0001098146us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMemberus-gaap:FairValueMeasurementsRecurringMember2022-12-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________

FORM ~~10-Q~~

10-Q/A

(Amendment No. 1)

__________________________

☒
x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30,~~, 2017~~

2023

☐
o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ~~______~~_______ to ~~______~~

_______

Commission file number 000-29599

PATRIOT NATIONAL BANCORP, INC.

(Exact name of registrant as specified in its charter)

~~Connecticut~~	~~06-1559137~~
Connecticut		06-1559137
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

900 Bedford Street, Stamford, Connecticut		06901
(Address of principal executive offices)		(Zip Code)

(203) ~~324-7500~~

252-5900

(Registrant’s’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

PNBK

NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒x No ☐

Indicate by check mark whether the registrant has submitted electronically, ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act

~~Large~~ ~~accelerated filer~~

☐

~~Accelerated~~ ~~filer~~

☐

~~Non-accelerated~~Large accelerated filer

☐ ~~(Do not check if a smaller reporting company)~~

~~Smaller~~ ~~reporting company~~

Accelerated filer

☒

Non-accelerated filer

Smaller reporting company

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐o No ☒

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ o No ☐

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the ~~issuer~~’sissuer’s classes of common stock, as of the latest practicable date.

As of November ~~6, 2017,~~14, 2023, there were ~~3,895,720~~3,965,186 shares of the registrant’s common stock outstanding.

EXPLANATORY NOTE:

The Company is filing this Amendment No. 1 on Form 10-Q/A (this “Amended Filing”) to its Quarterly Report on Form 10-Q for the three and six months ended June 30, 2023 (“Original Filing”) to: (i) restate management's conclusions regarding the effectiveness of its disclosure controls and procedures as of June 30, 2023; (ii) reissue the consolidated financial statements for the three and six months ended June 30, 2023 to reflect changes in the provision for credit losses resulting from the material weaknesses in internal controls over financial reporting. Accordingly, the Company hereby amends and replaces in their entirety Items 1, 2, and 4 in Part I.

Subsequent to filing the Original Filing on August 10, 2023, management became aware of an accounting error related to the calculation of the current expected credit loss (“CECL”) transition adjustment and corresponding credit loss provisions for a portfolio of unsecured consumer loans (the “Portfolio”) purchased by the Company from an originator/servicer mostly during the 2022 calendar year. Management determined that the error was due to the use of unsupported and incorrect data points used in conjunction with the data provided by the third party originator/servicer. The necessary changes to the CECL transition adjustment affected the reported total shareholders’ equity/accumulated deficit, totaling $5.3 million net of tax. The adjustments to the retained earnings were determined to be material to total shareholders equity. The restatement has no impact on the audit report for the year ended December 31, 2022.

The Company has concluded that there is a material weakness in internal control over financial reporting, related to the allowance for credit losses, as the Company did not maintain effective controls over (i) the recording, monitoring and valuation when calculating the accumulated credit losses on the purchased Portfolio of loans and related commitments; Specifically the Company’s management has determined that the Company’s financial reporting controls and procedures with respect to the allowance for credit losses were not operating effectively for the quarter ended June 30, 2023. Accordingly, management has determined that the Company's disclosure controls and procedures were not effective as of June 30, 2023.

As required by Rule 12b-15, the Company's principal executive officer and principal financial officer are providing new currently dated certifications. Accordingly, the Company hereby amends Item 6 in Part II in the Original Filing to reflect the filing of the new certifications.

For the convenience of the reader, this Amended Filing sets forth the complete form of the Original Filing, as modified where necessary to reflect the restatement and revisions. Except as described above, this Amended Filing does not amend, update or change any other items or disclosures in the Original Filing and does not purport to reflect any information or events subsequent to the filing thereof. As such, this Amended Filing speaks only as of the date the Original Filing was filed, and the Company has not undertaken herein to amend, supplement or update any information contained in the Original Filing to give effect to any subsequent events. Accordingly, this Amended Filing should be read in conjunction with the Company's filings made with the SEC subsequent to the filing of the Original Filing, including any amendment to those filings.

For additional information about this restatement refer to Note 1. Basis of Presentation and Restatement of Consolidated Financial Statements, of the Notes to consolidated financial statements.

Table of Contents

TABLEOF CONTENTS


Table of Contents	2

PART I- FINANCIAL INFORMATION	3

Item 1: Consolidated Financial Statements	3

Consolidated Balance Sheets (Unaudited)	3

Consolidated Statements of ~~Income~~Operations (Unaudited)	4

Consolidated Statements of Comprehensive (Loss) Income (Unaudited)	5

Consolidated Statements of Shareholder's Equity (Unaudited)	6

Consolidated Statements of Cash Flows (Unaudited)	7 8
~~Note~~
Notes to Consolidated Financial Statements (Unaudited)	8 10

Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations	38 45

Item 3: Quantitative and Qualitative Disclosures about Market Risk	53 59

Item 4: Disclosure Controls and Procedures	55 60

PART II - OTHER ~~INFORMATION~~ INFORMATION	56 62
~~Item 1:~~	~~Legal Proceedings~~	56
Item ~~1A:~~ 1: Legal Proceedings	~~Risk Factors~~	56 62
~~Item 6:~~	~~Exhibits~~	57
~~SIGNATURES~~ Item 5: Other Information	58 62

Item 6: Exhibits	63

SIGNATURES	64

PART I- FINANCIAL INFORMATION

Item 1: Consolidated Financial Statements

PATRIOT NATIONAL BANCORP,, INC. AND ~~SUBSIDIARY~~

C~~ONSOLIDATED~~SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS ~~(Unaudited)~~

(In thousands, except share data)

September 30,
2017

December 31,
2016

ASSETS

Cash and due from banks:

Noninterest bearing deposits and cash
$ 3,337 2,596
Interest bearing deposits
25,075 89,693
Total cash and cash equivalents
28,412 92,289
Investment securities:

Available-for-sale securities, at fair value
29,586 24,428
Other investments, at cost
4,450 4,450
Total investment securities
34,036 28,878

Federal Reserve Bank stock, at cost
2,460 2,109
Federal Home Loan Bank stock, at cost
6,353 5,609
Loans receivable (net of allowance for loan losses: 2017: $6,222, 2016: $4,675)
703,896 576,982
Accrued interest and dividends receivable
3,501 2,726
Premises and equipment, net
34,713 32,759
Other real estate owned
851 851
Deferred tax asset
10,686 12,632
Other assets
1,823 1,819
Total assets
$ 826,731 756,654

Liabilities

Deposits:

Noninterest bearing deposits
$ 76,875 76,772
Interest bearing deposits
528,539 452,552
Total deposits
605,414 529,324

Federal Home Loan Bank and correspondent bank borrowings
130,000 138,000
Senior notes, net
11,684 11,628
Junior subordinated debt owed to unconsolidated trust
8,085 8,079
Note payable
1,627 1,769
Advances from borrowers for taxes and insurance
1,799 2,676
Accrued expenses and other liabilities
1,812 2,608
Total liabilities
760,421 694,084

Commitments and Contingencies

Shareholders' equity

Preferred stock, no par value; 1,000,000 shares authorized, no shares issued and outstanding
- -
Common stock, $.01 par value, 100,000,000 shares authorized; 2017: 3,969,461 shares issued; 3,895,720 shares outstanding. 2016: 3,965,538 shares issued; 3,891,897 shares outstanding
40 40
Additional paid-in capital
106,834 106,729
Accumulated deficit
(39,394 ) (42,902 )
Less: Treasury stock, at cost: 2017 and 2016, 73,741 and 73,641 shares, respectively
(1,179 ) (1,177 )
Accumulated other comprehensive gain (loss)
9 (120 )
Total shareholders' equity
66,310 62,570
Total liabilities and shareholders' equity
$ 826,731 756,654

June 30, 2023 December 31, 2022
(In thousands, except share data) Unaudited
Assets
Cash and due from banks:
Noninterest bearing deposits and cash $ 2,320 $ 5,182
Interest bearing deposits 68,489 33,311
Total cash and cash equivalents 70,809 38,493
Investment securities:
Available-for-sale securities, at fair value 90,547 84,520
Other investments, at cost 4,450 4,450
Total investment securities 94,997 88,970

Federal Reserve Bank stock, at cost 2,523 2,627
Federal Home Loan Bank stock, at cost 8,072 3,874
Loans receivable (net of allowance for credit losses: 2023: $24,098 and 2022: $10,310) 906,636 838,006
Loans held for sale 5,860 5,211
Accrued interest and dividends receivable 7,628 7,267
Premises and equipment, net 30,262 30,641
Deferred tax asset 20,386 15,527
Goodwill 1,107 1,107
Core deposit intangible, net 226 249
Other assets 9,202 11,387
Total assets $ 1,157,708 $ 1,043,359

Liabilities
Deposits:
Noninterest bearing deposits $ 127,817 $ 269,636
Interest bearing deposits 735,562 590,810
Total deposits 863,379 860,446

Federal Home Loan Bank and correspondent bank borrowings 207,000 85,000
Senior notes, net 11,653 11,640
Subordinated debt, net 9,854 9,840
Junior subordinated debt owed to unconsolidated trust, net 8,132 8,128
Note payable 481 585
Advances from borrowers for taxes and insurance 3,094 886
Accrued expenses and other liabilities 7,704 7,251
Total liabilities 1,111,297 983,776
Commitments and Contingencies

Shareholders' equity
Preferred stock, no par value; 1,000,000 shares authorized, no shares issued and outstanding — —
Common stock, $.01 par value, 100,000,000 shares authorized; As of June 30, 2023: 4,038,927 shares issued; 3,965,186 shares outstanding; As of December 31, 2022: 4,038,927 shares issued; 3,965,186 shares outstanding. 106,611 106,565
Accumulated deficit (44,161) (31,337)
Accumulated other comprehensive loss (16,039) (15,645)
Total shareholders' equity 46,411 59,583
Total liabilities and shareholders' equity $ 1,157,708 $ 1,043,359

See Accompanying Notes to Consolidated Financial Statements.

PATRIOT NATIONAL BANCORP, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~INCOME~~OPERATIONS (Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

(In thousands, except per share amounts)

2017

2016

2017

2016

Interest and Dividend Income

Interest and fees on loans
$ 8,522 6,188 22,720 17,811
Interest on investment securities
275 131 688 405
Dividends on investment securities
105 88 280 264
Other interest income
65 25 148 94
Total interest and dividend income
8,967 6,432 23,836 18,574

Interest Expense

Interest on deposits
1,339 549 3,457 1,518
Interest on Federal Home Loan Bank borrowings
248 73 509 258
Interest on senior debt
229 - 686 -
Interest on subordinated debt
92 85 266 250
Interest on note payable
7 9 24 25
Total interest expense
1,915 716 4,942 2,051

Net interest income
7,052 5,716 18,894 16,523

Provision (Credit) for Loan Losses
545 355 (944 ) 2,314

Net interest income after provision (credit) for loan losses
6,507 5,361 19,838 14,209
Non-interest Income

Loan application, inspection and processing fees
25 64 61 152
Deposit fees and service charges
149 150 444 451
Rental Income
117 104 302 311
Loss on sale of investment securities
- - (78 ) -
Other income
95 94 283 273
Total non-interest income
386 412 1,012 1,187

Non-interest Expense

Salaries and benefits
2,741 2,169 7,668 7,334
Occupancy and equipment expense
796 783 2,378 2,313
Data processing expense
340 288 786 814
Professional and other outside services
449 409 1,651 1,182
Advertising and promotional expense
81 128 266 341
Loan administration and processing expense
22 14 45 30
Regulatory assessments
230 159 572 453
Insurance expense
66 57 181 168
Material and communications
97 106 287 314
Other operating expense
400 328 1,096 992
Total non-interest expense
5,222 4,441 14,930 13,941

Income before income taxes
1,671 1,332 5,920 1,455

Expense for Income Taxes
658 518 2,373 570

Net income
$ 1,013 814 3,547 885

Basic earnings per share
$ 0.26 0.21 0.91 0.22
Diluted earnings per share
$ 0.26 0.21 0.91 0.22


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except per share amounts)	2023		2022		2023		2022
Interest and Dividend Income
Interest and fees on loans	$	14,052	$	9,044	$	26,602	$	16,708
Interest on investment securities	687		510		1,367		1,080
Dividends on investment securities	171		65		306		130
Other interest income	399		68		680		89
Total interest and dividend income	15,309		9,687		28,955		18,007

Interest Expense
Interest on deposits	5,248		757		8,827		1,166
Interest on Federal Home Loan Bank and correspondent bank borrowings	1,723		747		3,159		1,484
Interest on senior debt	289		210		579		420
Interest on subordinated debt	333		251		659		485
Interest on note payable	3		2		5		6
Total interest expense	7,596		1,967		13,229		3,561

Net interest income	7,713		7,720		15,726		14,446

Provision for credit losses	1,325		275		3,545		275

Net interest income after provision for credit losses	6,388		7,445		12,181		14,171

Non-interest Income
Loan application, inspection and processing fees	121		89		244		176
Deposit fees and service charges	74		60		142		124
Gains on sales of loans	85		301		166		509
Rental income	105		132		224		324
Gain on sale of investment securities	—		—		24		—
Other income	444		216		864		479
Total non-interest income	829		798		1,664		1,612

Non-interest Expense
Salaries and benefits	4,661		3,763		8,928		7,109
Occupancy and equipment expense	839		881		1,723		1,717
Data processing expense	316		283		610		613
Professional and other outside services	727		559		1,641		1,348
Project expenses, net	66		29		93		81
Advertising and promotional expense	77		73		162		141
Loan administration and processing expense	103		42		154		147
Regulatory assessments	317		179		499		353
Insurance expense, net	68		76		145		153
Communications, stationary and supplies	241		139		432		274
Other operating expense	648		478		1,260		995
Total non-interest expense	8,063		6,502		15,647		12,931

(Loss) income before income taxes	(846)		1,741		(1,802)		2,852

(Benefit) provision for income taxes	(231)		476		(488)		787

Net (loss) income	$	(615)	$	1,265	$	(1,314)	$	2,065

Basic (loss) earnings per share	$	(0.16)	$	0.32	$	(0.33)	$	0.52
Diluted (loss) earnings per share	$	(0.16)	$	0.32	$	(0.33)	$	0.52

See Accompanying Notes to Consolidated Financial Statements.

PATRIOT NATIONAL BANCORP, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)

(In thousands)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

Net income
$ 1,013 814 3,547 885
Other comprehensive income

Unrealized holding gains on securities
2 71 289 186
Income tax effect
(1 ) (28 ) (112 ) (72 )

Reclassification for realized losses on sale of investment securities
- - (78 ) -
Income tax effect
- - 30 -

Total other comprehensive income
1 43 129 114

Comprehensive income
$ 1,014 857 3,676 999


(In thousands)	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

Net (loss) income	$	(615)	$	1,265	$	(1,314)	$	2,065
Other comprehensive (loss) income

Unrealized holding loss on securities	(2,211)		(5,614)		(507)		(13,003)
Income tax effect	570		1,448		131		3,355
Reclassification for realized gain on sale of investment securities	—		—		(24)		—
Income tax effect	—		—		6		—
Total securities available-for-sale	(1,641)		(4,166)		(394)		(9,648)









Comprehensive loss	$	(2,256)	$	(2,901)	$	(1,708)	$	(7,583)

See Accompanying Notes to Consolidated Financial Statements.

PATRIOT NATIONAL BANCORP, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~SHAREHOLDERS~~’SHAREHOLDERS’ EQUITY (Unaudited)

(In thousands, except shares)

Number
of
Shares

Common
Stock

Additional
Paid-in
Capital

Accumulated
Deficit

Treasury
Stock

Accumulated
Other
Comprehensive
Loss

Total

Balance at December 31, 2016
3,891,897 $ 40 106,729 (42,902 ) (1,177 ) (120 ) 62,570
Comprehensive income:

Net income
- - - 3,547 - - 3,547
Other comprehensive income
- - - - - 129 129
Total comprehensive income
- - - 3,547 - 129 3,676
Purchase of treasury stock
(100 ) (2 ) (2 )
Common stock dividends
(39 ) (39 )
Share-based compensation expense
- - 105 - - - 105
Vesting of restricted stock
3,923 - - - - - -
Balance at September 30, 2017
3,895,720 $ 40 106,834 (39,394 ) (1,179 ) 9 66,310

Balance at December 31, 2015
3,956,207 40 106,568 (44,832 ) (160 ) (152 ) 61,464
Comprehensive income:

Net income
- - - 885 - - 885
Unrealized holding gain on available-for-sale securities, net of tax
- - - - - 114 114
Total comprehensive income
- - - 885 - 114 999
Purchase of treasury stock
(518 ) (7 ) (7 )
Share-based compensation expense
- - 126 - - - 126
Vesting of restricted stock
4,214 - - - - - -
Balance at September 30, 2016
3,959,903 $ 40 106,694 (43,947 ) (167 ) (38 ) 62,582


	Three Months Ended June 30, 2023
(In thousands, except shares)	Number of Shares	Common Stock		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total

Balance at March 31, 2023	3,965,186	$	106,588	$	(43,546)	$	(14,398)	$	48,644

Comprehensive loss:
Net loss	—	—		(615)		—		(615)
Unrealized holding loss on available-for-sale securities, net of tax	—	—		—		(1,641)		(1,641)
Total comprehensive loss	—	—		(615)		(1,641)		(2,256)
Share-based compensation expense	—	23		—		—		23
Balance at June 30, 2023	3,965,186	$	106,611	$	(44,161)	$	(16,039)	$	46,411


	Three Months Ended June 30, 2022
(In thousands, except shares)	Number of Shares	Common Stock		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total

Balance at March 31, 2022	3,956,492	$	106,500	$	(36,698)	$	(7,119)	$	62,683
Comprehensive income (loss):
Net income	—	—		1,265		—		1,265
Unrealized holding loss on available-for-sale securities, net of tax	—	—		—		(4,166)		(4,166)

Total comprehensive income (loss)	—	—		1,265		(4,166)		(2,901)
Share-based compensation expense	—	20		—		—		20
Vesting of restricted stock	777	—		—		—		—
Balance at June 30, 2022	3,957,269	$	106,520	$	(35,433)	$	(11,285)	$	59,802

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited) (Continued)


	Six Months Ended June 30, 2023
(In thousands, except shares)	Number of Shares	Common Stock		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total

Balance at January 1, 2023	3,965,186	$	106,565	$	(31,337)	$	(15,645)	$	59,583
Transition adjustment related to adoption of ASC 326, net of tax	—	—		(11,510)		—		(11,510)
Comprehensive loss:
Net loss	—	—		(1,314)		—		(1,314)
Unrealized holding loss on available-for-sale securities, net of tax	—	—		—		(394)		(394)

Total comprehensive loss	—	—		(1,314)		(394)		(1,708)
Share-based compensation expense	—	46		—		—		46

Balance at June 30, 2023	3,965,186	$	106,611	$	(44,161)	$	(16,039)	$	46,411


	Six Months Ended June 30, 2022
(In thousands, except shares)	Number of Shares	Common Stock		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total

Balance at January 1, 2022	3,956,492	$	106,479	$	(37,498)	$	(1,637)	$	67,344
Comprehensive income (loss):
Net income	—	—		2,065		—		2,065
Unrealized holding loss on available-for-sale securities, net of tax	—	—		—		(9,648)		(9,648)
Total comprehensive income (loss)	—	—		2,065		(9,648)		(7,583)
Share-based compensation expense	—	41		—		—		41
Vesting of restricted stock	777	—		—		—		—
Balance at June 30, 2022	3,957,269	$	106,520	$	(35,433)	$	(11,285)	$	59,802

See Accompanying Notes to Consolidated Financial Statements.

