrowings available under the agreements totaled $ 5.0 million and $ 22.0 million, respectively.

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, ACH, and other clearinghouse transactions.

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 December 31, 2024 and 2023.

Interest expense incurred for the year ended December 31, 2023 was $ 117,000 and no interest expense was incurred in 2022 and 2021.

Interest expense incurred for the year ended December 31, 2024 , 2023 and 2022 was $ 4,000 , $ 117,000 and $ 34,000 , respectively.

Other Borrowing

The Federal Reserve Bank of New York (“FRBNY”) accepts loan pledges from qualifying depository institutions to secure borrowings from the Discount Window.

Patriot has pledged eligible loans as collateral to support its borrowing capacity at the FRBNY.

As of December 31, 2023, Patriot had pledged eligible loans with a book value of $ 15.5 million, with a collateral value of $ 11.4 million.

A total of $ 12.0 million was borrowed from the Discount Window under the FRBNY's Borrower-in-Custody ('BIC") program and fully repaid during 2023.

There was no outstanding balance under the agreements as of December 31, 2023.

Interest expense incurred for the year ended December 31, 2023 was $ 48,000 .

In 2022 and 2021, no funds was borrowed under the BIC program, and no interest expense was incurred.

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 December 31, 2024, Patriot had pledged eligible securities and loans with a book value of $ 87.7 million, with a collateral value of $ 64.7 million.

A total of $ 20.0 million and $ 24.0 million was borrowed from the Discount Window and fully repaid during the years ended December 31, 2024 and 2023, respectively.

There was no outstanding balance under the agreements as of December 31, 2024 and 2023.

Interest expense incurred for the years ended December 31, 2024 and 2023 was $ 32,000 and $ 48,000 , respectively.

In 2022, no funds were borrowed from the Discount Window, and no interest expense was incurred.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

In July 2023, the Bank established a collateralized funding line of $ 73.8 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 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.

Patriot had borrowed a total of $ 70.0 million under the BTFP, which remained outstanding and carried a fixed rate of 4.89 % as of December 31, 2023 .

Interest expense incurred was $ 1.8 million for the year ended December 31, 2023.

The program provided additional funding to eligible depository institutions, assuring they could 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 for up to one year, with repayment permitted at any time without penalty.

The BTFP ceased allowing any new advances after March 11, 2024.

As of December 31, 2024, Patriot had paid off the BTFP borrowing of $ 70.0 million that was outstanding as of December 31, 2023.

Interest expense incurred was $ 2.3 million and $ 1.8 million for the years ended December 31, 2024 and 2023.

In 2022, no funds were borrowed under the BTFP, and no interest expense was incurred.

On December 22, 2016, the Company issued $ 12 million of senior notes (“2016 Senior Notes”) bearing interest at 7 % per annum.

6 unchanged sentences

As of December 31, 2024, unamortized debt issuance cost of $ 139,000 was deducted from the face amount of the Senior Notes included in the Consolidated Balance Sheet.

The 2022 Senior Note Purchase Agreement contains certain customary representations, warranties, and covenants made by each of the Company and the Purchasers.

The Senior Notes were amended in March 2025.

Subsequent Events for more information.

The 2022 Senior Note Purchase Agreement contains certain customary representations, warranties, and covenants made by each of the Company and the Note Purchasers (“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.

3 unchanged sentences

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.

For the year ended December 31, 2023, 2022 and 2021, the Company recognized interest expense of $ 1.2 million, $ 866,000 and $ 913,000 , respectively, and the debt issuance cost amortization expense was $ 139,000 , $ 0 and $ 73,000 , respectively.

For the year ended December 31, 2024, 2023 and 2022, the Company recognized interest expense of $ 1.2 million, $ 1.2 million and $ 866,000 , respectively, and the debt issuance cost amortization expense was $ 139,000 , $ 139,000 and zero , respectively.

As of December 31, 2024 and 2023, $ 470,000 and $ 470,000 of interest was included in accrued expenses and other liabilities on the Consolidated Balance Sheet, respectively.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

Subordinated notes

4 unchanged sentences

Interest on the Subordinated Notes is payable beginning on December 30, 2018.

The Subordinated Notes were amended in March 2025.

Subsequent Events for more information.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

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.

13 unchanged sentences

On bringing the debt current and, as permitted under the terms of the junior subordinated debentures, the Company again opted to defer payment of quarterly interest through September 2016, when a $ 0.7 million payment was made to bring the debt current.

In December 2024, the Company opted to defer payment of the quarterly interest, as permitted under the terms of the junior subordinated debentures.

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.

2 unchanged sentences

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.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

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.

1 unchanged sentence

As of December 31, 2024 and 2023, the note had a balance outstanding of $ 162,000 and $ 376,000 , respectively.

The note matures in August 2024 and requires a balloon payment of approximately $ 234,000 .

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.

Interest expense incurred for the years ended December 31, 2024, 2023 and 2022 was $ 5,000 , $ 8,000 and $ 12,000 , respectively.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

Maturity of borrowings

14 unchanged sentences

Balance of borrowings as of December 31, 2024 $ 3,000 $ 11,861 $ 9,898 $ 8,147 $ 162 $ 33,068

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

Derivatives Not Designated in Hedge Relationships

11 unchanged sentences

No net gain or loss was recognized in other non-interest income on the consolidated statements of operations during the year ended December 31, 2024, 2023 and 2022.

Derivatives Designated in Hedge Relationships

Interest rate swaps allow the Company to change the fixed or variable nature of an interest rate without the exchange of the underlying notional amount.

