PATRIOT NATIONAL BANCORP INC 10-K

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk Market risk is the risk of loss from adverse changes in market prices and rates. The Bank’s market risk is primarily limited to interest rate risk, which is the risk that changes in interest rates may adversely affect net interest income, capital, and the economic value of assets and liabilities. The Bank seeks to manage interest rate risk while maintaining appropriate earnings performance and liquidity. Interest rate risk arises from differences in the timing of the repricing or maturity of assets and liabilities, the effect of embedded options, and 2025 FORM 10-K 36 changes in funding mix. In managing this risk, the Bank considers asset and liability structure, loan and investment repricing characteristics, deposit behavior, and wholesale funding sources. Interest rate risk is monitored by Management’s Asset and Liability Committee, which consists of senior management personnel. At the Board level, interest rate risk and related balance sheet exposures are reviewed through the Enterprise Risk Committee, which receives periodic reporting on interest rate risk, liquidity, and investment activities. Management evaluates interest rate risk using net interest income simulation and net portfolio value analysis, each of which is prepared on a quarterly basis. These models estimate the effect of instantaneous changes in interest rates under a range of rate scenarios. The analyses incorporate assumptions regarding asset and liability repricing, prepayments, deposit behavior, and changes in spreads between market rates. Because these analyses are based on assumptions and estimates, actual results may differ materially from those reflected in the model outputs. The tables below present estimated changes in net portfolio value and net interest income under selected instantaneous interest rate shock scenarios at December 31, 2025 and 2024. Net Portfolio Value - Performance Summary (In thousands) As of December 31, 2025 As of December 31, 2024 Projected Interest Rate Scenario Estimated Value Change from Base ($) Change from Base (%) Estimated Value Change from Base ($) Change from Base (%) +200 $ 118,478 $ (25,935) (17.96) % $ 87,800 $ (10,733) (10.89) % +100 132,666 (11,747) (8.13) % 94,983 (3,550) (3.60) % BASE 144,413 — — 98,533 — — -100 156,122 11,709 8.11 % 98,886 353 0.36 % -200 163,243 18,830 13.04 % 96,159 (2,374) (2.41) % Net Interest Income - Performance Summary December 31, 2025 December 31, 2024 Projected Interest Rate Scenario Estimated Value Change from Base ($) Change from Base (%) Estimated Value Change from Base ($) Change from Base (%) +200 $ 24,099 $ (2,580) (9.67) % $ 28,274 $ 79 0.28 % +100 25,470 (1,209) (4.53) % 28,403 208 0.74 % BASE 26,679 — — 28,195 — — -100 28,374 1,695 6.35 % 28,295 100 0.35 % -200 29,634 2,955 11.08 % 28,679 484 1.72 % These measures are analytical tools used by management to assess interest rate risk exposure at a point in time and should not be viewed as forecasts. The results are subject to limitations, including the use of assumptions regarding balance sheet composition, pricing behavior, and customer response to changes in interest rates. Impact of Inflation and Changing Prices The Company’s financial statements have been prepared in terms of historical dollars, without considering changes in relative purchasing power of money over time due to inflation. Because virtually all of the assets and liabilities of a financial institution are monetary in nature, interest rates generally have a more significant effect on the Bank’s performance than the effect of general inflation. However, inflation may affect customer repayment capacity, funding costs, operating expenses, and the value of loan collateral, including real estate, and therefore could affect the Company’s results of operations in future periods. 2025 FORM 10-K 37