PATRIOT NATIONAL BANCORP, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Nine Months Ended September 30,

(In thousands)

2017

2016

Cash Flows from Operating Activities:

Net income
$ 3,547 885
Adjustments to reconcile net income to net cash provided by operating activities:

Amortization of investment premiums, net
66 97
Amortization and accretion of purchase loan premiums and discounts, net to loans
476 118
Amortization of debt issuance costs
62 5
(Credit) provision for loan losses
(944 ) 2,314
Depreciation and amortization
926 920
Loss on sales of available-for-sale securities
78 -
Share-based compensation
105 126
Deferred income taxes
1,864 351
Gain on acquisition of OREO
- (11 )
Changes in assets and liabilities:

Increase in accrued interest and dividends receivable
(775 ) (298 )
Increase in other assets
(4 ) (426 )
Decrease in accrued expenses and other liabilities
(796 ) (40 )
Net cash provided by operating activities
4,605 4,041

Cash Flows from Investing Activities:

Proceeds from sales on available-for-sale securities
13,846 5,000
Principal repayments on available-for-sale securities
1,639 2,092
Purchases of available-for-sale securities
(20,576 ) (1,000 )
Purchases of Federal Reserve Bank stock
(351 ) -
(Purchases) redemptions of Federal Home Loan Bank stock
(744 ) 827
Increase in net originations of loans receivable
(53,424 ) (57,991 )
Purchase of loan pools receivable
(73,022 ) (18,976 )
Purchase of premises and equipment
(2,880 ) (2,349 )
Net cash used in investing activities
(135,512 ) (72,397 )

Cash Flows from Financing Activities:

Increase in deposits, net
76,090 26,505
(Repayments of) increase in FHLB and correspondent bank borrowings
(8,000 ) 3,000
Principal repayments of note payable
(142 ) (139 )
Decrease in advances from borrowers for taxes and insurance
(877 ) (889 )
Purchases of treasury stock
(2 ) (7 )
Dividends paid on common stock
(39 ) -
Net cash provided by financing activities
67,030 28,470

Net decrease in cash and cash equivalents
(63,877 ) (39,886 )

Cash and cash equivalents at beginning of period
92,289 85,400

Cash and cash equivalents at end of period
$ 28,412 45,514

Supplemental Disclosures of Cash Flow Information:

Cash paid for interest
$ 4,467 2,398
Cash paid for income taxes
$ 475 253

Supplemental Disclosures of Noncash Investing Activities:

Transfers of loans receivable to other real estate owned
$ - 840


(In thousands)	Six Months Ended June 30,
	2023		2022
Cash Flows from Operating Activities:
Net (loss) income	$	(1,314)	$	2,065

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Amortization and accretion of investment premiums and discounts, net	(52)		(13)
Amortization and accretion of purchase loan premiums and discounts, net	1,227		1,245
Amortization of debt issuance costs	87		18
Amortization of core deposit intangible	23		23
Amortization of servicing assets of sold SBA loans	62		30
Provision for credit losses	3,545		275
Depreciation and amortization	615		653
Gain on sales of available-for-sale securities	(24)		—
Share-based compensation	46		41
(Increase) decrease in deferred income taxes, net	(494)		591
Originations of SBA loans held for sale	(3,578)		(11,305)
Proceeds from sale of SBA loans held for sale	3,095		7,315
Gains on sale of SBA loans held for sale, net	(166)		(509)

Changes in assets and liabilities:
(Increase) decrease in accrued interest and dividends receivable	(361)		95
Decrease (increase) in other assets	1,984		(712)
Decrease in accrued expenses and other liabilities	(899)		(2,053)
Net cash provided by (used in) operating activities	3,796		(2,241)

Cash Flows from Investing Activities:
Proceeds from maturity or sales on available-for-sale securities	1,780		3,600
Principal repayments on available-for-sale securities	2,153		3,819
Purchases of available-for-sale securities	(10,415)		(3,039)
Redemptions of Federal Reserve Bank stock	104		81
Purchases of Federal Home Loan Bank stock	(4,198)		(290)
Origination of loans receivable	(132,611)		(138,414)
Purchases of loans receivable	(16,443)		(98,720)
Payments received on loans receivable	61,343		115,960
Purchases of premises and equipment	(230)		(270)

Net cash used in investing activities	(98,517)		(117,273)

Cash Flows from Financing Activities:
Increase in deposits, net	2,933		98,221
Increase in FHLB and correspondent bank borrowings	122,000		10,000
Principal repayments of note payable	(104)		(102)
Decrease in advances from borrowers for taxes and insurance	2,208		1,866
Net cash provided by financing activities	127,037		109,985

Net increase (decrease) in cash and cash equivalents	32,316		(9,529)

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

Cash and cash equivalents at end of period	$	70,809	$	37,516

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)


(In thousands)	Six Months Ended June 30,
	2023		2022
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	12,609	$	3,482
Cash paid for income taxes	44		102

Non-cash transactions:
Capitalized servicing assets	$	58	$	131

Transfers of loans held for sale to loans receivable	$	—	$	72

Operating lease right-of-use assets	16		80

Decrease in interest rate swaps	41		(637)

Capital raise deferred costs	—		1,094

Expected credit loss for loans - ASC 326 adoption	13,001		—
Expected credit loss for unfunded loan commitments - ASC 326 adoption	2,737		—
Deferred tax assets - ASC 326 adoption	(4,228)		—

See Accompanying Notes to Consolidated Financial Statements.

Table of Contents

PATRIOT NATIONAL BANCORP, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

Notes to consolidated financial statements ~~(unaudited)~~

(Unaudited)

Note 1:1. Basis of Financial Statement Presentation

and Restatement of Consolidated Financial Statements

The accompanying unaudited interim condensed ~~consolidated financial statements~~Consolidated Financial Statements of Patriot National Bancorp, Inc. (the “Company” or “PNBK”) and its wholly-owned subsidiaries, ~~including~~ Patriot Bank,, N.A. (the “Bank”), Patriot National Statutory Trust I and PinPat Acquisition Corporation (collectively, “Patriot”), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been omitted. The accompanying unaudited interim condensed ~~consolidated financial statements~~Consolidated Financial Statements should be read in conjunction with the audited ~~consolidated financial statements~~Consolidated Financial Statements and notes thereto included on the Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

2022.

The Consolidated Balance Sheet at December 31, ~~2016~~2022 presented herein has been derived from the audited ~~consolidated financial statements~~Consolidated Financial Statements of the Company at that date, but does not include all of the information and footnotes required by US GAAP for complete 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. Actual results could differ from those estimates. Management has identified accounting for the allowance for ~~loan~~credit losses, the analysis and valuation of its investment securities, ~~and~~ the valuation of deferred tax assets, the impairment of goodwill, the valuation of derivatives, and the valuation of servicing assets as certain of ~~Patriot~~’sthe Company’s more significant accounting policies and estimates, in that they are critical to the presentation of ~~Patriot’s~~the Company’s consolidated financial condition and results of operations. As they concern matters that are inherently uncertain, these estimates require management to make subjective and complex judgments in the preparation of ~~Patriot’s~~the Company’s Consolidated Financial Statements.

~~Certain prior period amounts have been reclassified to conform to current year presentation.~~

The information furnished reflects, in the opinion of management, all normal recurring adjustments necessary for a fair presentation of the results for the interim periods presented. The results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 are not necessarily indicative of the results of operations that may be expected for the remainder of ~~2017.~~

2023.

Certain prior period amounts have been reclassified to conform to current year presentation.

Restatement of Consolidated Financial Statements

The Company has determined an error related to the calculation of the current expected credit loss (“CECL”) transition adjustment and corresponding credit loss provisions relating to a portfolio of unsecured consumer loans (the “portfolio”) purchased by the Company from an originator/servicer mostly during the 2022 calendar year. The error in the Company’s calculations of the CECL transition adjustment was due to the use of unsupported and incorrect data points used in conjunction with data provided by the third-party originator/servicer. The Company identified the following problems with its data and methodology:

1)The original weighted average life, which impacted the calculation of aggregate future losses, was understated.

2)The loss rate applied to the portfolio was applied as a straight percentage with some minor adjustments to account for the vintage/age of the portfolio purchased. While the Company attempted to capture the age impact in its analysis, it did not fully capture such impact on the projected losses of the portfolio.

3)The Company did not adequately adjust for the status of loan delinquencies as of the date of its analysis.

The Company is currently negotiating with the third-party originator/servicer with the intention of recovering all or a portion of the losses incurred. Such potential recoveries would be recognized in future periods.

The Company has restated its previously filed interim financial statements as of and for the quarter ended June 30, 2023. The restatement had the effect of increasing the CECL transition adjustment, effective January 1, 2023. As a result, there was a significant impact on the reported total shareholders’ equity/accumulated deficit, amounting to $5.3 million, net of tax. The restatement also increased the net loss for the three months ended June 30, 2023, from $546,000 to $615,000. Basic and

PATRIOT NATIONAL BANCORP, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

diluted loss per share were reduced from $(0.14) to $(0.16) for the three months ended June 30, 2023. For the six months the net loss increased from $599,000 to $1.3 million, and basic and diluted loss per share was reduced from $(0.15) to $(0.33).

The increase in the Company’s provision for credit losses has been reflected herein, as well as its impact on net loss, net loss per share, loans receivable, the allowance for credit losses, deferred tax assets, regulatory capital and equity.

The effect of these changes on the consolidated financial statements ~~(unaudited)~~

of the Company is as follows.

(In thousands) As of January 1, 2023
Adoption of CECL effective January 1, 2023: Previously Reported Adjustment Restated
CECL adoption transition_ ACL on loans $ (7,371) $ (5,630) $ (13,001)
CECL adoption transition_ ACL on Off-BS exposure (1,094) (1,643) (2,737)
CECL adoption transition_ DTA Adjustment 2,274 1,954 4,228
Cumulative change in accounting principle Balance at January 1, 2023 - Adoption of CECL (6,191) (5,319) (11,510)

As of June 30, 2023
(In thousands) Previously Reported Adjustment Restated
Loans receivable, net of allowance for credit losses $ 913,876 $ (7,240) $ 906,636
Deferred tax asset 18,169 2,217 20,386
Total assets 1,162,731 (5,023) 1,157,708
Accrued expenses and other liabilities 6,693 1,011 7,704
Accumulated deficit (38,127) (6,034) (44,161)
Total shareholders' equity 52,445 (6,034) 46,411
Tier 1 Leverage ratio 8.70 % (0.16) % 8.54 %

Three Months Ended June 30, 2023 Six Months Ended June 30, 2023
(In thousands, except shares and per share amounts) Previously Reported Adjustment Restated Previously Reported Adjustment Restated
Provision for credit losses $ 1,231 $ 94 $ 1,325 $ 2,567 $ 978 $ 3,545
Net interest income after provision for credit losses 6,482 (94) 6,388 13,159 (978) 12,181
Loss before income taxes (752) (94) (846) (824) (978) (1,802)
Benefit for income taxes (206) (25) (231) (225) (263) (488)
Net loss (546) (69) (615) (599) (715) (1,314)
Total comprehensive loss (2,187) (69) (2,256) (993) (715) (1,708)
Basic and diluted income per share $ (0.14) $ (0.02) $ (0.16) $ (0.15) $ (0.18) $ (0.33)
Consolidated Statement of Cash Flows:
Net loss N/A N/A N/A $ (599) $ (715) $ (1,314)
Provision for credit losses N/A N/A N/A 2,567 978 3,545
Deferred income taxes N/A N/A N/A (231) (263) (494)

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
The restatement had no impact on the Company's consolidated financial statements as of and for the periods ended June 30, 2022 or December 31, 2022.

Note 2:~~Available-for~~2. Summary of Significant Accounting Policies

Please refer to the summary of Significant Accounting Policies included in the Company’s 2022 Annual Report on Form 10-K for a list of all policies in effect as of December 31, 2022.

Allowance for Credit Losses (“ACL”) and Impairment of Debt Securities

As described below under Recently Adopted Accounting Pronouncements, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, Accounting Standard Codification (“ASC”) 326, effective January 1, 2023.

Impairment of Debt Securities Available for Sale

For available-for-sale debt securities in an unrealized loss position, the Company will first assess whether i) it intends to sell or ii) it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis. If either case is applicable, any previously recognized allowances are charged off and the debt security’s amortized cost is written down to fair value through income. If neither case is applicable, the debt security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of the debt security by a rating agency and any adverse conditions specifically related to the debt security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the debt security are compared to the amortized cost basis of the debt security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss, limited by the amount by which the fair value is less than the amortized cost basis. Any impairment that has not been recorded through allowance for credit losses is recognized in other comprehensive income, net of tax.

Adjustments to the allowance are reported in the income statement as a component of credit loss expense. Debt securities are charged off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by the Company or when either of the aforementioned criteria regarding intent or requirement to sell is met specifically for available-for-sale debt securities.

The Company excludes the accrued interest receivable balance from the amortized cost basis in measuring expected credit losses on debt securities and does not record an ACL on accrued interest receivable.

ACL – Loans

The ACL is based on the Company’s evaluation of the loan portfolios, past loan loss experience, 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 process is inherently subjective and subject to significant change as it requires material estimates. The allowance is increased by a provision for credit losses, which is charged to expense, and reduced by charge-offs, net of recoveries. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for credit losses. 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.

The Company evaluates loans with similar risk characteristics in pools using a probability of default/loss given default ("PD/LGD") method. Unlike the previous allowance for loan losses approach, which applied historical loss rates to similar loan pools, the current expected credit loss ("CECL") methodology forecasts the probability of default, loss given default, and exposure at default for loans in a given pool over their remaining life. This allows the Company to derive an ACL that can absorb estimated losses over the remaining life of the portfolio.