In April 2021, Patriot entered into an interest rate swap, which was designated as a cash flow hedge that effectively converted variable-rate receivable into fixed-rate receivable.

The Company’s objectives in using the cash flow hedge are to add stability to interest receivable and to manage its exposure to contractually specified interest rate movements.

Under the term of the swap contract, the Company hedged the cash flows associated with a pool of 1-month LIBOR floating rate loans by converting a $ 50 million portion of that pool of loans into fixed rates with the swap.

The Bank received fixed and paid floating rate based on 1 month LIBOR for a 7-year rolling period beginning April 29, 2021.

A hedging instrument is expected at inception to be highly effective at offsetting changes in the hedged transactions attributable to the changes in the hedged risk.

Changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive income and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.

In August 2021, the cash flow hedge interest rate swap contract was terminated.

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

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

In addition, 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 was included in other income on the Consolidated Statements of Operations.

In 2023 and 2022, no interest income was recognized.

The Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged item or transaction.

The Company does not offset derivative assets and derivative liabilities for financial statement presentation purposes.

Further discussion of the accounting policy of derivatives is set forth in Note 1, and information about the valuation methods used to measure the fair value of derivatives is provided in Note 21 to the Consolidated Financial Statements.

18 unchanged sentences

LIBOR + 2.00 %

3rd party interest rate swap 1,363 6.5 4.38 % 1 Mo.

LIBOR + 2.00 %

Classified in Other Liabilities:

1 unchanged sentence

LIBOR + 2.00 %

Customer interest rate swap 1,363 6.5 4.38 % 1 Mo.

LIBOR + 2.00 %

For the year ended December 31, 2021, changes in the consolidated statements of comprehensive income related to interest rate derivatives designated as hedges of cash flows were as follows:

(In thousands) Year Ended

December 31, 2021

Interest rate swap designated as cash flow hedge:

Unrealized gain recognized in accumulated other comprehensive income before reclassifications $ 149

Amounts reclassified from accumulated other comprehensive income ( 149 )

Other comprehensive income $ —

The above unrealized gains and losses are reflective of market interest rates as of the respective balance sheet dates.

Generally, lower long-term interest rates will result in a positive impact to comprehensive income whereas higher long-term interest rates will result in a negative impact to comprehensive income.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration.

Patriot has ten non-cancelable operating leases, including four Bank branch locations and four for administrative and operational space, one location for an automated teller machine (“ATM”), and one equipment lease.

Patriot has eight non-cancelable operating leases, including three Bank branch locations and three for administrative and operational space, one location for an automated teller machine (“ATM”), and one equipment lease.

The leases expire on various dates through 2032 and some include renewal options.

3 unchanged sentences

Renew periods were included in the future cash flows for purposes of calculating the ROU and lease liability.

The Company has no finance leases (previously referred to as a capital lease).

The Company has no finance leases.

ROU lease assets represent the Company’s right to use an underlying asset for the lease term and lease obligations represent the Company’s obligation to make lease payments arising from the lease.

11 unchanged sentences

The variable lease cost primarily represents variable payments such as common area maintenance and utilities, which are included in the occupancy and equipment expenses on the Consolidated Statements of Operations.

For the year ended December 31, 2023, the fixed lease costs and variable lease costs for the non-cancelable operating leases were $ 581,000 and $ 39,000 , respectively.

For the year ended December 31, 2022, the fixed lease costs and variable lease costs for the non-cancelable operating leases were $ 582,000 and $ 39,000 , respectively.

For the year ended December 31, 2021, the fixed lease costs and variable lease costs for the non-cancelable operating leases were $ 571,000 and $ 38,000 , respectively.

For the year ended December 31, 2024,2023 and 2022, the fixed lease costs for the non-cancelable operating leases were $ 459,000 , $ 581,000 and $ 582,000 , respectively.

For the year ended December 31, 2024, 2023 and 2022 , the variable lease costs for the non-cancelable operating leases were $ 34,000 , $ 39,000 and $ 39,000 , respectively.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

The following is a maturity analysis of the operating lease liabilities as of December 31, 2024:

6 unchanged sentences

Operating lease right-of-use asset $ 1,483

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

Year Ended December 31,

12 unchanged sentences

For the years ended December 31, 2024, 2023 and 2022, Patriot recognized gross rental income of $ 302,000 , $ 395,000 , and $ 566,000 offset by rental costs of $ 3,000 , $ 3,000 , and $ 5,000 , respectively.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

Commitments and Contingencies

Employment Agreements

The Company has a severance agreement for two Executive Vice Presidents that provides for severance equal to 12 months of current salary, if the Executive officer is terminated within 12 months of a change of control of Patriot.

The Company has a retention agreement with another executive officer which provides for an agreed upon payment if that executive remains current position for six months following a retirement announcement.

The Company has a severance agreement for two Executive Vice Presidents that provides for severance equal to 12 months of current salary, and one Executive Vice President that provides for severance equal to 6 months of current salary, if the Executive officer is terminated within 12 months of a change of control.

Legal Matters

1 unchanged sentence

Management is of the opinion that the ultimate disposition of these routine legal matters will not have a material adverse effect on the consolidated financial condition, results of operations, or liquidity of Patriot.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

Following is a summary of the components of the federal and state income tax expense (benefit) for each of the years in the three-year period ended December 31, 2024.