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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
Qualitative factors play a greatly diminished role under the Company's CECL framework as reserve rates for the model in use are influenced by change in: real domestic Gross Domestic Product ("GDP"); State of Connecticut unemployment rate; New York Fed recession indicator; CoStar composite index; New York Case Schiller index; Coincident activity index; Michigan consumer activity index; S&P's BBB credit spreads; the Company's loan delinquencies and charge off data.
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. Individual evaluations are performed for nonaccrual loans and loans rated substandard that are in excess of $100,000. Specific allowances were estimated based on one of several methods, including the estimated fair value of the underlying collateral, observable market value of similar debt or the present value of expected cash flows.
The Company measures expected credit losses over the contractual term of a loan, adjusted for estimated prepayments. The contractual term excludes expected extensions, renewals and modifications unless there is a reasonable expectation that a troubled debt restructuring will be executed. 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. Accrued interest receivable on loans is excluded from the estimate of credit losses.
ACL – Unfunded Loan Commitments
The ACL for unfunded loan commitments represents expected credit losses over the contractual period for which the Company is exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if the Company has the unconditional right to cancel the obligation. The ACL for unfunded loan commitments is reported as a component of other liabilities within the Consolidated Balance Sheets. Adjustments to the ACL for unfunded loan commitments are reported in the Consolidated Statements of Operations as a component of provision for credit losses.
Recently Issued Accounting Standards
New Accounting Standards Adopted in 2023
ASU 2016-13
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. This resulted in the Company recording an increase to the allowance for credit losses of $13.0 million and an increase to reserve for unfunded loan commitments of $2.7 million (which is included in other liabilities on the Company’s Consolidated Balance Sheets), and a cumulative-effect adjustment to increase the opening balance of accumulated deficit of $11.5 million, net of $4.2 million tax at the date of adoption.
ASU 2020-02
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.
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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
ASU 2020-03
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.
ASU 2022-02
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.
ASU 2022-06
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.
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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

Note 3. Available-for-Sale Securities

The amortized cost,, gross unrealized gains, ~~and~~gross unrealized losses and ~~approximate~~ fair values of available-for-sale securities at ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016~~2022 are as follows:

(In thousands)

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
(Losses)

Fair
Value

September 30, 2017:

U. S. Government agency mortgage-backed securities
$ 8,071 34 (69 ) 8,036
Corporate bonds
14,000 - (95 ) 13,905
Subordinated notes
7,500 145 - 7,645
$ 29,571 179 (164 ) 29,586

December 31, 2016:

U. S. Government agency mortgage-backed securities
$ 10,624 9 (192 ) 10,441
Corporate bonds
9,000 - (39 ) 8,961
Subordinated notes
5,000 26 - 5,026
$ 24,624 35 (231 ) 24,428


(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value
June 30, 2023:
U. S. Government agency and mortgage-backed securities	$	82,192	$	63	$	(15,007)	$	67,248
Corporate bonds	18,002		—		(4,747)		13,255
Subordinated notes	5,000		—		(764)		4,236
SBA loan pools	6,409		—		(1,083)		5,326
Municipal bonds	560		—		(78)		482
Total available-for-sale securities	$	112,163	$	63	$	(21,679)	$	90,547

December 31, 2022:
U. S. Government agency and mortgage-backed securities	$	73,480	$	—	$	(14,434)	$	59,046
Corporate bonds	19,773		7		(5,125)		14,655
Subordinated notes	5,000		—		(398)		4,602
SBA loan pools	6,791		—		(1,073)		5,718
Municipal bonds	561		—		(62)		499
Total available-for-sale securities	$	105,605	$	7	$	(21,092)	$	84,520

The following table presents the available-for-sale securities’ gross unrealized losses and fair value, aggregated by the length of time the individual securities have been in a continuous loss position as of ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016:~~

(In thousands)

Less than 12 Months

12 Months or More

Total

Fair
Value

Unrealized
(Loss)

Fair
Value

Unrealized
(Loss)

Fair
Value

Unrealized
(Loss)

September 30, 2017:

U. S. Government agency mortgage-backed securities
$ 626 (2 ) 3,329 (67 ) 3,955 (69 )
Corporate bonds
13,905 (95 ) - - 13,905 (95 )
$ 14,531 (97 ) 3,329 (67 ) 17,860 (164 )

December 31, 2016:

U. S. Government agency mortgage-backed securities
$ 5,969 (144 ) 3,356 (48 ) 9,325 (192 )
Corporate bonds
- - 5,961 (39 ) 5,961 (39 )
$ 5,969 (144 ) 9,317 (87 ) 15,286 (231 )

At ~~September~~2022:


(In thousands)	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized (Loss)		Fair Value		Unrealized (Loss)		Fair Value		Unrealized (Loss)
June 30, 2023:
U. S. Government agency and mortgage-backed securities	$	18,306	$	(1,077)	$	46,807	$	(13,930)	$	65,113	$	(15,007)
Corporate bonds	—		—		13,255		(4,747)		13,255		(4,747)
Subordinated notes	2,543		(457)		1,693		(307)		4,236		(764)
SBA loan pools	1,276		(13)		4,050		(1,070)		5,326		(1,083)
Municipal bonds	—		—		482		(78)		482		(78)
Total available-for-sale securities	$	22,125	$	(1,547)	$	66,287	$	(20,132)	$	88,412	$	(21,679)

December 31, 2022:
U. S. Government agency and mortgage-backed securities	$	11,126	$	(633)	$	47,920	$	(13,801)	$	59,046	$	(14,434)
Corporate bonds	1,959		(64)		10,934		(5,061)		12,893		(5,125)
Subordinated notes	4,602		(398)		—		—		4,602		(398)
SBA loan pools	1,437		(12)		4,280		(1,061)		5,717		(1,073)
Municipal bonds	—		—		498		(62)		498		(62)
Total available-for-sale securities	$	19,124	$	(1,107)	$	63,632	$	(19,985)	$	82,756	$	(21,092)

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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

As of June 30, ~~2017~~2023 and December 31, ~~2016, eight~~2022, forty-nine of ~~thirteen~~fifty and ~~seven out~~forty-six of ~~twelve~~forty-seven available-for-sale securities had unrealized losses with an aggregate ~~depreciation~~decline of ~~0.9%~~(19.7)% and ~~1.5%~~(20.3)% from the amortized cost of those securities, respectively.

~~PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY~~

~~Notes to consolidated financial statements (unaudited)~~

~~Based~~At June 30, 2023, no allowance for credit losses has been recognized on ~~its quarterly reviews, management believes that none~~ available for sale debt securities in an unrealized loss position as the Company does not believe any of the ~~losses~~debt securities are credit impaired. This is based on ~~available-for-sale securities noted above constitute an other-than-temporary impairment (“OTTI”).~~the Company’s analysis of the risk characteristics, including credit ratings, and other qualitative factors related to available for sale debt securities. The noted losses are considered temporary due to market fluctuations in available interest rates on U.S. Government agency debt, mortgage-backed securities issued by U.S. Government agencies, and corporate debt. Management considers the issuers of ~~the~~these debt securities continue to ~~be financially sound, the corporate bonds are investment grade, and the collectability of all contractual~~make timely principal and interest payments under the contractual terms of the securities. The Company does not intend to sell these debt securities and it is ~~reasonably expected. Since Patriot is~~more likely than not ~~more-likely-than-not to~~that the Company will not be required to sell the ~~investments~~debt securities before recovery of their amortized cost, which may be at maturity. The unrealized losses are due to increases in market interest rates over the yields available at the time the debt securities were purchased.

With regard to U.S. mortgage-backed securities and municipal bonds issued by the U.S. government, or agencies thereof, it is expected that the securities will not be settled at prices less than the amortized cost basis of the securities as such securities are backed by the full faith and ~~does~~credit of and/or guaranteed by the U.S. government. Accordingly, no allowance for credit losses has been recorded for these securities.

With regard to corporate bonds, management considers (i) issuer bond ratings, (ii) historical loss rates for given bond ratings, (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, and (iv) internal forecasts. Securities under the U.S. Small Business Administration (“SBA”) government guaranteed loan pools program were purchased at a premium and the impairment was attributable primarily to increased prepayment speeds. The timely payment of principal and interest on these securities is guaranteed by the U.S. Government agency. The contractual terms of the subordinated notes do not ~~intend~~permit the issuer to ~~sell~~settle the securities at a ~~loss, none~~price less than the amortized cost bases of the investments. Furthermore, as of June 30, 2023, there were no past due principal or interest payments associated with these securities. Based upon (i) the issuer’s strong bond ratings and (ii) a zero historical loss rate, no allowance for credit losses has been recorded for available-for-sale securities ~~noted are considered to be OTTI~~at June 30, 2023. All debt securities in an unrealized loss position as of ~~September~~June 30, ~~2017.~~

At ~~September~~2023 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 June 30, ~~2017~~2023 and December 31, ~~2016,~~2022, available-for-sale securities of ~~$5.0~~$70.3 million and ~~$4.2~~$30.8 million, respectively, were pledged to the ~~FRB of New York,~~Federal Home Loan Bank ("FHLB") and Federal Reserve Bank (“FRB”). The securities were pledged primarily to secure borrowings from the FHLB and municipal deposits.

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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The following summarizes, by class and contractual maturity, the amortized cost and estimated fair value of available-for-sale debt securities held at ~~September~~as of June 30, ~~2017~~2023 and December 31, ~~2016.~~2022. The mortgages underlying the mortgage-backed securities are not due at a single maturity date. Additionally, these mortgages often are and generally may be pre-paid without penalty, creating a degree of uncertainty that such investments can be held until maturity. For convenience, mortgage-backed securities have been included in the summary as a separate line item.

(In thousands)

Amortized Cost

Fair Value

Due
Within
5 years

Due After
5 years
through
10 years

Due
After
10 years

Total

Due
Within
5 years

Due After
5 years
through
10 years

Due
After
10 years

Total

September 30, 2017:

Corporate bonds
$ - 9,000 5,000 14,000 - 8,954 4,951 13,905
Subordinated Notes
1,000 6,500 - 7,500 1,019 6,626 - 7,645
Available-for-sale securities with single maturity dates
1,000 15,500 5,000 21,500 1,019 15,580 4,951 21,550
U. S. Government agency mortgage-backed securities
- 940 7,131 8,071 - 920 7,116 8,036
$ 1,000 16,440 12,131 29,571 1,019 16,500 12,067 29,586

December 31, 2016:

Corporate bonds
$ 9,000 - - 9,000 8,961 - - 8,961
Subordinated Notes
1,000 4,000 - 5,000 1,026 4,000 - 5,026
Available-for-sale securities with single maturity dates
10,000 4,000 - 14,000 9,987 4,000 - 13,987
U. S. Government agency mortgage-backed securities
- 2,132 8,492 10,624 - 2,106 8,335 10,441
$ 10,000 6,132 8,492 24,624 9,987 6,106 8,335 24,428

~~There were $13.8~~


(In thousands)	Amortized Cost								Fair Value
	Due Within 5 years		Due After 5 years through 10 years		Due After 10 years		Total		Due Within 5 years		Due After 5 years through 10 years		Due After 10 years		Total
June 30, 2023:
Corporate bonds	$	2,007	$	15,995	$	—	$	18,002	$	1,855	$	11,400	$	—	$	13,255
Subordinated notes	3,000		2,000		—		5,000		2,543		1,693		—		4,236
SBA loan pools	—		1,289		5,120		6,409		—		1,276		4,050		5,326
Municipal bonds	154		406		—		560		139		343		—		482
Available-for-sale securities with stated maturity dates	5,161		19,690		5,120		29,971		4,537		14,712		4,050		23,299
U. S. Government agency and mortgage-backed securities	—		5,237		76,955		82,192		—		4,134		63,114		67,248
Total available-for-sale securities	$	5,161	$	24,927	$	82,075	$	112,163	$	4,537	$	18,846	$	67,164	$	90,547

December 31, 2022:
Corporate bonds	$	3,778	$	15,995	$	—	$	19,773	$	3,721	$	10,934	$	—	$	14,655
Subordinated notes	3,000		2,000		—		5,000		2,830		1,772		—		4,602
SBA loan pools	—		1,449		5,342		6,791		—		1,438		4,280		5,718
Municipal bonds	154		407		—		561		139		360		—		499
Available-for-sale securities with stated maturity dates	6,932		19,851		5,342		32,125		6,690		14,504		4,280		25,474
U. S. Government agency and mortgage-backed securities	—		5,276		68,204		73,480		—		4,129		54,917		59,046
Total available-for-sale securities	$	6,932	$	25,127	$	73,546	$	105,605	$	6,690	$	18,633	$	59,197	$	84,520

During the six months ended June 30, 2023, the Company purchased $10.4 million ~~sales~~U.S. Government agency mortgage-backed securities and $~~20.6~~sold $1.8 million ~~purchases of~~ available-for-sale securities ~~in 2017. No loss~~and recognized a net gain on ~~the~~ sale of ~~available-for-sale securities was recorded during~~$24,000. During the ~~third quarter ended September 30, 2017. A loss on the sale of available-for-sale securities of $78,000 was recorded during the nine~~six months ended ~~September~~June 30, ~~2017. There were no realized gains (losses)~~2022, the Company purchased $2.0 million corporate bonds and $1.0 million subordinated notes, and did not sell any available-for-sale securities.

Table of ~~available-for sale securities during the three and nine months ended September 30, 2016.~~

Contents

PATRIOT NATIONAL BANCORP, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

Notes to ~~consolidated financial statements (unaudited)~~

Consolidated Financial Statements (Unaudited)

Note 3:4. Loans Receivable and Allowance for ~~Loan~~Credit Losses

As of ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016,~~2022, loans receivable, net, ~~consists~~consisted of the following:

(In thousands)

Loan portfolio segment:

September 30,
2017

December 31,
2016

Commercial Real Estate
$ 296,625 271,229
Residential Real Estate
150,664 86,514
Commercial and Industrial
117,673 60,977
Consumer and Other
90,973 101,449
Construction
48,328 53,895
Construction to permanent - CRE
5,855 7,593
Loans receivable, gross
710,118 581,657
Allowance for loan losses
(6,222 ) (4,675 )
Loans receivable, net
$ 703,896 576,982


(In thousands)	June 30, 2023		December 31, 2022
Loan portfolio segment:
Commercial Real Estate	$	511,655	$	437,443
Residential Real Estate	116,454		124,140
Commercial and Industrial	171,574		138,787
Consumer and Other	123,063		141,091
Construction	5,525		4,922
Construction to Permanent - CRE	2,463		1,933
Loans receivable, gross	930,734		848,316
Allowance for credit losses	(24,098)		(10,310)
Loans receivable, net	$	906,636	$	838,006

Patriot's lending activities are conducted principally ~~in Fairfield and~~in: Connecticut; the southern counties of New ~~Haven Counties in Connecticut and~~York including Westchester, ~~County in New York,~~Nassau, Suffolk, and the five Boroughs of New York ~~City.~~City; and the Northern Counties of New Jersey, including Passaic, Bergen, Essex, Hudson and Union. Patriot originates commercial real estate loans, commercial business loans, a variety of consumer loans, and construction ~~loans.~~loans, and has purchased residential loans since 2016. All commercial and residential real estate loans are collateralized primarily by first or second mortgages on real estate. The ability and willingness of borrowers to satisfy their loan obligations is dependent to some degree on the status of the regional economy as well as upon the regional real estate market. Accordingly, the ultimate collectability of a substantial portion of the loan portfolio and the recovery of a substantial portion of any resulting real estate acquired is susceptible to changes in market conditions.

Patriot has established credit policies applicable to each type of lending activity in which it engages and evaluates the creditworthiness of each borrower. Unless extenuating circumstances exist, Patriot limits the extension of credit on commercial real estate loans to 75% of the market value of the underlying collateral. ~~Patriot~~’sPatriot’s loan origination policy for ~~multi–family~~multi-family residential real estate is limited to 80% of the market value of the underlying collateral. In the case of construction loans, the maximum loan-to-value is 75% of the “as completed” appraised value of the real estate project. Management monitors the appraised value of collateral on an on-going basis and additional collateral is requested when warranted. Real estate is the primary form of collateral, although other forms of collateral do exist and may include such assets as accounts receivable, inventory, marketable securities, time deposits, and other business assets.

Risk characteristics of the Company’s’s portfolio classes include the following:

Commercial Real Estate Loans

In underwriting commercial real estate loans, Patriot evaluates both the prospective ~~borrower~~’sborrower’s ability to make timely payments on the loan and the value of the property securing the loans. Repayment of such loans may be negatively impacted should the borrower default, the value of the property collateralizing the loan substantially decline, or there are declines in general economic conditions. 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.

During the three and six months ended June 30, 2023, Patriot did not purchase any commercial real estate loans. There were zero and $20.7 million commercial real estate loans purchased during the three and six months ended June 30, 2022, respectively.

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PATRIOT NATIONAL BANCORP, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

Notes to ~~consolidated financial statements (unaudited)~~

Consolidated Financial Statements (Unaudited)

Residential Real Estate Loans

In 2013, Patriot discontinued offering primary mortgages on personal residences. Repayment of residential real estate loans may be negatively impacted should the borrower have financial difficulties, should there be a significant decline in the value of the property securing the loan, or should there be declines in general economic conditions.

~~In March 2017,~~

During the three and six months ended June 30, 2023 and 2022, Patriot did not purchase~~d $73 million of~~ any residential real estate loans.

Commercial and Industrial Loans

~~Patriot~~’s

Patriot’s commercial and industrial loan portfolio consists primarily of commercial business loans and lines of credit to businesses and professionals. These loans are generally for the financing of accounts receivable, purchases of inventory, purchases of new or used equipment, or for other short- or long-term working capital purposes. These loans are generally secured by business assets but are also occasionally offered on an unsecured basis. In granting these types of loans, Patriot considers the borrower’s cash flow as the primary source of repayment, supported by the value of collateral, if any, and personal guarantees, as applicable. Repayment of commercial and industrial loans may be negatively impacted by adverse changes in economic conditions, ineffective management, claims on the borrower’s assets by others that are superior to Patriot’s claims, a loss of demand for the borrower’s products or services, or the death or disability of the borrower or other key management personnel.

Patriot’s syndicated and leveraged loan portfolio totaled $5.8 million at both June 30, 2023 and December 31, 2022. The syndicated and leveraged loans are included in the commercial and industrial loan classification and are primarily comprised of loan transactions led by major financial institutions and regional banks, which are the Agent Bank or Lead Arranger, and are referred to as syndicated loans or "Shared National Credits (SNC)". SNC loans were determined to be complementary to the Bank’s existing commercial and industrial loan portfolio and product offerings. Further originations in this loan class are not expected.

Consumer and Other Loans

Patriot offers individual consumers various forms of credit including installment loans, credit cards, overdraft protection, auto loans and reserve lines of credit. Repayments of such loans are generally dependent on the personal income of the borrower, which may be negatively impacted by adverse changes in economic conditions. The Company does not place a high emphasis on originating these types of loans.

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 outstanding under this program at June 30, 2023 and December 31, 2022 totaled $68.3 million and $78.9 million, respectively. Loans purchased under this program totaled $4.3 million and $13.6 million for three and six months ended June 30, 2023, respectively. For the three and six months ended June 30, 2022, the Bank purchased $32.0 million and $50.4 million unsecured consumer loans, respectively.

The Company does not ~~have~~originate any ~~lending programs~~loans commonly referred to as subprime lending. 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.

During the three and six months ended June 30, 2023, Patriot purchased home equity line of credit loans (“HELOC”) of $1.5 million. During the three and six months ended June 30, 2022, the Bank purchased HELOC loans of $27.7 million.

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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Construction Loans

Construction loans are of a short-term nature, generally of ~~eighteen-months~~eighteen months or less, that are secured by land and improvements intended for commercial, residential, or mixed-use development. Loan proceeds may be used for the acquisition of or improvements to the land under development and funds are generally disbursed as phases of construction are completed.

Included in this category are loans to construct single family homes where no contract of sale exists, based upon the experience and financial strength of the builder, the type and location of the property, and other factors. Construction loans tend to be personally guaranteed by the principal(s). Repayment of such loans may be negatively impacted by an inability to complete construction, a downturn in the market for new construction, by a significant increase in interest rates, or by decline in general economic conditions.

The construction loans outstanding at June 30, 2023 and December 31, 2022 totaled $5.5 million and $4.9 million, respectively.

~~PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY~~

~~Notes to consolidated financial statements (unaudited)~~

Construction to Permanent ~~– CRE~~

~~One time~~- Commercial Real Estate

Loans in this category represent a one-time close of a construction facility with simultaneous conversion to an amortizing mortgage loan. Construction to permanent loans combine a ~~short term~~short-term period similar to a construction loan, generally with a variable rate, and a longer term ~~CRE~~commercial real estate loan typically 20-25 years, resetting every five years to the ~~FHLB~~Federal Home Loan Bank (“FHLB”) rate.

Close of the construction facility typically occurs when events dictate, such as receipt of a certificate of occupancy and property stabilization, which is defined as cash flow sufficient to support a ~~pre-defined~~predefined minimum debt coverage ratio and other conditions and covenants particular to the loan. 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.

SBA Loans

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. 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. SBA loans are for the purpose of providing working capital, financing the purchase of equipment, inventory, or commercial real estate and for other business purposes. Loans are guaranteed by the businesses' major owners. SBA loans are made based primarily on the historical and projected cash flow of the business and secondarily on the underlying collateral provided. SBA loans held for investment are included in the commercial real estate loans and commercial and industrial loan classifications, which totaled $32.8 million and $32.5 million as of June 30, 2023 and December 31, 2022, respectively. During the six months ended June 30, 2023 and 2022, no SBA loans previously classified as held for sale were transferred to held for investment.

Small Business Administration Paycheck Protection Program

Under the Paycheck Protection Program of the CARES Act, small business loans were authorized to pay payroll and group health costs, salaries and commissions, mortgage and rent payments, utilities, and interest on other debt. The loans are provided through participating financial institutions that process loan applications and service the loans. The Bank participated in the SBA’s Paycheck Protection Program in 2021. Paycheck Protection Program loans totaled $135,000 and $157,000 as of June 30, 2023 and December 31, 2022, respectively, which are included in the commercial and industrial loan classifications.

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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

Allowance for ~~Loan~~Credit Losses

As described in Note 2, “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. Under the CECL methodology, the ACL is measured on a collective basis for pools of loans with similar risk characteristics. For loans that do not share similar risk characteristics with the collectively evaluated pools, evaluations are performed on an individual basis. 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. The estimated loan 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 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. This captures the likelihood that borrowers will be unable to repay their loans according to the original terms. The LGD calculation considers characteristics such as collateral value and vintage, underlying collateral characteristics (e.g., CRE vs. residential, owner-occupied vs. investment), and other relevant underwriting characteristics.

Commercial and industrial loans include risks associated with borrower’s cash flow, debt service coverage and management’s expertise. These loans are subject to the risk that the Company may have difficulty converting collateral to a liquid asset if necessary, as well as risks associated with degree of specialization, mobility and general collectability in a default situation. These commercial loans may be subject to many different types of risks, including fraud, bankruptcy, economic downturn, deteriorated or non-existent collateral, and changes in interest rates.

Real estate construction loans include risks associated with the borrower’s credit-worthiness, contractor’s qualifications, borrower and contractor performance, and the overall risk and complexity of the proposed project. Construction lending is also subject to risks associated with sub-market dynamics, including population, employment trends and household income. During times of economic stress, this type of loan has typically had a greater degree of risk than other loan types.

Real estate mortgage loans consist of loans secured by commercial and residential real estate. Commercial real estate lending is divided into Investment CRE and Owner-Occupied CRE. Investment CRE is dependent upon successful management, marketing and expense supervision necessary to maintain the property. Repayment of these loans may be adversely affected by conditions in the real estate market or the general economy. Owner-Occupied CRE is utilized by a business for the purpose of providing the space needs for that business and the running of its operations. Repayment is dependent on the cash flow and successful operations of the business. Repayment of these loans may be adversely affected by conditions in the specific owner’s industry. Also, commercial real estate loans typically involve relatively large loan balances to a single borrower. Residential real estate lending risks are generally less significant than those of other loans. Real estate lending risks include fluctuations in the value of real estate, bankruptcies, economic downturn and customer financial problems.

Consumer loans carry a moderate degree of risk compared to other loans. They are generally more risky than traditional residential real estate loans and CRE loans, but less risky than many commercial loans and carry generally low relative balances across a diverse borrowing pool. Risk of default is usually determined by the well-being of the local economies. During times of economic stress, there is usually some level of job loss both nationally and locally, which directly affects the ability of the consumer to repay debt.

The Company maintains an ACL for credit losses on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements. The allowance is computed using a methodology similar to that used to determine the ACL for loans, modified to take into account the probability of a drawdown on the commitment. 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 $1,495,000 at June 30, 2023.

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PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The following tables summarize the activity in the allowance for ~~loan~~credit losses, allocated to segments of the loan portfolio, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016:~~

(In thousands)

Commercial
Real Estate

Residential
Real Estate

Commercial
and
Industrial

Consumer
and
Other

Construction

Construction
to
Permanent
[CRE]

Unallocated

Total

Three months ended September 30, 2017
Allowance for loan losses:

June 30, 2017
$ 2,218 1,041 1,453 593 490 73 76 5,944
Charge-offs
- - (265 ) (10 ) - - - (275 )
Recoveries
6 - - 2 - - - 8
Provisions (credits)
(52 ) 4 685 (327 ) 293 (27 ) (31 ) 545
September 30, 2017
$ 2,172 1,045 1,873 258 783 46 45 6,222

Three months ended September 30, 2016
Allowance for loan losses:

June 30, 2016
$ 2,295 647 3,400 531 169 145 22 7,209
Charge-offs
- (186 ) (50 ) (2 ) - - - (238 )
Recoveries
- 2 - - - - - 2
Provisions (credits)
(491 ) 949 352 (329 ) (108 ) (18 ) - 355
September 30, 2016
$ 1,804 1,412 3,702 200 61 127 22 7,328

(In thousands)
Commercial
Real Estate

Residential
Real Estate

Commercial
and
Industrial

Consumer
and
Other

Construction

Construction
to
Permanent
[CRE]

Unallocated

Total

Nine months ended September 30, 2017

Allowance for loan losses:

December 31, 2016
$ 1,853 534 740 641 712 69 126 4,675
Charge-offs
- - (265 ) (23 ) - - - (288 )
Recoveries
8 - 2,769 2 - - - 2,779
Provisions (credits)
311 511 (1,371 ) (362 ) 71 (23 ) (81 ) (944 )

September 30, 2017
$ 2,172 1,045 1,873 258 783 46 45 6,222

Nine months ended September 30, 2016
Allowance for loan losses:

December 31, 2015
$ 1,970 740 1,027 677 486 123 219 5,242
Charge-offs
- (190 ) (50 ) (4 ) - - - (244 )
Recoveries
- 3 12 1 - - - 16
Provisions (credits)
(166 ) 859 2,713 (474 ) (425 ) 4 (197 ) 2,314

September 30, 2016
$ 1,804 1,412 3,702 200 61 127 22 7,328

allowance for loan and lease losses for three and six months ended June 30, 2022:


(In thousands)	Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer and Other		Construction		Construction to Permanent - CRE		Unallocated		Total
Three Months Ended June 30, 2023
Allowance for credit losses:
March 31, 2023	$	9,809	$	853	$	1,799	$	12,251	$	21	$	47	$	—	$	24,780

Charge-offs	—		—		(4)		(2,516)		(150)		—		—		(2,670)
Recoveries	—		11		9		260		—		—		—		280
Provisions (credits)	230		163		(131)		1,280		162		4		—		1,708		-1
June 30, 2023	$	10,039	$	1,027	$	1,673	$	11,275	$	33	$	51	$	—	$	24,098

Three Months Ended June 30, 2022
Allowance for loan and lease losses:
March 31, 2022	$	4,889	$	1,512	$	2,860	$	319	$	56	$	9	$	92	$	9,737
Charge-offs	—		—		—		(100)		—		—		—		(100)
Recoveries	—		—		11		6		—		—		—		17
Provisions (credits)	91		(117)		(555)		838		2		6		10		275
June 30, 2022	$	4,980	$	1,395	$	2,316	$	1,063	$	58	$	15	$	102	$	9,929

The allowance and provision for the three and six months ended June 30, 2023 are not comparable to prior periods due to the adoption of CECL.

(1) The provision on credit losses for three months ended June 30, 2023 does not include the credit on unfunded loan commitments of $383,000 for the three months ended June 30, 2023.


(In thousands)	Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer and Other		Construction		Construction to Permanent - CRE		Unallocated		Total
Six Months Ended June 30, 2023
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)		(4,312)		(150)		—		—		(4,468)
Recoveries	—		11		16		433		—		—		—		460
Provisions	1,447		162		41		2,970		163		12		—		4,795		(2)
June 30, 2023	$	10,039	$	1,027	$	1,673	$	11,275	$	33	$	51	$	—	$	24,098

Six Months Ended June 30, 2022
Allowance for loan and lease losses:
December 31, 2021	$	5,063	$	1,700	$	2,532	$	253	$	78	$	41	$	238	$	9,905
Charge-offs	—		—		(68)		(147)		(70)		—		—		(285)
Recoveries	—		1		26		7		—		—		—		34
(Credits) provisions	(83)		(306)		(174)		950		50		(26)		(136)		275
June 30, 2022	$	4,980	$	1,395	$	2,316	$	1,063	$	58	$	15	$	102	$	9,929

(2) The provision on credit losses for six months ended June 30, 2023 does not include the credit on unfunded loan commitments of $1.3 million.

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PATRIOT NATIONAL BANCORP, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

Notes to ~~consolidated financial statements (unaudited)~~

Consolidated Financial Statements (Unaudited)

The following tables summarize, by loan portfolio segment, the amount of loans receivable evaluated individually and collectively for impairment as of ~~September~~June 30, ~~2017~~2023:


(In thousands)	Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer and Other		Construction		Construction to Permanent - CRE		Unallocated		Total
June 30, 2023
Allowance for credit losses:
Individually evaluated for impairment	$	6,387	$	196	$	719	$	—	$	—	$	—	$	—	$	7,302
Collectively evaluated for impairment	3,652		831		954		11,275		33		51		—		16,796
Total allowance for credit losses	$	10,039	$	1,027	$	1,673	$	11,275	$	33	$	51	$	—	$	24,098

Loans receivable, gross:
Individually evaluated for impairment	$	11,368	$	2,355	$	6,582	$	—	$	—	$	—	$	—	$	20,305
Collectively evaluated for impairment	500,287		114,099		164,992		123,063		5,525		2,463		—		910,429
Total loans receivable, gross	$	511,655	$	116,454	$	171,574	$	123,063	$	5,525	$	2,463	$	—	$	930,734

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, ~~2016:~~

(In thousands)

Commercial
Real Estate

Residential
Real Estate

Commercial
and
Industrial

Consumer
and
Other

Construction

Construction
to
Permanent
[CRE]

Unallocated

Total

September 30, 2017

Allowance for loan losses:

Individually evaluated for impairment
$ - - 285 - - - - 285

Collectively evaluated for impairment
2,172 1,045 1,588 258 783 46 45 5,937

Total allowance for loan losses
$ 2,172 1,045 1,873 258 783 46 45 6,222

Loans receivable, gross:

Individually evaluated for impairment
$ 6,081 1,904 285 715 - - - 8,985

Collectively evaluated for impairment
290,544 148,760 117,388 90,258 48,328 5,855 - 701,133

Total loans receivable, gross
$ 296,625 150,664 117,673 90,973 48,328 5,855 - 710,118

(In thousands)

Commercial
Real Estate

Residential
Real Estate

Commercial
and
Industrial

Consumer
and
Other

Construction

Construction
to
Permanent
[CRE]

Unallocated

Total

December 31, 2016

Allowance for loan losses:

Individually evaluated for impairment
$ - - 231 - - - - 231

Collectively evaluated for impairment
1,853 534 509 641 712 69 126 4,444

Total allowance for loan losses
$ 1,853 534 740 641 712 69 126 4,675

Loans receivable, gross:

Individually evaluated for impairment
$ 6,267 1,911 231 542 - - - 8,951

Collectively evaluated for impairment
264,962 84,603 60,746 100,907 53,895 7,593 - 572,706

Total loans receivable, gross
$ 271,229 86,514 60,977 101,449 53,895 7,593 - 581,657

2022:


(In thousands)	Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer and Other		Construction		Construction to Permanent - CRE		Unallocated		Total
December 31, 2022
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

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
Total loans receivable, gross	$	437,443	$	124,140	$	138,787	$	141,091	$	4,922	$	1,933	$	—	$	848,316

Patriot monitors the credit quality of its loans receivable on an ongoing basis. Credit quality is monitored by reviewing certain indicators, including cash flow from business operations, loan to value ratios, debt service coverage ratios, and credit scores.

Patriot employs a risk rating system as part of the risk assessment of its loan portfolio. At origination, ~~lending~~credit officers are required to assign a risk rating to each loan in their portfolio, which is ratified or modified by the Loan Committee to which the loan is submitted for approval. If financial developments occur on a loan in the ~~lending officer~~’scredit officer’s portfolio of responsibility, the risk rating is reviewed and adjusted, as applicable. In carrying out its oversight responsibilities, the Loan Committee can adjust a risk rating based on available information. In addition, the risk ratings on all commercial loans over $250,000 are reviewed ~~annually~~ by the Credit ~~Department.~~

Department either annually, biannually, or every 4 years, depending upon the amount of the bank’s exposure and other credit metrics.

Additionally, Patriot retains aan independent third-party ~~objective~~ loan ~~reviewing~~review expert to perform a ~~quarterly~~semi-annual analysis of the results of its risk rating process. The ~~quarterly~~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 ~~quarterly~~semi-annual review, are required to be ~~approved by~~reported to the ~~Loan Committee.~~

Audit Committee of the Board of Directors.

Table of Contents

PATRIOT NATIONAL BANCORP, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

Notes to ~~consolidated financial statements (unaudited)~~

Consolidated Financial Statements (Unaudited)

When assigning a risk rating to a loan, management utilizes the Bank’s internal eleven-point risk rating system. An asset is considered “special mention” when it has a potential weakness based on objective evidence, but does not currently expose the ~~Bank~~Company to sufficient risk to warrant classification in one of the following categories:

●

~~Sub-standard:~~ An asset is considered “substandard” if it is not adequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Sub-standard assets have well defined weaknesses based on objective evidence, and are characterized by the distinct possibility that the Company will sustain some loss, if noted deficiencies are not corrected.

●

~~Doubtful:~~ Assets classified as “doubtful” have all of the weaknesses inherent in those classified “sub-standard”, with the added characteristic that the weaknesses present make collection or liquidation-in–full improbable, on the basis of currently existing facts, conditions, and values.

~~Charge–offs,~~

•Substandard: An asset is classified “substandard” if it is not adequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Substandard assets have well defined weaknesses based on objective evidence, and are characterized by the distinct possibility that the Company will sustain some loss, if noted deficiencies are not corrected.

•Doubtful: Assets classified as “doubtful” have all of the weaknesses inherent in those classified as “substandard”, with the added characteristic that the identified weaknesses make collection or liquidation-in-full improbable, on the basis of currently existing facts, conditions, and values.

Charge-offs of loans to reduce the loan to its recoverable value that are solely collateral dependent generally ~~commence after~~occur upon confirmation of the partial loss amount, but may be deferred in certain cases until the credit moves from doubtful to a partial or full loss classification. Loans that are cash flow dependent are modeled to reflect the expected cash flows through expected loan maturity, including any proceeds from refinancing or principal curtailment. A specific reserve is established for the amount by which the net investment in the loan exceeds the present value of discounted cash flows. If either type of loan is classified as ~~“doubtful”.~~

~~In accordance with Federal Financial Institutions Examination Council published policies establishing uniform criteria for~~"full loss”, meaning full loss on the ~~classification of retail credit based on delinquency status, “Open-end” and “Closed-end” credits are charged off when 180 days and120 days delinquent, respectively.~~

~~If an account~~loan is ~~classified as “Loss”,~~expected, the full balance of the loan receivable is charged off, regardless of the potential recovery from a sale of the underlying collateral. 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.

In ~~March 2017,~~accordance with Federal Financial Institutions Examination Council published policies establishing uniform criteria for the ~~Bank reached a settlement agreement with its insurance carrier for a loss~~ ~~recognized in 2016, related to a single Commercial~~classification of retail credit based on delinquency status, “Open-end” and ~~Industrial loan, resulting in cash receipts~~“Closed-end” credits are charged off when 180 days and 90 days delinquent, respectively.

Table of ~~$2.8 million, net of related deductibles and other amounts excluded pursuant to the insurance policy.~~

Contents

PATRIOT NATIONAL BANCORP, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

Notes to ~~consolidated financial statements (unaudited)~~

Consolidated Financial Statements (Unaudited)

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


	Term of Loans by Origination
As of June 30, 2023:	2023		2022		2021		2020		2019		Prior		Revolving		Total Loans Receivable Gross
Loan portfolio segment:
Commercial Real Estate:
Pass	$	94,387	$	157,102	$	129,284	$	3,728	$	30,112	$	69,815	$	—	$	484,428
Special mention	—		—		—		—		550		—		—		550
Substandard	—		—		—		—		21,296		5,381		—		26,677
	94,387		157,102		129,284		3,728		51,958		75,196		—		511,655
Residential Real Estate:
Pass	18		1,267		3,297		12,081		15,897		80,192		528		113,280
Special mention	—		—		—		—		—		609		—		609
Substandard	—		—		—		—		—		2,565		—		2,565
	18		1,267		3,297		12,081		15,897		83,366		528		116,454
Commercial and Industrial:
Pass	1,470		15,000		24,677		8,312		8,908		7,810		97,560		163,737
Special mention	11		—		—		—		513		11		—		535
Substandard	—		732		938		—		4,295		1,268		69		7,302
	1,481		15,732		25,615		8,312		13,716		9,089		97,629		171,574
Consumer and Other:
Pass	7,864		53,517		7,026		—		5,992		15,816		32,779		122,994

Substandard	—		—		—		—		—		69		—		69
	7,864		53,517		7,026		—		5,992		15,885		32,779		123,063
Construction:
Pass	—		—		5,033		—		—		—		—		5,033

Substandard	—		—		—		—		492		—		—		492
	—		—		5,033		—		492		—		—		5,525
Construction to Permanent -CRE:
Pass	—		—		2,463		—		—		—		—		2,463
	—		—		2,463		—		—		—		—		2,463

Total	$	103,750	$	227,618	$	172,718	$	24,121	$	88,055	$	183,536	$	130,936	$	930,734

Loans receivable, gross:
Pass	$	103,739	$	226,886	$	171,780	$	24,121	$	60,909	$	173,633	$	130,867	$	891,935
Special mention	11		—		—		—		1,063		620		—		1,694
Substandard	—		732		938		—		26,083		9,283		69		37,105
Loans receivable, gross	$	103,750	$	227,618	$	172,718	$	24,121	$	88,055	$	183,536	$	130,936	$	930,734

Table of Contents

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Loan Portfolio Aging Analysis

The following tables summarize performing and non-performing (i.e., non-accruing) loans receivable by portfolio segment, by aging category, by delinquency status as of June 30, 2023.