7 unchanged sentences

23,824 ( 4,211 ) 1,490

Income tax (benefit) expense $ ( 1,454 ) $ 1,596 $ ( 81 )

Provision (benefit) for income taxes $ 23,785 $ ( 1,454 ) $ 1,596

For each of the years in the three-year period ended December 31, 2024, the difference between the federal statutory income tax rate and Patriot’s effective income tax rate reconciles as follows:

5 unchanged sentences

Deferred tax valuation allowance 27,583 — —

Reversal UTP on Federal DTA — — —

Nondeductible expenses 20 13 ( 3 )

Other ( 48 ) 25 10

Income tax (benefit) expense $ ( 1,454 ) $ 1,596 $ ( 81 )

The effective tax rate for the years ended December 31, 2023, 2022 and 2021 was 25.8 %, 20.6 %, and ( 1.6 )%, respectively.

The effective tax rate for 2023 increased over 2022 because 2022 included a $ 1.8 million reduction to taxable income for the reversal of previously capitalized merger and acquisition costs.

The effective tax rate for 2022 was greater than 2021 because 2022 included an increase to taxable income for the $ 1.8 million capitalized merger and acquisition costs and because 2021 included the full reversal of $ 1.9 million deferred tax asset valuation allowance recorded at December 31, 2020.

Provision (benefit) for income taxes $ 23,785 $ ( 1,454 ) $ 1,596

The effective tax (benefit) rate for the years ended December 31, 2024, 2023 and 2022 was 147.8 %, ( 25.8 )%, and 20.6 %, respectively.

The Company’s effective rates for all periods were affected by state taxes and non-deductible expenses and the full valuation allowance on the DTAs in the third quarter of 2024.

PATRIOT NATIONAL BANCORP, INC.

2 unchanged sentences

Deferred Tax Assets and Liabilities

The significant components of Patriot’s net deferred tax assets at December 31, 2023 and 2022 are presented below.

The significant components of Patriot’s net deferred tax (liabilities) assets at December 31, 2024 and 2023 are presented below.

(In thousands) December 31,

13 unchanged sentences

Depreciation of premises and equipment 178 158

Share based compensation 17 —

Gross deferred tax assets 28,268 24,959

Less deferred tax asset valuation allowance ( 28,268 ) —

Total deferred tax assets $ — $ 24,959

Deferred tax liabilities:

Expected credit loss for unfunded commitments ( 663 ) —

Right-of-use assets ( 385 ) ( 469 )

2 unchanged sentences

Gross deferred tax liabilities ( 724 ) ( 825 )

Net deferred tax asset $ 24,134 $ 15,527

As of December 31, 2023, Patriot had available approximately $ 15.5 million of Federal net operating loss carryforwards (“NOL”) that is offset by $ 15.5 million in §382 limitations imposed by the Internal Revenue Code.

Of the NOL of $ 15.5 million, approximately $ 15.5 million will expire between 2030 and 2033.

Net deferred tax (liabilities) assets $ ( 724 ) $ 24,134

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 §382 limitations imposed by the Internal Revenue Code.

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

Patriot has approximately $ 63.4 million of NOLs available for Connecticut tax purposes at December 31, 2024, which may be used to offset up to 50 % of taxable income in any year.

The NOLs will expire between 2030 and 2044.

Valuation Allowance against net Deferred Tax Assets

Patriot 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.

The deferred tax liabilities are included in accrued expenses and other liabilities on the Consolidated Balance Sheet.

PATRIOT NATIONAL BANCORP, INC.

1 unchanged sentence

Notes to consolidated financial statements

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 prudent and feasible 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.

For the year ended December 31, 2023, Patriot was in a cumulative income position for the current and prior two-year periods.

Patriot reviewed the ability to remain in a cumulative income position and to utilize net operating losses by using the most recent forecast for the next three years and including a conservative growth rate for the years after.

In addition, Patriot has a tax planning strategy available under ASC 740 that would be implemented to prevent a carry-forward state net operating losses from expiring.

The strategy consists of capitalizing loan costs to increase income and avoid state net operating losses from expiring unused.

Based on the analyses of cumulative income position and future profitability combined with the potential tax planning strategy, it was determined that a valuation allowance is not required.

Patriot will continue to evaluate the need for a valuation allowances.

In 2021, based on Patriot’s objective projection of future taxable income and tax planning, Patriot fully reversed the partial valuation allowance of $ 1.9 million recorded at December 31, 2020.

As of December 31, 2023 and 2022, no valuation allowance was recorded.

Patriot will review the valuation allowance quarterly to determine if an adjustment, to either increase or decrease, the allowance is required.

Valuation Allowance against Deferred Tax Assets

Patriot recognizes income taxes under the asset and liability method.

Under this method, DTAs and DTLs are recognized for the estimated tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and loss carry forwards.

DTAs and DTLs 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.

The effect on DTAs and DTLs of a change in tax rates is recognized in income in the period that includes the enactment date.

In certain circumstances DTAs are subject to reduction by a valuation allowance.

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.

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

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.

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.This resulted in an increase in our income tax expense of approximately $ 25.1 million in the third quarter of 2024.

The key factor for providing a full valuation allowance was the Company’s 3-year cumulative operating losses.

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.

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

Unrecognized tax benefits

1 unchanged sentence

The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.

As of December 31, 2023 and 2022, the Bank did not record any uncertain tax position related to the utilization of certain federal net operating losses.

As of December 31, 2024 and 2023, the Company did not record any uncertain tax position related to the utilization of certain federal net operating losses.

As of December 31, 2024 and 2023, Patriot no longer has a liability for unrecognized tax benefits.

2 unchanged sentences

Patriot’s returns for tax years 2021 through 2024 are subject to examination by the IRS for U.S.