(In thousands)	Performing (Accruing) Loans
As of June 30, 2023:	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Performing Loans		Non- accruing Loans		Loans Receivable Gross
Loan portfolio segment:
Commercial Real Estate:
Pass	$	3,284	$	—	$	—	$	3,284	$	481,144	$	484,428	$	—	$	484,428
Special mention	—		—		—		—		550		550		—		550
Substandard	322		—		—		322		14,987		15,309		11,368		26,677
	3,606		—		—		3,606		496,681		500,287		11,368		511,655
Residential Real Estate:
Pass	1,054		74		330		1,458		111,822		113,280		—		113,280
Special mention	—		—		—		—		609		609		—		609
Substandard	—		—		—		—		—		—		2,565		2,565
	1,054		74		330		1,458		112,431		113,889		2,565		116,454
Commercial and Industrial:
Pass	1,678		—		230		1,908		161,829		163,737		—		163,737
Special mention	—		—		—		—		535		535		—		535
Substandard	—		541		—		541		106		647		6,655		7,302
	1,678		541		230		2,449		162,470		164,919		6,655		171,574
Consumer and Other:
Pass	1,397		1,543		868		3,808		119,186		122,994		—		122,994
Substandard	—		—		—		—		23		23		46		69
	1,397		1,543		868		3,808		119,209		123,017		46		123,063
Construction:
Pass	—		—		—		—		5,033		5,033		—		5,033

Substandard	—		—		—		—		492		492		—		492
	—		—		—		—		5,525		5,525		—		5,525
Construction to Permanent - CRE:
Pass	—		—		—		—		2,463		2,463		—		2,463
	—		—		—		—		2,463		2,463		—		2,463

Total	$	7,735	$	2,158	$	1,428	$	11,321	$	898,779	$	910,100	$	20,634	$	930,734

Loans receivable, gross:
Pass	$	7,413	$	1,617	$	1,428	$	10,458	$	881,477	$	891,935	$	—	$	891,935
Special mention	—		—		—		—		1,694		1,694		—		1,694
Substandard	322		541		—		863		15,608		16,471		20,634		37,105
Loans receivable, gross	$	7,735	$	2,158	$	1,428	$	11,321	$	898,779	$	910,100	$	20,634	$	930,734

Table of Contents

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The following tables summarize performing and non-performing loans (i.e., non-accruing) receivable by portfolio segment, by aging category, by delinquency status as of December 31, 2022.


(In thousands)	Performing (Accruing) Loans
As of December 31, 2022:	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Performing Loans		Non-accruing Loans		Loans Receivable Gross
Loan portfolio segment:
Commercial Real Estate:
Pass	$	—	$	—	$	—	$	—	$	401,313	$	401,313	$	—	$	401,313
Special mention	—		—		—		—		24,559		24,559		—		24,559
Substandard	330		—		—		330		—		330		11,241		11,571
	330		—		—		330		425,872		426,202		11,241		437,443
Residential Real Estate:
Pass	330		—		—		330		120,715		121,045		—		121,045
Special mention	—		—		—		—		625		625		—		625
Substandard	—		—		—		—		—		—		2,470		2,470
	330		—		—		330		121,340		121,670		2,470		124,140
Commercial and Industrial:
Pass	2		—		230		232		131,092		131,324		—		131,324
Special mention	—		—		—		—		597		597		—		597
Substandard	1,488		412		—		1,900		133		2,033		4,833		6,866
	1,490		412		230		2,132		131,822		133,954		4,833		138,787
Consumer and Other:
Pass	929		3,175		925		5,029		135,990		141,019		—		141,019
Substandard	—		—		—		—		23		23		49		72
	929		3,175		925		5,029		136,013		141,042		49		141,091
Construction:
Pass	895		—		—		895		3,503		4,398		—		4,398
Special mention	—		—		—		—		524		524		—		524
	895		—		—		895		4,027		4,922		—		4,922
Construction to Permanent - CRE:
Pass	—		—		—		—		1,933		1,933		—		1,933
	—		—		—		—		1,933		1,933		—		1,933

Total	$	3,974	$	3,587	$	1,155	$	8,716	$	821,007	$	829,723	$	18,593	$	848,316

Loans receivable, gross:
Pass	$	2,156	$	3,175	$	1,155	$	6,486	$	794,546	$	801,032	$	—	$	801,032
Special mention	—		—		—		—		26,305		26,305		—		26,305
Substandard	1,818		412		—		2,230		156		2,386		18,593		20,979
Loans receivable, gross	$	3,974	$	3,587	$	1,155	$	8,716	$	821,007	$	829,723	$	18,593	$	848,316

Table of Contents

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The following tables summarize non-performing (i.e., non-accruing) loans by aging category and status, within the applicable loan portfolio segment as of ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016:~~

(In thousands)

Non-accruing Loans

30 - 59 Days
Past Due

60 - 89 Days
Past Due

90 Days
or
Greater Past Due

Total
Past Due

Current

Total
Non-accruing
Loans

As of September 30, 2017:

Loan portfolio segment:

Residential Real Estate:

Sub-standard
$ - - 1,590 1,590 - 1,590
Commercial and Industrial:

Sub-standard
- - 286 286 - 286
Consumer and Other

Sub-standard
- - 175 175 - 175
Total non-accruing loans
$ - - 2,051 2,051 - 2,051

As of December 31, 2016:

Loan portfolio segment:

Residential Real Estate:

Sub-standard
$ - - 1,590 1,590 - 1,590
Commercial and Industrial:

Sub-standard
- - 231 231 - 231
Total non-accruing loans
$ - - 1,821 1,821 - 1,821

~~If non-accrual loans had been performing in accordance with the original contractual terms, additional interest income of $~~27,000 and $70,000 would have been recognized in income during the three and nine months ended September 30, 2017, respectively. For the three and nine months ended September 30, 2016, additional interest income of $70,000 and $266,000 would have been recognized in income.

Additionally, certain loans for which the borrower cannot demonstrate sufficient cash flow to continue loan payments in the future and certain troubled debt restructurings (“TDRs”) are placed on non-accrual status. During ~~the three and nine months ended September 30, 2017 and 2016, no interest income was collected and recognized on non-accruing loans.~~

2022:


(In thousands)	Non-accruing Loans
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Non-accruing Loans
As of June 30, 2023:
Loan portfolio segment:
Commercial Real Estate:
Substandard	$	—	$	—	$	11,368	$	11,368	$	—	$	11,368
Residential Real Estate:
Substandard	89		71		1,795		1,955		610		2,565
Commercial and Industrial:
Substandard	940		—		5,570		6,510		145		6,655
Consumer and Other:
Substandard	—		—		26		26		20		46


Total non-accruing loans	$	1,029	$	71	$	18,759	$	19,859	$	775	$	20,634

As of December 31, 2022:
Loan portfolio segment:
Commercial Real Estate:
Substandard	$	—	$	—	$	11,241	$	11,241	$	—	$	11,241
Residential Real Estate:
Substandard	657		—		1,796		2,453		17		2,470
Commercial and Industrial:
Substandard	46		395		3,196		3,637		1,196		4,833
Consumer and Other:
Substandard	—		—		27		27		22		49
Total non-accruing loans	$	703	$	395	$	16,260	$	17,358	$	1,235	$	18,593

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. Past due status is based on contractual terms of the loan. In all cases, loans are placed on non-accrual status or charged-off, at an earlier date, if collection of principal or interest is considered doubtful.

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. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, future payments are reasonably assured, ~~and there is~~after at least six months of performance. Management considers all non-accrual loans and troubled debt restructurings to be impaired. In most cases, loan payments that are past due less than 90 days, based on contractual terms, are considered collection delays and not an indication of loan impairment.timely payment history. The Bank considers loans under $100,000 and consumer installment loans to be pools of smaller homogeneous loan balances, ~~which~~and therefore are collectively evaluated for impairment, and not individually measured for impairment.

If non-accrual loans had been performing in accordance with the original contractual terms, additional interest income (net of cash collected) of approximately $133,000 and $268,000 would have been recognized during the three and six months ended June 30, 2023, respectively. During the three and six months ended June 30, 2022, additional interest income (net of cash collected) of approximately $115,000 and $221,000 would have been recognized, respectively.

Interest income collected and recognized on non-accruing loans for the three and six months ended June 30, 2023 was $193,000 and $336,000, respectively. During the three and six months ended June 30, 2022, interest income collected and recognized on non-accruing loans was $114,000 and $204,000, respectively.

Table of Contents

PATRIOT NATIONAL BANCORP, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

Notes to ~~consolidated financial statements (unaudited)~~

Consolidated Financial Statements (Unaudited)

Individually Evaluated Loans

The following ~~tables summarize performing and non-performing~~table reflects information about the individually evaluated loans ~~receivable~~ by ~~portfolio segment, by aging category, by delinquency status~~class as of ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016.~~

(In thousands)

Performing (Accruing) Loans

As of September 30, 2017:

30 - 59
Days
Past Due

60 - 89
Days
Past Due

90 Days
or
Greater
Past Due

Total

Current

Total
Performing
Loans

Non-accruing
Loans

Loans
Receivable
Gross

Loan portfolio segment:

Commercial Real Estate:

Pass
$ 1,300 - - 1,300 277,475 278,775 - 278,775
Special Mention
652 - - 652 12,510 13,162 - 13,162
Substandard
- 1,699 - 1,699 2,989 4,688 - 4,688
1,952 1,699 - 3,651 292,974 296,625 - 296,625
Residential Real Estate:

Pass
556 364 1,447 2,367 145,170 147,537 - 147,537
Special Mention
- - - - 1,537 1,537 - 1,537
Substandard
- - - - - - 1,590 1,590
556 364 1,447 2,367 146,707 149,074 1,590 150,664
Commercial and Industrial:

Pass
1,799 500 2,500 4,799 112,088 116,887 - 116,887
Substandard
- - 500 500 - 500 286 786
1,799 500 3,000 5,299 112,088 117,387 286 117,673
Consumer and Other:

Pass
- 125 - 125 90,673 90,798 - 90,798
Substandard
- - - - - - 175 175
- 125 - 125 90,673 90,798 175 90,973
Construction:

Pass
- - - - 48,328 48,328 - 48,328

Construction to permanent - CRE:

Pass
- - - - 5,855 5,855 - 5,855

Total
$ 4,307 2,688 4,447 11,442 696,625 708,067 2,051 710,118

Loans receivable, gross:

Pass
$ 3,655 989 3,947 8,591 679,589 688,180 - 688,180
Special Mention
652 - - 652 14,047 14,699 - 14,699
Substandard
- 1,699 500 2,199 2,989 5,188 2,051 7,239
Loans receivable, gross
$ 4,307 2,688 4,447 11,442 696,625 708,067 2,051 710,118

2022:


(In thousands)	June 30, 2023						December 31, 2022
	Recorded Investment		Principal Outstanding		Related Allowance		Recorded Investment		Principal Outstanding		Related Allowance
With no related allowance recorded:
Commercial Real Estate	$	387	$	430	$	—	$	2,435	$	2,428	$	—
Residential Real Estate	732		872		—		2,402		2,224		—
Commercial and Industrial	1,859		2,223		—		1,939		2,424		—
Consumer and Other	—		—		—		514		514		—

	2,978		3,525		—		7,290		7,590		—
With a related allowance recorded:
Commercial Real Estate	10,981		10,955		6,387		8,806		8,656		5,430
Residential Real Estate	1,623		1,448		196		106		105		5
Commercial and Industrial	4,723		4,742		719		2,714		2,863		608

	17,327		17,145		7,302		11,626		11,624		6,043

Individually evaluated loans, Total:
Commercial Real Estate	11,368		11,385		6,387		11,241		11,084		5,430
Residential Real Estate	2,355		2,320		196		2,508		2,329		5
Commercial and Industrial	6,582		6,965		719		4,653		5,287		608
Consumer and Other	—		—		—		514		514		—

Total	$	20,305	$	20,670	$	7,302	$	18,916	$	19,214	$	6,043

Table of Contents

PATRIOT NATIONAL BANCORP, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

Notes to ~~consolidated financial statements (unaudited)~~

(In thousands)

Performing (Accruing) Loans

As of December 31, 2016:

30 - 59 Days
Past Due

60 - 89 Days
Past Due

90 Days
or
Greater Past Due

Total

Current

Total
Performing
Loans

Non-accruing
Loans

Loans
Receivable
Gross

Loan portfolio segment:

Commercial Real Estate:

Pass
$ - - - - 265,246 265,246 - 265,246
Special Mention
- - - - 4,531 4,531 - 4,531
Substandard
- - - - 1,452 1,452 - 1,452
- - - - 271,229 271,229 - 271,229
Residential Real Estate:

Pass
131 9 1,449 1,589 83,335 84,924 - 84,924
Substandard
- - - - - - 1,590 1,590
131 9 1,449 1,589 83,335 84,924 1,590 86,514
Commercial and Industrial:

Pass
47 4 - 51 60,692 60,743 - 60,743
Substandard
- - - - 3 3 231 234
47 4 - 51 60,695 60,746 231 60,977
Consumer and Other:

Pass
75 - 3 78 101,371 101,449 - 101,449

Construction:

Pass
- - - - 53,895 53,895 - 53,895

Construction to permanent - CRE:

Pass
- - - - 7,593 7,593 - 7,593

Total
$ 253 13 1,452 1,718 578,118 579,836 1,821 581,657

Loans receivable, gross:

Pass
$ 253 13 1,452 1,718 572,132 573,850 - 573,850
Special Mention
- - - - 4,531 4,531 - 4,531
Substandard
- - - - 1,455 1,455 1,821 3,276
Loans receivable, gross
$ 253 13 1,452 1,718 578,118 579,836 1,821 581,657

Consolidated Financial Statements (Unaudited)

~~PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY~~

~~Notes~~

The following table summarizes additional information regarding individually evaluated loans by class for the three and six months ended June 30, 2023 and 2022.


	Three Month Ended June 30,								Six Months Ended June 30,
(In thousands)	2023				2022				2023				2022
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	387	$	—	$	6,611	$	32	$	680	$	—	$	6,697	$	64
Residential Real Estate	748		24		2,818		10		992		27		2,829		18
Commercial and Industrial	2,046		68		607		2		2,181		150		614		5
Consumer and Other	128		—		520		4		293		—		521		9
Construction	579		—		—		—		993		—		—		—
	3,888		92		10,556		48		5,139		177		10,661		96
With a related allowance recorded:
Commercial Real Estate	10,405		—		8,843		40		10,651		154		8,858		65
Residential Real Estate	1,352		—		368		1		1,468		—		408		3
Commercial and Industrial	4,052		98		3,961		29		4,341		139		3,762		50
Consumer and Other	18		—		126		—		10		—		143		—
	15,827		98		13,298		70		16,470		293		13,171		118
Individually evaluated loans, Total:
Commercial Real Estate	10,792		—		15,454		72		11,331		154		15,555		129
Residential Real Estate	2,100		24		3,186		11		2,460		27		3,237		21
Commercial and Industrial	6,098		166		4,568		31		6,522		289		4,376		55
Consumer and Other	146		—		646		4		303		—		664		9
Construction	579		—		—		—		993		—		—		—
Total	$	19,715	$	190	$	23,854	$	118	$	21,609	$	470	$	23,832	$	214

For collateral dependent loans, appraisal reports of the underlying collateral have been obtained from independent licensed appraisal firms. For non-performing loans, the independently determined appraised values were first reduced by a 5.8% discount to ~~consolidated financial statements (unaudited)~~

~~Troubled Debt Restructurings~~~~(“TDR”~~reflect the Bank’s experience selling Other Real Estate Owned ("OREO")

properties, and were further reduced by 8% in selling costs, in order to estimate the potential loss, if any, that may eventually be realized. Performing loans are monitored to determine when, if at all, additional loan loss reserves may be required for a loss of underlying collateral value. For cash flow dependent loans, the Bank determined the reserve based on the present value of expected future cash flows discounted at the loan's effective interest rate.

Loans not requiring specific reserves had fair values exceeding the total recorded investment, supporting the net investment in the loan which includes principal balance, unamortized fees and costs and accrued interest, if any. Once a borrower is in default, Patriot is under no obligation to advance additional funds on unused commitments.

Loan Modifications Made to Borrowers Experiencing Financial Difficulty

On a case-by-case basis, Patriot may agree to modify the contractual terms of a borrower’s loan to assist customers who may be experiencing financial difficulty. ~~If the borrower is experiencing financial difficulties and a concession has been made, the loan is classified as a TDR.~~

There were no loans modified as TDRs and no defaults of TDRs during the three and nine months ended September 30, 2017 and 2016. At September 30, 2017 and December 31, 2016, there were no commitments to advance additional funds under TDRs.

Substantially all~~TDR~~ loan modifications involve lowering the monthly payments on such loans through either a reduction in interest rate below ~~the contract~~market rate, an extension of the term of the loan, or a combination of adjusting these two contractual attributes. ~~TDR loan~~Loan modifications may also result in the forgiveness of principal or accrued interest. In addition, when modifying commercial loans, Patriot frequently obtains additional collateral or guarantor support. If the borrower has performed under the existing contractual terms of the loan and Patriot’s underwriters determine that the borrower has the capacity to continue to perform under the terms of the ~~TDR,~~loan, the loan continues accruing interest. Non-accruing ~~TDRs~~modified loans may be returned to accrual status when there has been a sustained period of performance (generally six consecutive months of payments) and both principal and interest are reasonably assured of collection.

~~Impaired Loans~~

~~Impaired loans may consist~~

Table of ~~non-accrual loans and/or performing and non-performing TDRs.~~ As of September 30, 2017 and December 31, 2016, based on the on-going monitoring and analysis of the loan portfolio, impaired loans of $9.0 million and $8.9 million were identified, for which $285,000 and $231,000 specific reserves were established, respectively. Loans not requiring specific reserves had sufficient collateral values, less costs to sell, supporting the carrying amount of the loans. Once a borrower is in default, Patriot is under no obligation to advance additional funds on unused commitments.

At September 30, 2017 exposure to the $9.0 million of impaired loans was related to 12 borrowers. In all cases, appraisal reports of the underlying collateral, if any, have been obtained from independent licensed appraisal firms. For non-performing loans, the independently determined appraised values were reduced by an estimate of the costs to sell the assets, in order to estimate the potential loss, if any, that may eventually be realized. Performing loans are monitored to determine when, if at all, additional loan loss reserves may be required for a loss of underlying collateral value.

Contents

PATRIOT NATIONAL BANCORP, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

Notes to ~~consolidated~~Consolidated Financial Statements (Unaudited)

During the three and six months ended June 30, 2023 and 2022, the Company had no modified loans made to borrowers experiencing financial ~~statements (unaudited)~~

~~The following~~ ~~summarizes~~difficulty. There were no modified loans that had a payment default during the ~~investment~~three and six months ended June 30, 2023 and were modified in ~~outstanding principal balance~~the twelve months prior to that default to borrowers experiencing financial difficulty. As of ~~and the related allowance, if any, for impaired loans as of September~~June 30, ~~2017~~2023 and December 31, ~~2016:~~

(In thousands)

September 30, 2017

December 31, 2016

Recorded
Investment

Principal
Outstanding

Related
Allowance

Recorded
Investment

Principal
Outstanding

Related
Allowance

With no related allowance recorded:

Commercial Real Estate
$ 6,081 6,531 - 6,267 6,721 -
Residential Real Estate
1,904 1,935 - 1,911 2,915 -
Commercial and Industrial
- 503 - - - -
Consumer and Other
715 809 - 542 631 -
Construction
- 39 - - - -
8,700 9,817 - 8,720 10,267 -

With a related allowance recorded:

Commercial Real Estate
- - - - - -
Residential Real Estate
- - - - - -
Commercial and Industrial
285 285 285 231 231 231
Consumer and Other
- - - - - -
Construction
- - - - - -
285 285 285 231 231 231

Impaired Loans, Total:

Commercial Real Estate
6,081 6,531 - 6,267 6,721 -
Residential Real Estate
1,904 1,935 - 1,911 2,915 -
Commercial and Industrial
285 788 285 231 231 231
Consumer and Other
715 809 - 542 631 -
Construction
- 39 - - - -
Impaired Loans, Total
$ 8,985 10,102 285 8,951 10,498 231

2022, there were no commitments to advance additional funds under the modified loans.

Note 5. Loans Held for Sale

Loans held for sale represent the guaranteed portion of SBA loans originated and are reflected at the lower of aggregate cost or market value. As of June 30, 2023, SBA loans held for sale was $5.9 million, consisting of $2.3 million SBA commercial and industrial loans and $3.6 million SBA commercial real estate loans, respectively. There were $5.2 million of SBA loans held for sale at December 31, 2022, consisting of $3.1 million SBA commercial and industrial loans and $2.1 million SBA commercial real estate loans. During the three and six months ended June 30, 2023 and 2022, no SBA loans previously classified as held for sale were transferred to held for investment.

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. When sales of SBA loans do occur, the premium received on the sale and the present value of future cash flows of the servicing assets, less the discount of the retained portion of the loan are recognized in income.

Servicing assets represent the estimated fair value of retained servicing rights, net of servicing costs, at the time loans are sold. Servicing assets are amortized in proportion to, and over the period of, estimated net servicing revenues. Impairment will be evaluated based on stratifying the underlying financial assets by date of origination and term. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Any impairment, if temporary, would be reported as a valuation allowance.

Serviced loans sold to others are not included in the accompanying Consolidated Balance Sheets. The total amount of such loans serviced, but owned by third party, amounted to approximately $47.5 million and $47.3 million at June 30, 2023 and December 31, 2022, respectively. As of June 30, 2023 and December 31, 2022, the servicing asset has a carrying value of $882,000 and $886,000, respectively, and fair value of $977,000 and $1.0 million, respectively. Income and fees collected for loan servicing are credited to noninterest income when earned, net of amortization on the related servicing assets. The servicing asset is included in other assets on the Consolidated Balance Sheets.

The following table presents an analysis of the activity in the SBA servicing assets for the three and six months ended June 30, 2023 and 2022:


(In thousands)	Three Month Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Beginning balance	$	893	$	626	$	886	$	584
Servicing rights capitalized	24		79		58		131
Servicing rights amortized	(11)		(12)		(22)		(20)
Servicing rights disposed	(24)		(8)		(40)		(10)
Ending balance	$	882	$	685	$	882	$	685

Table of Contents

PATRIOT NATIONAL BANCORP, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

Notes to ~~consolidated financial statements (unaudited)~~

Consolidated Financial Statements (Unaudited)

Note 6. Business Combination, Goodwill and Other Intangible Assets

The ~~following~~ ~~tables summarize additional information regarding impaired loans~~Company completed its acquisition of Prime Bank in May 2018, and recorded goodwill balance was $1.1 million as of June 30, 2023 and December 31, 2022.

Goodwill is evaluated for impairment annually, in the ~~three~~fourth quarter of the year, or whenever we identify certain triggering events or circumstances that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Events or circumstances that might indicate an interim evaluation is warranted include, among other things, unexpected adverse business conditions, macro and ~~nine~~reporting unit specific economic factors, supply costs, unanticipated competitive activities, and acts by governments and courts.

The Company did not perform an interim goodwill test in the first six months ~~ended September 30, 2017 and 2016.~~

(In thousands)

Three Months Ended September 30,

2017

2016

Average
Recorded
Investment

Interest
Income
Recognized

Average
Recorded
Investment
��
Interest
Income
Recognized

With no related allowance recorded:

Commercial Real Estate
$ 6,111 10 6,428 77
Residential Real Estate
1,903 - 4,787 36
Commercial and Industrial
37 - 148 -
Consumer and Other
584 - 272 -
8,635 10 11,635 113
With a related allowance recorded:

Commercial Real Estate
- - - -
Residential Real Estate
- - - -
Commercial and Industrial
245 - 3,068 -
Consumer and Other
- - 2 -
245 - 3,070 -
Impaired Loans, Total:

Commercial Real Estate
6,111 10 6,428 77
Residential Real Estate
1,903 - 4,787 36
Commercial and Industrial
282 - 3,216 -
Consumer and Other
584 - 274 -
Impaired Loans, Total
$ 8,880 10 14,705 113

(In thousands)

Nine Months Ended September 30,

2017

2016

Average
Recorded
Investment

Interest
Income
Recognized

Average
Recorded
Investment

Interest
Income
Recognized

With no related allowance recorded:

Commercial Real Estate
$ 6,173 159 7,281 236
Residential Real Estate
1,907 5 4,666 98
Commercial and Industrial
46 - 74 -
Consumer and Other
558 10 409 9
8,684 174 12,430 343
With a related allowance recorded:

Commercial Real Estate
- - - -
Residential Real Estate
- - - -
Commercial and Industrial
237 - 2,278 -
Consumer and Other
- - 2 -
237 - 2,280 -
Impaired Loans, Total:

Commercial Real Estate
6,173 159 7,281 236
Residential Real Estate
1,907 5 4,666 98
Commercial and Industrial
283 - 2,352 -
Consumer and Other
558 10 411 9
Impaired Loans, Total
$ 8,921 174 14,710 343

of 2023 as no events occurred which would trigger an impairment assessment.

~~PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY~~

~~Notes to consolidated financial statements (unaudited)~~

Note 4:7. Deposits

The following table presents the balance of deposits held, by category as of ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016.~~

(In thousands)

September 30, 2017

December 31, 2016

Non-interest bearing
$ 76,875 $ 76,772
Interest bearing:

NOW
27,420 29,912
Savings
141,256 131,429
Money market
13,477 15,593
Certificates of deposit, less than $250,000
182,960 160,609
Certificates of deposit, $250,000 or greater
69,415 51,077
Brokered deposits
94,011 63,932
Interest bearing, Total
528,539 452,552

Total Deposits
$ 605,414 $ 529,324

2022.


(In thousands)	June 30, 2023		December 31, 2022
Non-interest bearing	$	127,817	$	269,636

Interest bearing:
Negotiable order of withdrawal accounts	37,970		34,440
Savings deposits	50,981		71,002
Money market deposits	298,717		211,000
Certificates of deposit, less than $250,000	182,680		165,793
Certificates of deposit, $250,000 or greater	56,088		59,877
Brokered deposits	109,126		48,698
Interest bearing, Total	735,562		590,810

Total Deposits	$	863,379	$	860,446

The prepaid debit card deposits are included in the non-interest-bearing deposits and money market deposits, which totaled approximately $158.1 million and $197.3 million as of June 30, 2023 and December 31, 2022, respectively.

As of June 30, 2023, contractual maturities of Certificates of Deposit (“CDs”), and brokered deposits is summarized as follows:


(In thousands)	CDs less than $250,000		CDs $250,000 or greater		Brokered Deposits		Total
1 year or less	$	136,053	$	45,467	$	104,517	$	286,037
More than 1 year through 2 years	29,447		9,362		4,358		43,167
More than 2 years through 3 years	4,887		1,259		251		6,397
More than 3 years through 4 years	496		—		—		496
More than 4 years through 5 years	11,797		—		—		11,797
	$	182,680	$	56,088	$	109,126	$	347,894

Table of Contents

PATRIOT NATIONAL BANCORP, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

Notes to ~~consolidated~~Consolidated Financial Statements (Unaudited)

Note 8. Derivatives

Derivatives Not Designated in Hedge Relationships

Patriot is a party to four interest rate swaps derivatives that are not designated as hedging instruments. Under a program, Patriot will execute interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers are simultaneously offset by interest rate swaps that Patriot executes with a third party, such that Patriot minimizes its net risk exposure resulting from such transactions. Because the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. The changes in the fair value of the swaps offset each other, except for the credit risk of the counterparties, which is determined by taking into consideration the risk rating, probability of default and loss given default for all counterparties.

Patriot entered into two initial interest rate swaps under the program in November 2018,and another two swaps were entered into in May 2019. As ofJune 30, 2023and December 31, 2022, Patriot did not have any cash pledged for collateral on its interest rate swaps.

The Company did not recognize any net gain or loss in other noninterest income on the Consolidated Statements of Operations during thethree and six months ended June 30, 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. InApril 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.

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 ~~statements (unaudited)~~

statement presentation purposes.

Information about the valuation methods used to measure the fair value of derivatives is provided in Note 513 to the Consolidated Financial Statements.

Table of Contents
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

The following table presents summary information regarding these derivatives for the periods presented (dollars in thousands):

(In thousands) Notional
Amount Maturity
(Years) Fixed Rate Variable
Rate Fair Value
June 30, 2023
Classified in Other Assets:
3rd party interest rate swap $ 4,680 5.84 5.25 % 1 Mo. LIBOR + 1.96% $ 146
3rd party interest rate swap 1,346 6.00 4.38 % 1 Mo. LIBOR + 2.00% 98

Classified in Other Liabilities:
Customer interest rate swap $ 4,680 5.84 5.25 % 1 Mo. LIBOR + 1.96% $ (146)
Customer interest rate swap 1,346 6.00 4.38 % 1 Mo. LIBOR + 2.00% (98)
December 31, 2022
Classified in Other Assets:
3rd party interest rate swap $ 4,736 6.30 5.25 % 1 Mo. LIBOR + 1.96% $ 106
3rd party interest rate swap 1,363 6.50 4.38 % 1 Mo. LIBOR + 2.00% 97

Classified in Other Liabilities:
Customer interest rate swap $ 4,736 6.30 5.25 % 1 Mo. LIBOR + 1.96% $ (106)
Customer interest rate swap 1,363 6.50 4.38 % 1 Mo. LIBOR + 2.00% (97)

Note 9. Share-Based Compensation and Employee Benefit Plan

~~The~~

In 2011, the Company ~~maintains~~adopted the Patriot National Bancorp, Inc. 2012 Stock Plan (the ~~“Plan”~~“2012 Plan”). The 2012 Plan was amended in 2020 and renamed as the Patriot National Bancorp, Inc. 2020 Restricted Stock Award Plan (the “2020 Plan”). A copy of the 2020 Plan was filed as Exhibit 10.1 to ~~provide~~the Company’s Amendment No. 1 to Annual Report on Form 10-K/A for the year ended December 31, 2020 filed on April 30, 2021. 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”), ~~options, or phantom stock units. Since 2013,~~which was approved and ratified by shareholders of the ~~Company’s practice is~~Company on December 14, 2022.

The 2020 Plan was amended primarily to ~~grant RSAs; as~~(i) reduce the total number of ~~September 30, 2017 and December 31, 2016, there were no options or phantom stock units outstanding, or that have been exercised during the period then ended.~~

~~The Plan provides~~shares authorized for ~~the~~ issuance ~~of up to~~thereunder from 3,000,000 shares to 400,000 shares; and (ii) limit the maximum number of ~~the~~shares of Company’s ~~common stock subject~~Common Stock granted during a single fiscal year to ~~certain limitations.~~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 ~~September~~June 30, ~~2017, 2,887,032~~2023, 234,617 shares of stock ~~are~~were available for issuance under the Plan. In accordance with the terms of the Plan, the vesting of RSAs ~~and options~~ may be accelerated at the discretion of the Compensation Committee of the Board of Directors. The Compensation Committee sets the terms and conditions applicable to the vesting of ~~RSAs and stock option grants.~~RSAs. 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. ~~During~~

Table of Contents

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The following is a summary of the ~~nine months ended September 30, 2017,~~status of the ~~Company granted 5,084 RSAs to directors and zero RSA to employees. During the nine months ended September 30, 2016, the Company granted 52,200~~Company’s restricted shares ~~to employees~~ and ~~5,884 restricted shares to directors, respectively. During~~changes for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, 1,692~~2023 and ~~3,923 shares of restricted stock became vested, 600 and 6,600 shares of restricted stock forfeited, respectively. All RSAs are non- participating grants.~~

2022:


Three months ended June 30, 2023:	Number of Shares Awarded	Weighted Average Grant Date Fair Value
Unvested at March 31, 2023	22,660	$7.11
Unvested at June 30, 2023	22,660	$7.11

Six months ended June 30, 2023:
Unvested at December 31, 2022	22,660	$7.11


Unvested at June 30, 2023	22,660	$7.11


Three months ended June 30, 2022	Number of Shares Awarded	Weighted Average Grant Date Fair Value
Unvested at March 31, 2022	21,468	$6.48
Granted	2,496	$17.25
Vested	(777)	$18.55

Unvested at June 30, 2022	23,187	$7.24

Six months ended June 30, 2022:
Unvested at December 31, 2021	21,468	$6.48
Granted	2,496	$17.25
Vested	(777)	$18.55

Unvested at June 30, 2022	23,187	$7.24

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 three and nine months ended September 30, 2017, the Company recognized share-based~~

Unrecognized compensation ~~expense of $37,000 and $105,000, respectively. The share-based compensation attributable to employees of Patriot amounted to $16,000 and $48,000, respectively.~~

~~For the three~~ months ended September 30, 2016, the Company recorded a net credit to share-based compensation expense of $182,000, and net expense of $126,000, for the nine months ended September 30, 2016. The share-based compensation attributable to employees of Patriot amounted to a net credit of $198,000 and net expense of $80,000 for the three and nine months ended September 30, 2016, respectively. The net credit was primarily due to the resignations of the Company’s Chief Executive Officer and the Chief Operating Officer in the third quarter of 2016.

~~Included in share-based compensation expense for the three and nine months ended September 30, 2017 were $~~21,000 and $57,000 attributable to Patriot’s external Directors, who received total compensation of $80,000 and $226,000 for each of those periods, respectively, which amounts are included in Other Operating Expenses in the Consolidated Statements of Income.

~~The share-based compensation expense for the three and~~ nine months ended September 30, 2016 were $16,000 and $46,000 attributable to Patriot’s external Directors, who received total compensation of $75,000 and $227,000 for each of those periods, respectively, which amounts are included in Other Operating Expenses in the Consolidated Statements of Income.

~~PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY~~

~~Notes to consolidated financial statements (unaudited)~~

~~The following is a summary of the status of the Company’s restricted shares as of September 30, 2017 and 2016 and changes therein during the periods indicated:~~

Three months ended September 30, 2017:

Number
of
Shares Awarded

Weighted Average
Grant Date
Fair Value

Unvested at June 30, 2017
32,117 $ 12.39
Vested
(1,692 ) $ 16.80
Forfeited
(600 ) $ 15.50
Unvested at September 30, 2017
29,825 $ 12.08

Nine months ended September 30, 2017:

Unvested at December 31, 2016
35,264 $ 12.84
Granted
5,084 $ 15.05
Vested
(3,923 ) $ 14.66
Forfeited
(6,600 ) $ 15.50
Unvested at September 30, 2017
29,825 $ 12.08

Three months ended September 30, 2016:

Number
of
Shares Awarded

Weighted Average
Grant Date
Fair Value

Unvested at June 30, 2016
107,199 $ 14.16
Vested
(1,688 ) $ 16.80
Forfeited
(65,500 ) $ 14.87
Unvested at September 30, 2016
40,011 $ 12.87

Nine months ended September 30, 2016:

Unvested at December 31, 2015
55,854 $ 12.83
Granted
58,084 $ 15.25
Vested
(4,214 ) $ 15.55
Forfeited
(69,713 ) $ 14.66
Unvested at September 30, 2016
40,011 $ 12.87

~~Compensation~~ expense attributable to the unvested restricted shares outstanding as of ~~September~~June 30, ~~2017 amounts~~2023 amounted to $~~321,000,~~$190,000, which amount is expected to be recognized over the weighted average remaining life of the awards of ~~2.27~~2.3 years.