Federal tax purposes and, for State tax purposes, by the Department of Revenue Services for the State of Connecticut and the State of New York Department of Taxation and Finance.

Federal tax purposes and, for State tax purposes, by the taxing authorities of Connecticut, New York and New Jersey, Department of Revenue Services for the State of Connecticut and the State of New York Department of Taxation and Finance.

PATRIOT NATIONAL BANCORP, INC.

9 unchanged sentences

The 2020 Plan provides an incentive to directors and employees of the Company by the grant of restricted stock awards (“RSA”).

On November 10, 2022, the Board of Directors approved the Amendment and Restatement of the 2020 Plan (the “Amended and Restated 2020 Plan”), which was approved and ratified by shareholders of the Company on December 14, 2022.

On November 10, 2022, the Board of Directors approved the Amended and Restated 2020 Plan (the “Amended and Restated 2020 Plan”), which was approved and ratified by shareholders of the Company on December 14, 2022.

The 2020 Plan was amended primarily to (i) reduce the total number of shares authorized for issuance thereunder from 3,000,000 shares to 400,000 shares;

and (ii) limit the maximum number of shares of Company’s Common Stock granted during a single fiscal year to any non-employee director, together with any cash fees paid to such director, to be no more than a total value of $ 300,000 .

and (ii) limit the maximum number of shares of the Company’s Common Stock granted during a single fiscal year to any non-employee director, together with any cash fees paid to such director, to be no more than a total value of $ 300,000 .

As of December 31, 2024, 74,540 shares of stock are available for issuance under the Plan.

2 unchanged sentences

RSAs granted to directors and employees generally vest in quarterly or annual installments over a three , four or five year period from the date of grant.

The following is a summary of the status of the Company’s restricted share awards as of and for each of the years in the three-year period ended December 31, 2023.

The Company’s Board of Directors approved the 2025 Omnibus Equity Incentive Plan (the “2025 Plan”) to be effective at the closing of the Private Placement, subject to and contingent upon the approval of the Company’s shareholders.

Subsequent Event for more information.

The following is a summary of the status of the Company’s restricted share awards under the Amended and Restated 2020 Plan as of and for each of the years in the three-year period ended December 31, 2024.

Shares Awarded Weighted Average

2 unchanged sentences

Vested ( 8,694 ) $ 11.05

Forfeited ( 4,586 ) $ 9.39

Unvested at December 31, 2022 22,660 $ 7.11

5 unchanged sentences

Unvested at December 31, 2024 146,185 $ 2.87

The Company recognizes compensation expense for all director and employee share-based compensation awards on a straight-line basis over the requisite service period, which is equal to the vesting schedule of each award, for each vesting portion of an award equal to its grant date fair value.

For the years ended December 31, 2023, 2022 and 2021, the Company recognized share-based compensation expense of $ 105,000 , $ 86,000 , and $ 150,000 , respectively.

For the years ended December 31, 2023, 2022 and 2021, share-based compensation attributable to employees of Patriot amounted to $ 56,000 , $ 32,000 , and $ 90,000 , respectively.

The share-based compensation expense attributable to Patriot’s external Directors for the years ended December 31, 2023, 2022, and 2021 was $ 49,000 , $ 54,000 , and $ 60,000 , respectively.

For each of those years, the Directors received total compensation of $ 259,000 , $ 248,000 , and $ 325,000 , respectively, which amounts are included in Other Operating Expenses in the consolidated statements of operations.

Unrecognized compensation expense attributable to the unvested restricted shares outstanding as of December 31, 2023 amounted to $ 182,000 , which amount is expected to be recognized over the weighted average remaining life of the awards of 2.14 years.

The Company recognizes compensation expense for all director and employee share-based compensation awards on a straight-line basis over the requisite service period, which corresponds to the vesting schedule of each award.

Each vesting portion of an award is recognized at its grant date fair value.

For the years ended December 31, 2024, 2023 and 2022, the Company recognized total share-based compensation expense of $ 184,000 , $ 105,000 , and $ 86,000 , respectively.

The share-based compensation expense attributable to Patriot’s external Directors totaled $ 48,000 , $ 49,000 , and $ 54,000 for the years ended December 31, 2024, 2023, and 2022, respectively.

For each of those years, the Directors received total compensation of $ 214,000 , $ 259,000 , and $ 248,000 , respectively, and these amounts are included in Other Operating Expenses in the Consolidated Statements of Operations.

For the years ended December 31, 2024, 2023 and 2022, share-based compensation expense attributable to employees of Patriot was $ 136,000 , $ 56,000 , and $ 32,000 , respectively.

PATRIOT NATIONAL BANCORP, INC.

1 unchanged sentence

Notes to consolidated financial statements

Unrecognized compensation expense attributable to the unvested restricted shares outstanding as of December 31, 2024 amounted to $ 428,000 , which amount is expected to be recognized over the weighted average remaining life of the awards of 2.20 years.

Shareholders ’ Equity

1 unchanged sentence

The Company is required to present basic earnings per share and diluted earnings per share in its consolidated statements of operations.

Basic earnings per share amounts are computed by dividing net income by the weighted average number of common shares outstanding.

Diluted earnings per share reflects additional common shares that would have been outstanding if potentially dilutive common shares had been issued, as well as any adjustment to income that would result from the assumed issuance.

Potential common shares that may be issued by the Company relate to the outstanding unvested RSAs granted to directors and employees.

Basic earnings per share amounts are computed by dividing net income by the weighted average number of shares of common stock outstanding.

Diluted earnings per share reflects additional shares of common stock that would have been outstanding if potentially dilutive shares of common stock had been issued, as well as any adjustment to income that would result from the assumed issuance.

Potential shares of common stock that may be issued by the Company relate to the outstanding unvested RSAs granted to directors and employees.

The dilutive effect resulting from these potential shares is determined using the treasury stock method.

10 unchanged sentences

Weighted average shares outstanding 3,976,224 3,965,324 3,957,097

Effect of potentially dilutive restricted common shares — (1) 5,801 6,270

Effect of potentially dilutive restricted shares of common stock — (1) — (2) 5,801

Weighted average diluted shares outstanding 3,976,224 3,965,324 3,962,898

Diluted (loss) earnings per common share $ ( 10.03 ) $ ( 1.05 ) $ 1.55

(1) The weighted average diluted shares outstanding does not include 11,438 anti-dilutive restricted common shares for the year ended December 31, 2023.

(1) The weighted average diluted shares outstanding does not include 40,473 anti-dilutive restricted shares of common stock for the year ended December 31, 2024.

(2) The weighted average diluted shares outstanding does not include 11,438 anti-dilutive restricted shares of common stock for the year ended December 31, 2023.

The Company did not pay any dividends for the year ended December 31, 2024, 2023, and 2022, and has suspended dividend payments.

28 unchanged sentences

Future loan commitments 325 —

Financial standby letters of credit — 78

$ 87,571 $ 92,530

5 unchanged sentences

The Bank has established an allowance for credit loss of $ 182,000 and $ 271,000 as of December 31, 2024 and 2023, respectively, which is included in accrued expenses and other liabilities on the Consolidated Balance Sheet.

The increase in allowance for credit loss in 2023 is primarily due to the adoption of CECL.

Standby letters of credit are written commitments issued by the Bank to guarantee the performance of a customer to a third party.

1 unchanged sentence

Guarantees that are not derivative contracts are recorded at fair value and included in the Consolidated Balance Sheet.

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.

PATRIOT NATIONAL BANCORP, INC.

20 unchanged sentences

Institutions that do not maintain this required capital buffer become subject to progressively more stringent limitations on the percentage of earnings that may be distributed to shareholders or used for stock repurchases and on the payment of discretionary bonuses to senior executive management.

The capital conversation buffer of 2.5% has been included in the minimum capital adequacy ratios as of December 31, 2023.

The capital conservation buffer of 2.5% has been included in the minimum capital adequacy ratios as of December 31, 2024 and 2023.

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 all of its regulatory capital requirements.

During 2024, the Bank significantly reduced its total and risk-based assets to work towards achieving the OCC 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.

The Bank has been working to address each of the items identified in the OCC Agreement.

The Company has completed the Private Placement , which was critical to address the Capital Plan and Higher Minimums Article and pivotal to the Strategic Plan.

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.

PATRIOT NATIONAL BANCORP, INC.

1 unchanged sentence

Notes to consolidated financial statements

The Company and Bank’s regulatory capital amounts and ratios at December 31, 2023 are summarized as follows:

December 31, 2023

The Company and Bank’s regulatory capital amounts and ratios at December 31, 2024 and 2023 are summarized as follows:

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):

1 unchanged sentence

To be Well Capitalized (1) — — 73,309 10.00 % — — 89,732 10.00 %

For capital adequacy with Capital Buffer (1) — — 94,218 10.50 %

For capital adequacy 58,667 8.00 % 58,648 8.00 % 71,788 8.00 % 71,785 8.00 %

Individual minimum capital ratio (2) — — 84,306 11.50 % — — N/A N/A

Tier 1 Capital (to risk weighted assets):

1 unchanged sentence

To be Well Capitalized (1) — — 58,648 8.00 % — — 71,785 8.00 %

For capital adequacy with Capital Buffer (2) — — 76,272 8.50 %

For capital adequacy 44,001 6.00 % 43,986 6.00 % 53,841 6.00 % 53,839 6.00 %

Individual minimum capital ratio (2) — — 73,309 10.00 % — — N/A N/A

Common Equity Tier 1 Capital

2 unchanged sentences

To be Well Capitalized (1) — — 47,651 6.50 % — — 58,325 6.50 %

For capital adequacy with Capital Buffer (2) — — 62,812 7.00 %

For capital adequacy 33,000 4.50 % 32,989 4.50 % 40,381 4.50 % 40,379 4.50 %

Individual minimum capital ratio (2) — — 73,309 10.00 % — — N/A N/A

Tier 1 Leverage Capital (to average assets):

2 unchanged sentences

For capital adequacy 38,368 4.00 % 38,358 4.00 % 43,339 4.00 % 43,336 4.00 %

Individual minimum capital ratio (2) — — 86,306 9.00 % — — N/A N/A

(1) Designation as "Well Capitalized" does not apply to bank holding companies - the Company.

Such categorization of capital adequacy only applies to insured depository institutions - the Bank.

(2) The Capital Conservation Buffer implemented by the FDIC began to be phased in beginning January 1, 2016.

(2) The Capital ratios established by the OCC began to be phased in beginning April 17,2024.

It was not applicable to periods prior to that date and does not apply to bank holding companies - the Company.

The Bank’s Community Bank Leverage Ratio regulatory capital amounts and ratios at December 31, 2022 are summarized as follows:

December 31, 2022

Patriot Bank, N.A.