For the three and six months ended June 30, 2023, the Company recognized total share-based compensation expense of $23,000 and $46,000, respectively. The share-based compensation attributable to employees of Patriot amounted to $14,000 and $28,000, respectively. Included in share-based compensation expense attributable to Patriot’s external directors, were $9,000 and $18,000, respectively. The directors received total compensation of $53,000 and $108,000 respectively, which amounts are included in other operating expenses in the consolidated statements of operations.

For the three and six months ended June 30, 2022, the Company recognized total share-based compensation expense of $20,000 and 41,000, respectively. The share-based compensation attributable to employees of Patriot amounted to $8,000 and $16,000, respectively. Included in share-based compensation expense were $12,000 and $25,000 attributable to Patriot’s external directors, who received total compensation of $37,000 and $100,000 for each of those periods, respectively.

Dividends

The Company has not paid any dividends since 2020 and has no present plans to pay dividends.

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PATRIOT NATIONAL BANCORP, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

Notes to ~~consolidated financial statements (unaudited)~~

~~RSA Grant - Non-executive Employees~~

~~On January 4, 2016,~~Consolidated Financial Statements (Unaudited)

Retirement Plan

Patriot offers employees participation in the ~~Company granted 100 restricted shares~~ of common stock to each of eighty-seven full- and part-time non-executive employees as of December 31, 2015. The total number of shares granted was 8,700 at a grant date fair value of $15.50 per share. The shares granted vest on January 2, 2019 and are non-participating during the vesting period.

~~During~~ the nine months ended September 30, 2017, 600 granted shares were forfeited. During the nine months ended September 30, 2016, 1,800 granted shares were forfeited. The remaining 6,300 shares continue to vest and $41,000 of compensation expense is expected to be recognized through the January 2019 vesting date.

~~Retirement~~Patriot Bank, N.A. 401(k) Savings Plan

~~The Company offers a 401K retirement plan~~ (the ~~“401K”~~"401(k) Plan"), which provides for tax-deferred salary deductions for eligible employees. Employees may choose to make voluntary contributions to the 401K, limited to an annual maximum amount as set forth periodically by under Section 401(k) of the Internal Revenue ~~Service.~~Code, along with the ROTH feature to the Plan. The ~~Company matches~~401(k) Plan covers substantially all employees who have completed one month of service, are 21 years of age and who elect to participate. Under the terms of the 401(k) Plan, participants can contribute up to the maximum amount allowed, subject to Federal limitations. At its discretion, Patriot may match eligible participating employee contributions at the rate of 50% of ~~such contributions, up~~the first 6% of the participants’ salary contributed to ~~a maximum of six percent~~.the 401(k) Plan. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, compensation expense under~~2023, Patriot made matching contributions to the ~~401K aggregated $37,000~~401(k) Plan of $82,000 and ~~$132,000,~~$157,000, respectively. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2022, compensation expense under the ~~401K~~401(k) aggregated ~~$39,000~~$67,000 and ~~$120,000,~~$141,000, respectively.

~~Dividends~~

~~On July 17, 2017, the Company announced its intention to begin making quarterly cash dividend payments. The first dividend of $0.01~~

Note 10. Earnings per share was announced for shareholders of record as of July 24, 2017 with a payment date of August 1, 2017. For the nine months ended September 30, 2017, the Company paid cash dividends of $39,000. No dividend was declared and paid for the nine months ended September 30, 2016. The next dividend payment is scheduled on November 10, 2017 for shareholders of record as of November 9, 2017.

~~PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY~~

~~Notes to consolidated financial statements (unaudited)~~

~~Note~~ 6:~~Earnings~~~~per share~~

The Company is required to present basic earnings per share and diluted earnings per share in its Consolidated Statements of ~~Income.~~Operations. Basic earnings per share amounts are computed by dividing net income by the weighted average number of shares of common ~~shares~~stock outstanding. Diluted earnings per share reflects additional shares of common ~~shares~~stock that would have been outstanding if potentially dilutive shares of common ~~shares~~stock had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential shares of common ~~shares~~stock that may be issued by the Company relate to outstanding unvested RSAs granted to directors and employees. The dilutive effect resulting from these potential shares is determined using the treasury stock method. The Company is also required to provide a reconciliation of the numerator and denominator used in the computation of both basic and diluted earnings per share.

The following table summarizes the computation of basic and diluted earnings per share for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016 follows.~~

(Net income in thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Basic earnings per share:

Net income attributable to Common shareholders
$ 1,013 814 3,547 885

Divided by:

Weighted average shares outstanding
3,894,237 3,958,718 3,893,702 3,957,343

Basic earnings per common share
$ 0.26 0.21 0.91 0.22

Diluted earnings per share:

Net income attributable to Common shareholders
$ 1,013 814 3,547 885

Weighted average shares outstanding
3,894,237 3,958,718 3,893,702 3,957,343

Effect of potentially dilutive restricted common shares
9,193 - 4,854 -

Divided by:

Weighted average diluted shares outstanding
3,903,430 3,958,718 3,898,556 3,957,343

Diluted earnings per common share
$ 0.26 0.21 0.91 0.22

2022:


(Net income in thousands)	Three Months Ended June 30,					Six Months Ended June 30,
	2023			2022		2023			2022
Basis (loss) earnings per share:
Net (loss) income attributable to Common shareholders	$	(615)		$	1,265	$	(1,314)		$	2,065
Divided by:
Weighted average shares outstanding	3,965,186			3,957,260		3,965,186			3,956,878

Basic (loss) earnings per share of common stock	$	(0.16)		$	0.32	$	(0.33)		$	0.52

Diluted (loss) earnings per share:
Net (loss) income attributable to Common shareholders	$	(615)		$	1,265	$	(1,314)		$	2,065

Weighted average shares outstanding	3,965,186			3,957,260		3,965,186			3,956,878

Effect of potentially dilutive restricted shares of common stock	—		(1)	9,819		—		(2)	8,395

Divided by:
Weighted average diluted shares outstanding	3,965,186			3,967,079		3,965,186			3,965,273

Diluted (loss) earnings per share of common stock	$	(0.16)		$	0.32	$	(0.33)		$	0.52


(1)			The weighted average diluted shares outstanding does not include 1,528 anti-dilutive restricted shares of common stock for the three months ended June 30, 2023.
(2)			The weighted average diluted shares outstanding does not include 427 anti-dilutive restricted shares of common stock for the six months ended June 30, 2023.

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PATRIOT NATIONAL BANCORP, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

Notes to ~~consolidated financial statements (unaudited)~~

Note 7:Consolidated Financial Statements (Unaudited)

Note 11. Financial Instruments with Off-Balance Sheet Risk

In the normal course of business, Patriot is a party to financial instruments with off-balance-sheet risk to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit and involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the balance sheet. The contractual amounts of these instruments reflect the extent of involvement Patriot has in particular classes of financial instruments.

The contractual amount of commitments to extend credit and standby letters of credit ~~represent~~srepresents the maximum amount of potential accounting loss should: the contract be fully drawn upon; the customer default; and the value of any existing collateral ~~becomes~~become worthless. Patriot applies its credit policies to entering commitments and conditional obligations and, as with its lending activates, evaluates each customer’s creditworthiness on a case-by-case basis. Management believes that it effectively mitigates the credit risk of these financial instruments through its credit approval processes, establishing credit limits, monitoring the on-going creditworthiness of recipients and grantees, and the receipt of collateral as deemed necessary.

Financial instruments with credit risk at ~~September~~June 30, ~~2017~~2023 and December 31, 2022 are as follows:

(In thousands)

As of September 30,
2017

Commitments to extend credit:

Unused lines of credit
$ 49,464
Undisbursed construction loans
10,433
Home equity lines of credit
20,177
Future loan commitments
21,938
Financial standby letters of credit
1,299
$ 103,311


(In thousands)	June 30, 2023		December 31, 2022
Commitments to extend credit:
Unused lines of credit	$	97,432	$	100,986
Undisbursed construction loans	4,849		12,000
Home equity lines of credit	29,134		26,878
Future loan commitments	300		14,365
Financial standby letters of credit	—		78
	$	131,715	$	154,307

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments to extend credit generally have fixed expiration dates or other termination clauses, and may require payment of a fee by the borrower. Since these commitments could expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary upon extending credit, is based on management’s credit evaluation of the customer. Collateral held varies, but may include commercial property, residential property, deposits and securities. Patriot has established ~~a $5,000 reserve~~an allowance for credit loss of $1.5 million and $8,000 as of ~~September~~June 30, ~~2017,~~2023 and December 31, 2022, respectively, which is included in accrued expenses and other liabilities.

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 Patriot to guarantee the performance of a customer to a third party. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers. Guarantees that are not derivative contracts are recorded at fair value and included in the Consolidated Balance Sheet.

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PATRIOT NATIONAL BANCORP, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

Notes to ~~consolidated financial statements (unaudited)~~

Consolidated Financial Statements (Unaudited)

Note 8:12. Regulatory and Operational Matters

Federal and ~~State~~state regulatory authorities have adopted standards requiring financial institutions to maintain increased levels of capital. Effective January 1, 2015, ~~Federal~~federal banking agencies imposed four minimum capital requirements on a community ~~bank~~’sbank’s risk-based capital ratios consisting of Total Capital, Tier 1 Capital, Common Equity Tier 1 (“CET1”) Capital, and a Tier 1 Leverage Capital ratio. The risk-based capital ratios measure the adequacy of a bank's capital against the riskiness of its on- and off-balance sheet assets and activities. Failure to maintain adequate capital is a basis for "prompt corrective action" or other regulatory enforcement action. In assessing a bank's capital adequacy, regulators also consider other factors such as interest rate risk exposure, liquidity, funding and market risks, quality and level of earnings, concentrations of credit, quality of loans and investments, nontraditional activity risk, policy effectiveness, and management's overall ability to monitor and control risk.

In September 2019, the community bank leverage ratio (“CBLR”) framework was jointly issued by the Federal Deposit Insurance Corporation ("FDIC"), the Office of the Comptroller of the Currency (“OCC”) and FRB. The final rule gives qualifying community banks the option to use a simplified measure of capital adequacy instead of risk based capital, beginning with their March 31, 2020 Call Report. Under the final rule a community bank may qualify for the CBLR framework if it has a Tier 1 leverage ratio of greater than 9%, less than $10 billion in total consolidated assets, and limited amounts of off-balance sheet exposures and trading assets and liabilities. The CARES Act directed the federal banking agencies to issue an interim rule temporarily lowering the CBLR ratio to 8% which the agencies did with a transition back to 9% beginning January 1, 2022.

Capital adequacy is one of the most important factors used to determine the safety and soundness of individual banks and the banking system. ~~Under~~A community bank which meets the ~~instituted regulatory~~leverage ratio requirement and other CBLR framework requirements will not be subject to other capital and leverage requirements and will be considered “well ~~capitalized”, a financial institution must generally have a Total Capital ratio of at least 10%, a~~capitalized.”

In September 2021, the Bank elected to adopt the CBLR framework. The Bank’s Tier 1 ~~Capital~~leverage ratio as of June 30, 2023 and December 31, 2022 was 8.54% and 9.27%, respectively. The required leverage ratio is 9.00% under the CBLR framework. The Bank continues to be classified as "well capitalized" under the CBLR framework as the leverage ratio remains above 8% and the Bank has elected to use the two-quarter grace period provided under the framework. Per the CBLR framework, at ~~least 8.0%~~the conclusion of the grace period (December 31, 2023), ~~a CET1 Capital ratio at least 6.5%,~~it is the Bank's intention to either meet all qualifying criteria to remain in the CBLR framework, or to comply with the generally applicable BASEL III capital rules and ~~a Tier 1 Leverage Capital ratio of at least 5.0%. However, regardless of a financial institution’s ratios,~~ the ~~OCC may require increased capital ratios or impose dividend restrictions based on the other factors it considers in assessing a bank’s capital adequacy.~~

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

~~PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY~~

~~Notes to consolidated financial statements (unaudited)~~

The ~~Company’s and the~~ Bank’s Community Bank Leverage Ratio regulatory capital amounts and ratios at ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016~~2022 are summarized as follows:

(In thousands)

Patriot National Bancorp, Inc.

Patriot Bank, N.A.

September 30, 2017

December 31, 2016

September 30, 2017

December 31, 2016

Amount
($)

Ratio
(%)

Amount
($)

Ratio
(%)

Amount
($)

Ratio
(%)

Amount
($)

Ratio
(%)

Total Capital (to risk weighted assets):

Actual
74,470 10.222 66,254 10.603 83,558 11.554 74,303 11.928
To be Well Capitalized⁽¹⁾
- - - - 72,320 10.000 62,292 10.000
For capital adequacy with Capital Buffer⁽²⁾
- - - - 66,896 9.250 53,727 8.625
For capital adequacy
58,280 8.000 49,989 8.000 57,856 8.000 49,834 8.000

Tier 1 Capital (to risk weighted assets):

Actual
68,240 9.367 61,571 9.854 77,328 10.692 69,620 11.176
To be Well Capitalized⁽¹⁾
- - - - 57,856 8.000 49,834 8.000
For capital adequacy with Capital Buffer⁽²⁾
- - - - 52,432 7.250 41,269 6.625
For capital adequacy
43,710 6.000 37,491 6.000 43,392 6.000 37,375 6.000

Common Equity Tier 1 Capital (to risk weighted assets):

Actual
60,240 8.269 53,571 8.573 77,328 10.692 69,620 11.176
To be Well Capitalized⁽¹⁾
- - - - 47,008 6.500 40,490 6.500
For capital adequacy with Capital Buffer⁽²⁾
- - - - 41,584 5.750 31,925 5.125
For capital adequacy
32,783 4.500 28,119 4.500 32,544 4.500 28,031 4.500

Tier 1 Leverage Capital (to average assets):

Actual
68,240 8.449 61,571 9.296 77,328 9.574 69,620 10.518
To be Well Capitalized⁽¹⁾
- - - - 40,384 5.000 33,096 5.000
For capital adequacy
32,308 4.000 26,494 4.000 32,308 4.000 26,477 4.000

⁽¹⁾

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


(In thousands)	June 30, 2023				December 31, 2022
Patriot Bank, N.A.	Amount		Ratio		Amount		Ratio
Tier 1 Leverage Capital (to average assets):
Actual	$	94,871	8.54	%	$	100,267	9.27	%

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

~~Under the final capital rules that became effective on January 1, 2015, there~~ was a requirement for a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets, which is in addition to the other minimum risk-based capital standards in the rule. 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 buffer requirement is being phased in over three years beginning in 2016.~~ ~~The 0.625% capital conversation buffer for 2016 has been included in the minimum~~ capital adequacy ~~ratios in the 2016 column in the table above. The capital conversation buffer increased~~only applies to ~~1.25% for 2017, which has been included in the minimum capital adequacy ratios in the 2017 column above.~~

insured depository institutions (the Bank).

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PATRIOT NATIONAL BANCORP, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

Notes to ~~consolidated financial statements (unaudited)~~

~~The capital buffer requirement effectively raises the minimum required~~ Total Capital ratio to 10.5%, the Tier 1 capital ratio to 8.5% and the CET1 capital ratio to 7.0% on a fully phased-in basis, which will be effective beginning on January 1, 2019. Management believes that, as of September 30, 2017, Patriot satisfies all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis, as if all such requirements were currently in effect.

Consolidated Financial Statements (Unaudited)

Note 9:13. Fair Value and Interest Rate Risk

~~The Company uses~~

Patriot measures the carrying value of certain financial assets and liabilities at fair value, ~~measurements to record fair value adjustments to~~as required by its policies as a financial institution and by US GAAP. The carrying values of certain assets and liabilities ~~and to determine~~are measured at fair value ~~disclosures.~~ Aon a recurring basis, such as available-for-sale securities; while other assets and liabilities are measured at fair value on a non-recurring basis due to external factors requiring management’s judgment to estimate potential losses of value resulting in asset impairments or the establishment of valuation reserves. Measuring assets and liabilities at fair value may result in fluctuations to carrying value that have a significant impact on the results of operations or other comprehensive income for the period and period over period.

Following is a detailed summary of the guidance provided by US GAAP regarding the application of fair value measurements and Patriot’s application thereof. Additionally, the following information includes detailed summaries of the effects fair value measurements have on the carrying amounts of asset and liabilities presented in the Consolidated Financial Statements.

The objective of fair value measurement is to value an asset that may be sold or a liability that may be transferred at the estimated value which might be obtained in a transaction between unrelated parties under current market conditions. US GAAP establishes a framework for measuring assets and liabilities at fair value, as well as certain financial instruments classified in equity. The framework provides a fair value hierarchy, ~~has been established that~~which prioritizes ~~the~~quoted prices in active markets for identical assets and liabilities and minimizes unobservable inputs, ~~used to measure fair value, requiring entities to maximize the use of observable inputs. Observable~~which are inputs ~~reflect~~for which market data ~~obtained from independent sources, while unobservable inputs generally require significant~~are not available and that are developed by management ~~judgment.~~

using the best information available to develop assumptions about the value market participants might place on the asset to be sold or liability to be transferred.

The three levels of the fair value hierarchy consist of:

~~Level 1~~

Unadjusted quoted market prices for identical assets or liabilities in active markets that the entity has the ability to access at the measurement date (such as active exchange-traded equity securities and certain U.S. and government agency debt securities).