Tier 1 Leverage Capital (to average assets):

Actual $ 100,267 9.27 %

To be Well Capitalized 97,388 9.00 % (3)

(3) Leverage Capital Ratio greater than 9% is considered well-capitalized under the CBLR Framework.

Designation as "Well Capitalized" does not apply to bank holding companies - the Company.

Such categorization of capital adequacy only applies to insured depository institutions - the Bank.

As of December 31, 2023 and 2022, Patriot satisfies all regulatory capital adequacy requirements.

Management continuously assesses the adequacy of the Bank’s capital in order to maintain its “well capitalized” status.

Related Party Transactions

In the normal course of business, the Company can grant loans to executive officers, directors and members of their immediate families, as defined, and to entities in which these individuals have more than a 10 % equity ownership, although these loans are infrequent.

No related party loans were outstanding as of December 31, 2024 and 2023.

As of December 31, 2024 and 2023, deposits from related parties aggregated approximately $ 63,000 and $ 64,000 , respectively.

PATRIOT NATIONAL BANCORP, INC.

1 unchanged sentence

Notes to consolidated financial statements

Related Party Transactions

In the normal course of business, the Company grants loans to executive officers, directors and members of their immediate families, as defined, and to entities in which these individuals have more than a 10 % equity ownership.

No related party loans were outstanding as of December 31, 2023 and 2022.

As of December 31, 2023 and 2022, deposits from related parties aggregated approximately $ 64,000 for both years.

Fair Value and Interest Rate Risk

19 unchanged sentences

Level 3 Valuation techniques that require unobservable inputs that are supported by little or no market activity and are significant to the fair value measurement of the asset or liability (such as pricing and discounted cash flow models that typically reflect management’s estimates of the assumptions a market participant would use in pricing the asset or liability).

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

A description of the valuation methodologies used for assets and liabilities recorded at fair value, and for estimating fair value for financial and non-financial instruments not recorded at fair value, is set forth below.

4 unchanged sentences

The fair value of securities available-for-sale (carried at fair value) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities, but rather by relying on the securities' relationship to other benchmark quoted prices, or using unobservable inputs employing various techniques and assumptions (Level 3).

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

Other Investments

12 unchanged sentences

The Company has determined that the inputs used to value the loans held for sale fall within Level 2 of the fair value hierarchy.

SBA Servicing Asset

Servicing Asset

Servicing assets do not trade in an active, open market with readily observable prices.

The Company estimates the fair value of servicing assets using discounted cash flow models incorporating numerous assumptions from the perspective of a market participant including market discount rates and prepayment speeds.

Due to the significant unobservable input related to the servicing rights, the SBA servicing asset is classified within Level 3 of the valuation hierarchy.

Due to the significant unobservable input related to the servicing rights, the servicing asset is classified within Level 3 of the valuation hierarchy.

Other Real Estate Owned

3 unchanged sentences

Patriot does not record OREO at fair value on a recurring basis, but rather initially records OREO at fair value on a non-recurring basis and then monitors property and market conditions that may indicate a change in value is warranted.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

Derivative asset (liability) - Interest Rate Swaps

5 unchanged sentences

See Notes 1 and 11 for additional disclosures on derivatives.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

The fair value of demand deposits, regular savings and certain money market deposits is the amount payable on demand at the reporting date.

11 unchanged sentences

The Company considers its own credit worthiness in determining the fair value of its senior Notes, subordinated notes, notes payable and junior subordinated debt.

Federal Home Loan Bank and Correspondent Bank Borrowings

The fair value of FHLB advances and other correspondent bank borrowings are estimated using a discounted cash flow calculation that applies current interest rates for advances of similar maturity to a schedule of maturities of such advances.

Patriot does not record FHLB advances and other correspondent bank borrowings at fair value on a recurring basis.

Federal Home Loan Bank, Federal Reserve Bank and Correspondent Bank Borrowings

The fair value of FHLB advances, FRB and other correspondent bank borrowings are estimated using a discounted cash flow calculation that applies current interest rates for advances of similar maturity to a schedule of maturities of such advances.

Patriot does not record FHLB advances, FRB and other correspondent bank borrowings at fair value on a recurring basis.

Off-balance-sheet financial instruments

21 unchanged sentences

Loans held for sale Level 2 15,702 15,702 20,767 21,557

SBA servicing assets Level 3 857 932 886 1,013

Servicing assets Level 3 766 852 857 932

Other real estate owned Level 2 2,843 2,843 2,843 2,843

44 unchanged sentences

SBA loan pools — 3,573 — 3,573

Municipal bonds — 486 — 486

Available-for-sale securities $ — $ 68,869 $ 11,123 $ 79,992

22 unchanged sentences

2024 2023 2022

Level 3 fair value, beginning of year $ 9,427 $ 13,180 $ —

Level 3 fair value, beginning of period $ 10,262 $ 9,427 $ 13,180

Purchases — — —

2 unchanged sentences

Transfers in and /or out of Level 3 — — —

Level 3 fair value, end of year $ 10,262 $ 9,427 $ 13,180

Level 3 fair value, end of period $ 11,123 $ 10,262 $ 9,427

The table below presents the valuation methodology and unobservable inputs for level 3 assets measured at fair value on a non-recurring basis as of December 31, 2024 and 2023:

3 unchanged sentences

Individually evaluated loans, net $ 24,552 Real Estate Appraisals Discount for appraisal type 5.8 % - 20 %

SBA servicing assets 932 Discounted Cash Flows Market discount rates 14.73 % - 14.90 %

Servicing assets 852 Discounted Cash Flows Market discount rates 14.73 % - 14.90 %

December 31, 2023:

Impaired loans, net $ 12,873 Real Estate Appraisals Discount for appraisal type 5.8 % - 20 %

SBA servicing assets 1,013 Discounted Cash Flows Market discount rates 14.73 % - 14.90 %

Individually evaluated loans, net $ 12,928 Real Estate Appraisals Discount for appraisal type 5.8 % - 20 %

Servicing assets 932 Discounted Cash Flows Market discount rates 14.73 % - 14.90 %

Patriot discloses fair value information about financial instruments, whether or not recognized in the consolidated balance sheet, for which it is practicable to estimate that value.

34 unchanged sentences

Net (loss) income ( 39,882 ) ( 4,179 ) 6,161

Equity in subsidiary other comprehensive income (loss), net of subsidiary 384 ( 14,008 ) ( 1,119 )

Total comprehensive (loss) income $ ( 3,795 ) $ ( 7,847 ) $ 3,975

Equity in subsidiary other comprehensive (loss) income, net of subsidiary ( 420 ) 384 ( 14,008 )

Total comprehensive loss $ ( 40,302 ) $ ( 3,795 ) $ ( 7,847 )

PATRIOT NATIONAL BANCORP, INC.

8 unchanged sentences

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:

Equity in undistributed net income (loss) of subsidiary 2,150 ( 7,642 ) ( 6,581 )

Equity in undistributed net loss (income) of subsidiary 37,682 2,150 ( 7,642 )

Dividends received from Patriot Bank, N.A.

5 unchanged sentences

Increase (decrease) in accrued expenses and other liabilities 148 247 ( 8 )

Net cash provided by (used in) operating activities 986 ( 366 ) ( 170 )

Net cash (used in) provided by operating activities ( 745 ) 986 ( 366 )

Cash Flows from Investing Activities:

5 unchanged sentences

Net cash used in financing activities — — —

Net increase (decrease) in cash and cash equivalents 986 ( 366 ) ( 171 )

Net (decrease) increase in cash and cash equivalents ( 745 ) 986 ( 366 )

Cash and cash equivalents at beginning of year $ 997 $ 11 $ 377

9 unchanged sentences

Notes to consolidated financial statements

Segment Information

The Company’s reportable segment is determined by the Chief Executive Officer, who is the designated the chief operating decision maker (“CODM”), based upon information provided about the Company’s products and services offered.

Patriot’s only business segment is Community Banking.

The accounting policies of the segment are the same as those described in the summary of significant accounting policies.

The segment is also distinguished by the level of information provided to the CODM, who uses such information to review performance of various components of the business, which are then aggregated and financial performance is evaluated on a company-wide basis, as presented in the Company’s Consolidated Statements of Income.

The CODM will evaluate the financial performance of the Company’s business components such as by evaluating revenue streams, significant expenses, and budget to actual results in assessing the Company’s segment and in the determination of allocating resources.

The CODM uses consolidated net income to benchmark the Company against its competitors.

The benchmarking analysis coupled with monitoring of budget to actual results on a consolidated basis are used in assessment performance and in establishing compensation.

Interest earning assets consist of commercial and consumer loans, investment securities and cash and provide the majority of interest income in the Community Banking segment.

Interest bearing liabilities consist of nonmaturity and time deposits, FHLB and FRB advances and other borrowings and generate the majority of interest expense.

The consolidated results of operations also include provisions for credit losses, noninterest income and expenses.

All operations are domestic.

The Company's segment assets represent its total assets as presented in the Consolidated Balance Sheet.

Subsequent Event

The Company has evaluated all events or transactions that occurred through the date the Company issued these financial statements.

During this period, the Company did not have any material recognizable or non-recognizable subsequent events.

Effective as of February 14, 2025, the note holders of the Company’s 8.5 % Senior Notes due January 15, 2026 agreed to extend the grace period for the interest payment due January 15, 2025 to April 1, 2025 (the “Extension”).

On March 20, 2025, the Company entered into (i) securities purchase agreements (the “Co-Lead Investors Agreements”) with its President and director, Steven Sugarman (the “Lead Party”), and three co-lead investors (the “Co-Lead Investors”), and (ii) securities purchase agreements (the “Purchasers Agreements”, and together with the Co-Lead Investors Agreements, the “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 $ 57.75 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.

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.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

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 purpose of the Plan is to give the Company a competitive advantage in attracting, retaining and motivating officers, employees, directors and consultants by providing incentives directly linked to shareholder value.

The Plan will be administered by the Compensation Committee of the Board.

The types of awards (the “Awards”) issuable pursuant to the Plan are Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units, or Other Stock-Based Awards, as such terms are defined in the Plan.

Subject to the terms of the Plan, the maximum number of shares of Common Stock, Options and/or Stock Appreciation Rights that may be granted pursuant to Awards under the Plan shall be twenty percent ( 20 %) of the then outstanding shares of Common Stock (which, for the avoidance of doubt, includes all outstanding shares of Common Stock, whether voting or non-voting) (the “Share Limit”);

provided, that in no event shall the Share Limit be less than 10,000,000 shares.

The Company entered into an Employment Agreement, dated and effective as of the closing of the Private Placement (the “Employment Agreement”), with Steven Sugarman (the “Executive”), as the Company’s President, with the Executive also having such other roles and responsibilities at the Company and the Bank as shall be mutually agreeable by the parties.

The term of employment ends on April 1, 2029 (the “Employment Period”);

provided, however, that, commencing on April 1, 2026, and on each anniversary of such date (such date and each annual anniversary thereof, a “Renewal Date”), unless previously terminated, the Employment Period will automatically be extended so as to terminate three years from such Renewal Date.

During the Employment Period, the Executive will receive an annual base salary at a rate of not less than $ 200,000 payable in accordance with the Company’s normal payroll policies, subject to the review for increase at least annually by the Compensation Committee of the Board pursuant to normal performance review policies.

With respect to each fiscal year ending during the Employment Period, the Executive will be eligible to receive an annual bonus (the “Annual Bonus”), based on the attainment of performance objectives determined and established by the Compensation Committee, with no more than 50 % of the Annual Bonus for any year payable in the form of equity awards.

The Company will issue to the Executive the initial equity award within thirty ( 30 ) days following the effective date of the 2025 Plan, and within thirty ( 30 ) days following the end of each quarter during the term of the Employment Agreement, the Company will issue to the Executive the quarterly equity award.

The initial equity award means the amount of Restricted Stock Units equal to five percent ( 5 %) of the outstanding Common Stock and all equity securities eligible to be converted into Common Stock as of the effective date.

The quarterly equity award means the amount of Restricted Stock Units equal to the number of shares of Common Stock equivalent to five percent ( 5 %) of the outstanding Common Stock and all equity securities eligible to be converted into Common Stock as of most recent quarter-end minus the amount of Common Stock held by the Executive pursuant to awards previously issued pursuant to the Employment Agreement as of most recent quarter-end.

Such Restricted Stock Units will vest in twelve ( 12 ) equal monthly tranches commencing on the issuance date and will have a restricted period of one year from the date of grant.

Within ten business days following the date on which such restricted period ends, the Company will be obligated to deliver to the Executive:

(i) to the extent the Plan has not been approved by the Company’s shareholders, cash equal to the fair market value of one share as of the date on which the Restricted Stock Unit’s restricted period ends for each Restricted Stock Unit that vested;

or (ii) to the extent the Plan has been approved by the Company’s shareholders, one share for each Restricted Stock Unit that vested.

The Employment Agreement also contains certain termination, claw back, confidentiality and other customary provisions.

PATRIOT NATIONAL BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated financial statements

Certificate of Amendment

The preferences, limitations, powers and relative rights of the Series A Preferred Stock are set forth in the Certificate of Amendment of the Certificate of Incorporation of the Company (the “Certificate of Amendment”).

The Company has previously reported that, on March 13, 2025, the Company filed the Certificate of Amendment with the Secretary of State of the State of Connecticut.

The Certificate of Amendment designates 500,000 shares of Series A Preferred Stock.

As specified in the Certificate of Amendment, the Series A Preferred Stock have the following terms:

Holders of shares of issued and outstanding Series A Preferred Stock will be entitled to receive, when, as and if declared by the Board out of funds of the Company legally available therefor, non-cumulative dividends in arrears at the rate per annum of 10 % per share, payable semi-annually on April 1 and October 1 beginning on October 1, 2026.

Dividends will be payable, at the option of the Company, in cash or in kind through the issuance of additional shares of Series A Preferred Stock, provided, that if the shares of Series A Preferred Stock are converted into shares of Common Stock in full on or prior to October 1, 2026, then the holder of such share of Series A Preferred Stock will not have any right to receive any dividends on the Series A Preferred Stock.

Registration Rights Agreement

In connection with the closing of the Private Placement, the Company and the Purchasers will enter into a Registration Rights Agreement (the “Registration Rights Agreement”), under which the Company will be obligated to file a registration statement (and subsequent additional registration statements, as required) with the Securities and Exchange Commission (the “SEC”) to register for resale the shares of Common Stock to be issued in the Private Placement and the underlying shares of Common Stock into which the Series A Preferred Stock and non-voting Common Stock may be converted, as applicable.

The Registration Rights Agreement will obligate the Company to use its reasonable best efforts to file such initial registration statement no later than the sixtieth (60th) day following the closing of the Private Placement and to cause such registration statement or any subsequent additional registration statement to be declared effective by the SEC no later than the ninetieth (90th) day after the filing of such registration statement.

Collateral Requirement due to Downgrade

On February 11, 2025, the Bank received a notification from the FRBNY regarding a payment system risk (PSR) collateral requirement due to the Bank's downgrade to Group C.

Effective immediately, the Bank is required to maintain a PSR collateral amount of $ 24.4 million based on its non-wire debit activities.

The Bank currently holds approximately $ 69.9 million in unencumbered collateral with the FRBNY, sufficient to meet the new collateral requirement.

The FRBNY will reassess the collateral requirements quarterly and may adjust them based on changes in the Bank's financial services activities.

Changes to Master Account:

• Intraday Overdraft Capacity:

The Bank will no longer qualify for uncollateralized intraday credit but may request collateralized capacity, subject to FRBNY’s review.

• Transaction Processing:

FRBNY will reject transactions with insufficient funds, including Fedwire transfers, National Settlement Service transactions, and ACH credit items.

• Discount Window Borrowing:

The Bank will no longer be eligible for Primary Credit programs and will be considered under the Secondary Credit program.

• Cash Order Prefunding:

Prefunding of cash orders is required;

orders with insufficient funds will be rejected.

• Collateral Requirement:

The Bank must provide collateral security for obligations through its master account, reviewed quarterly.

• Collateral Pledged:

Additional haircuts on collateral will apply:

0 % for cash deposits and Treasury/Agency securities, 10 % for certain securities, 5 % for other securities, and 15 % for loans.

These changes do not have an immediate impact on the Bank's financial position or results of operations.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data