~~Level 2~~

~~Observable inputs other than quoted prices included in Level 1, such as:~~

Level 1 - Unadjusted quoted market prices for identical assets or liabilities in active markets that the entity has the ability to access at the measurement date (such as active exchange-traded equity securities and certain U.S. and government agency debt securities).

Level 2 - Observable inputs other than quoted prices included in Level 1, such as:

–Quoted prices for similar assets or liabilities in active markets (such as U.S. agency and government sponsored mortgage-backed securities)

–Quoted prices for identical or similar assets or liabilities in less active markets (such as certain U.S. and government agency debt securities, and corporate and municipal debt securities that trade infrequently)

–Other inputs that are observable for substantially the full term of the asset or liability (i.e. interest rates, yield curves, prepayment speeds, default rates, etc.).

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).

–

~~Quoted prices for similar assets or liabilities in active markets (such as U.S. agency and government sponsored mortgage-backed securities)~~

–

Quoted prices for identical or similar assets or liabilities in less active markets (such as certain U.S. and government agency debt securities, and corporate and municipal debt securities that trade infrequently)

–

~~Other inputs that are observable for substantially the full term of the asset or liability (i.e. interest rates, yield curves, prepayment speeds, default rates, etc.).~~

~~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).~~

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 ~~instrument~~sinstruments not recorded at fair value, is set forth below.

Cash and due from banks ~~federal funds sold~~and accrued interest receivable and payable

The carrying amount is a reasonable estimate of fair value and accordingly these are classified as Level 1. These financial instruments are not recorded at fair value on a recurring basis.

~~Available-for-Sale Securities~~

Available-for-sale securities

The fair value of securities available for sale (carried at fair value) ~~and held to maturity (carried at amortized cost)~~ 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).

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PATRIOT NATIONAL BANCORP, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

Notes to ~~consolidated financial statements (unaudited)~~

Consolidated Financial Statements (Unaudited)

Other Investments

The ~~Bank~~’sBank’s investment portfolio includes the Solomon Hess SBA Loan Fund, ~~totaling $4.5 million. This investment~~which is utilized by the Bank to satisfy its Community Reinvestment Act (“CRA”) lending requirements. As this fund operates as a private fund, shares in the ~~Fund~~fund are not publicly traded ~~and therefore have no readily determinable market value. The investment in the Fund is reported in the Consolidated Financial Statements~~but may be redeemed with 60 days’ notice at cost.

For that reason, the carrying amount was considered comparable to fair value at both June 30, 2023 and December 31, 2022 due to its short-term nature.

Federal Reserve Bank Stock and Federal Home Loan Bank Stock

Shares in the ~~Federal Reserve Bank (“FRB”)~~FRB and ~~Federal Home Loan Bank (“FHLB”)~~FHLB are purchased and redeemed based upon their $100 par value. The stocks are non-marketable equity securities, and as such, are considered restricted securities that are carried at cost.

Loans

~~For variable rate loans, which~~ ~~periodically reprice with no apparent change in credit risk, carrying values, adjusted for credit losses inherent in the portfolios, are a reasonable estimate of fair value.~~

The fair value of ~~fixed rate loans~~loan portfolio is estimated by discounting the future cash flows using the ~~period-end~~ rates ~~estimated by using local market data,~~ at which similar loans would be made to borrowers with similar credit ratings and for the same remaining ~~maturities, adjusted for credit losses inherent in the portfolios.~~

~~Since individual loans do not trade on an open market and transfer of individual loans are private transactions that are not publicized,~~maturities. We estimate the fair value of ~~the~~our loan portfolio using an exit price notion resulting in prior periods no longer being comparable. The exit price notion requires determination of the price at which willing market participants would transact at the measurement date under current market conditions depending on facts and circumstances, such as origination rates, credit risk, transaction costs, liquidity, national and regional market trends and other adjustments, utilizing publicly available rates and indices. The application of an exit price notion requires the use of significant judgment.

Loans Held for Sale

The fair value of loans held for sale is estimated by using a market approach that includes prices for loans sold awaiting settlement and other observable inputs. 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 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 ~~fair value~~valuation hierarchy. ~~Patriot~~

Derivative asset (liability) - Interest Rate Swaps

The Company’s derivative assets and liabilities consist of transactions as part of management’s strategy to manage interest rate risk. The valuation of interest rate swap agreements does not ~~record loans at fair value~~contain any counterparty risk. The valuation of the Company’s interest rate swaps is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on ~~a recurring basis; however, from time to time, nonrecurring fair value adjustments to collateral-dependent impaired loans are recorded to reflect~~ the ~~net realizable value~~ expected ~~to be collected on default by the borrower~~cash flows of each derivative. The pricing analysis is based on observable ~~market~~ inputs ~~or current appraised~~for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The Company has determined that the inputs used to value of collateral held. Fair values estimated in this manner do not fully incorporate an exit-price approach, but instead are based on a comparison to current market rates for comparable loans, adjusted by management based on the best information available.

~~OREO~~

~~The fair value of~~ ~~other OREO the Bank may obtain is based on current appraised property value less estimated costs to sell. When the fair value is based on unadjusted current appraised values, OREO is classified~~its interest rate derivatives fall within Level 2 of the fair value hierarchy. ~~Patriot classifies OREO within Level 3 of the fair value hierarchy when unobservable inputs are used to determine adjustments to appraised values. Patriot does not record OREO at fair value~~See Note 8 for additional disclosures on ~~a recurring basis, but rather initially records OREO at fair value and then monitors property and market conditions that may indicate a change in value is warranted.~~

derivatives.

Deposits

The fair value of demand deposits, regular savings and certain money market deposits is the amount payable on demand at the reporting date.

The fair value of certificates of deposit and other time deposits is estimated using a discounted cash flow calculation that applies interest rates currently being offered for deposits of similar remaining maturities, estimated using local market data, to a schedule of aggregated expected maturities on such deposits.

~~The Company~~Patriot does not record deposits at fair value on a recurring basis.

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PATRIOT NATIONAL BANCORP, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

Notes to ~~consolidated financial statements (unaudited)~~

Consolidated Financial Statements (Unaudited)

Senior Notes, Subordinated Notes, and Junior Subordinated Debt

~~The senior notes were issued in December 2016~~ and ~~therefore the carrying value is considered comparable to fair value. Management~~Note Payable

Patriot does not ~~intend to measure the~~record senior notes at fair value on a recurring basis.

The fair value of the senior notes was estimated by discounting future cash flows at rates at which similar notes would be made. The carrying value is considered comparable to fair value.

Patriot does not record subordinated notes at fair value on a recurring basis. The fair value of the subordinated notes was estimated by discounting future cash flows at rates at which similar notes would be made. The carrying value is considered comparable to fair value.

Patriot does not record junior subordinated debt at fair value on a recurring basis. Junior subordinated debt reprices quarterly,, as a result, the carrying amount is considered a reasonable estimate of fair value.

The Company ~~does not record~~considers its own credit worthiness in determining the fair value of its senior notes, subordinated notes, notes payable and junior subordinated ~~debt at fair value on a recurring basis.~~

debt.

Federal Home Loan Bank ~~and Correspondent Bank~~ Borrowings

The

The fair value of FHLB advances is estimated using a discounted cash flow calculation that applies current FHLB interest rates for advances of similar maturity to a schedule of maturities of such advances. ~~The Company~~Patriot does not record ~~these borrowings~~FHLB advances at fair value on a recurring basis.

Off-balance sheet financial instruments

O~~ff-balance~~

Off-balance sheet financial instruments are based on interest rate changes and fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. ~~The Company~~Patriot does not record ~~its~~the off-balance-sheet financial instruments ~~at fair value~~ (i.e., commitments to extend credit) ~~on a recurring basis.~~

~~The following tables detail the financial assets measured~~ at fair value on a recurring ~~basis and the valuation techniques utilized relative to the fair value hierarchy, as~~basis.

Table of ~~September 30, 2017 and December 31, 2016:~~

(In thousands)

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)

Total

September 30, 2017:

U. S. Government agency mortgage-backed securities
$ - 8,036 - 8,036
Corporate bonds
- 13,905 - 13,905
Subordinated notes
- 5,610 2,035 7,645

Available-for-sale securities
$ - 27,551 2,035 29,586

December 31, 2016:

U. S. Government agency mortgage-backed securities
$ - 10,441 - 10,441
Corporate bonds
- 8,961 - 8,961
Subordinated notes
- 3,026 2,000 5,026

Available-for-sale securities
$ - 22,428 2,000 24,428

~~The table below presents the valuation methodology and unobservable inputs for level 3 assets measures at fair value on a non-recurring basis as of~~ ~~September 30, 2017 and December 31, 2016:~~

(In thousands)

Fair Value

Valuation Methodology

Unobservable Inputs

Range of Inputs

September 30, 2017:

Impaired loans
$ 8,985
Real Estate Appraisals

Discount for appraisal type
0% - 8%
OREO
851
Real Estate Appraisals

Discount for appraisal type
21%

December 31, 2016:

Impaired loans
$ 8,951
Real Estate Appraisals

Discount for appraisal type
0% - 8%
OREO
851
Real Estate Appraisals

Discount for appraisal type
21%

Contents

PATRIOT NATIONAL BANCORP, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

Notes to ~~consolidated financial statements (unaudited)~~

~~The Company~~ 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. Certain financial instruments are excluded from disclosure requirements and, accordingly, the aggregate fair value amounts presented do not necessarily represent the complete underlying value of the financial instruments included in the Consolidated Financial ~~Statements.~~

~~The estimated fair value amounts have been measured as~~ of September 30, 2017 and December 31, 2016 and have not been reevaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of the financial instruments measured may be different than if they had been subsequently valued.

~~The information presented should not be interpreted as an estimate of the~~ total fair value of the Company’s assets and liabilities, since only a portion of Patriot’s assets and liabilities are liabilities are required to be measured at fair value for financial reporting purposes. Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other bank holding companies may not be meaningful.

Statements (Unaudited)

The following table provides a comparison of the carrying amounts and estimated fair values of Patriot’s financial assets and liabilities as of ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016:~~

(In thousands)

September 30, 2017

December 31, 2016

Fair Value
Hierarchy

Carrying
Amount

Estimated
Fair Value

Carrying
Amount

Estimated
Fair Value

Financial Assets:

Cash and noninterest bearing balances due from banks
Level 1
$ 3,337 3,337 2,596 2,596
Interest-bearing deposits due from banks
Level 1
25,075 25,075 89,693 89,693
U. S. Government agency mortgage-backed securities
Level 2
8,036 8,036 10,441 10,441
Corporate bonds
Level 2
13,905 13,905 8,961 8,961
Subordinated Notes
Level 2
5,610 5,610 3,026 3,026
Subordinated Notes
Level 3
2,035 2,035 2,000 2,000
Other investments
Level 2
4,450 4,450 4,450 4,450
Federal Reserve Bank stock
Level 2
2,460 2,460 2,109 2,109
Federal Home Loan Bank stock
Level 2
6,353 6,353 5,609 5,609
Loans receivable, net
Level 3
703,896 699,764 576,982 576,757
Accrued interest receivable
Level 2
3,501 3,501 2,726 2,726

Financial assets, total
$ 778,658 774,526 708,593 708,368

Financial Liabilities:

Demand deposits
Level 2
$ 76,875 76,875 76,772 76,772
Savings deposits
Level 2
141,256 141,256 131,429 131,429
Money market deposits
Level 2
13,477 13,477 15,593 15,593
NOW accounts
Level 2
27,420 27,420 29,912 29,912
Time deposits
Level 2
252,375 251,966 211,686 210,321
Brokered deposits
Level 1
94,011 93,950 63,932 63,897
FHLB and correspondent bank borrowings
Level 2
130,000 130,214 138,000 138,149
Senior notes
Level 2
11,684 11,324 11,628 11,628
Subordinated debentures
Level 2
8,085 8,085 8,079 8,079
Note payable
Level 3
1,627 1,466 1,769 1,565
Accrued interest payable
Level 2
532 532 118 118

Financial liabilities, total
$ 757,342 756,565 688,918 687,463

2022:


(In thousands)		June 30, 2023				December 31, 2022
	Fair Value Hierarchy	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial Assets:
Cash and noninterest bearing balances due from banks	Level 1	$	2,320	$	2,320	$	5,182	$	5,182
Interest-bearing deposits due from banks	Level 1	68,489		68,489		33,311		33,311
Available-for-sale securities	Level 2	80,665		80,665		75,093		75,093
Available-for-sale securities	Level 3	9,882		9,882		9,427		9,427
Other investments	Level 2	4,450		4,450		4,450		4,450
Federal Reserve Bank stock	Level 2	2,523		2,523		2,627		2,627
Federal Home Loan Bank stock	Level 2	8,072		8,072		3,874		3,874
Loans receivable, net	Level 3	906,636		893,639		838,006		818,960
Loans held for sale	Level 2	5,860		6,320		5,211		5,534
SBA servicing assets	Level 3	882		977		886		1,013

Accrued interest receivable	Level 2	7,628		7,628		7,267		7,267
Interest rate swap receivable	Level 2	244		244		203		203

Financial assets, total		$	1,097,651	$	1,085,209	$	985,537	$	966,941

Financial Liabilities:
Demand deposits	Level 2	$	127,817	$	127,817	$	269,636	$	269,636
Savings deposits	Level 2	50,981		50,981		71,002		71,002
Money market deposits	Level 2	298,717		298,717		211,000		211,000
Negotiable order of withdrawal accounts	Level 2	37,970		37,970		34,440		34,440
Time deposits	Level 2	238,768		235,475		225,670		221,353
Brokered deposits	Level 1	109,126		108,641		48,698		47,684
FHLB and other borrowings	Level 2	207,000		205,964		85,000		83,853
Senior notes	Level 2	11,653		11,127		11,640		11,103
Subordinated debt	Level 2	9,854		9,826		9,840		9,680
Junior subordinated debt owed to unconsolidated trust	Level 2	8,132		8,132		8,128		8,128
Note payable	Level 3	481		455		585		544
Accrued interest payable	Level 2	1,117		1,117		585		585
Interest rate swap liability	Level 2	244		244		203		203

Financial liabilities, total		$	1,101,860	$	1,096,466	$	976,427	$	969,211

~~PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY~~

~~Notes to consolidated financial statements (unaudited)~~

The carrying amount of cash and noninterest bearing balances due from banks, interest-bearing deposits due from banks, and demand deposits approximates fair value, due to the short-term nature and high turnover of these balances. These amounts are included in the table above for informational purposes.

Table of Contents

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

In the normal course of its ~~operations, the Company~~operations, Patriot assumes interest rate risk ~~(the~~(i.e., the risk that general interest rate levels will ~~change)~~fluctuate). As a result, the fair ~~values~~value of ~~the Company’s~~Patriot’s financial assets and liabilities are affected when interest market rates change, which change may be either favorable or unfavorable. Management attempts to mitigate interest rate risk by matching the maturities of its financial assets and liabilities. However, borrowers with fixed rate obligations are less likely to prepay their obligations in a rising interest rate environment and more likely to prepay their obligations in a falling interest rate environment. Conversely, depositors receiving fixed rates are more likely to withdraw funds before maturity in a rising interest rate environment and less likely to do so in a falling interest rate environment. Management monitors market rates of interest and the maturities of its financial assets and financial liabilities, adjusting the terms of new loans and deposits in an attempt to minimize interest rate risk. Additionally, management mitigates its overall interest rate risk through its available funds investment strategy.

~~Off-balance sheet instruments~~

~~Loan commitments~~

The following tables detail the financial assets measured at fair value on ~~which~~a recurring basis and the ~~committed interest rate is less than~~valuation techniques utilized relative to the ~~current market rate~~ ~~were insignificant at September~~fair value hierarchy, as of June 30, ~~2017~~2023 and December 31, ~~2016.~~ 2022:


(In thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
June 30, 2023:
U. S. Government agency and mortgage-backed securities	$	—	$	67,248	$	—	$	67,248
Corporate bonds	—		3,373		9,882		13,255
Subordinated notes	—		4,236		—		4,236
SBA loan pools	—		5,326		—		5,326
Municipal bonds	—		482		—		482
Available-for-sale securities	$	—	$	80,665	$	9,882	$	90,547

Interest rate swap receivable	$	—	$	244	$	—	$	244

Interest rate swap liability	$	—	$	244	$	—	$	244

December 31, 2022:
U. S. Government agency and mortgage-backed securities	$	—	$	59,046	$	—	$	59,046
Corporate bonds	—		5,228		9,427		14,655
Subordinated notes	—		4,602		—		4,602
SBA loan pools	—		5,718		—		5,718
Municipal bonds	—		499		—		499
Available-for-sale securities	$	—	$	75,093	$	9,427	$	84,520

Interest rate swap receivable	$	—	$	203	$	—	$	203

Interest rate swap liability	$	—	$	203	$	—	$	203

Patriot measures certain financial assets and financial liabilities at fair value on a non-recurring basis. When circumstances dictate (e.g., impairment of long-lived assets, other than temporary impairment of collateral value), the carrying values of such financial assets and financial liabilities are adjusted to fair value or fair value less costs to sell, as may be appropriate.

As of June 30, 2023 and December 31, 2022, four corporate bonds were classified as Level 3 instruments. The fair values of these securities were determined using a present value approach. The discount rate assumed was determined based on unobservable inputs in a pricing model. During the three and six months ended June 30, 2023 and 2022, the Company had no transfers into or out of Levels 1, 2 or 3.

Table of Contents

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The reconciliation of the beginning and ending balances during 2023 for Level 3 available-for-sale securities is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2023		2022		2023		2022
Level 3 fair value, beginning of year	$	10,205	$	11,237	$	9,427	$	13,180
Purchases	—		—		—		—
Realized gain (loss)	—		—		—		—
Unrealized gain (loss)	(323)		(895)		455		(2,838)
Transfers in and /or out of Level 3	—		—		—		—
Level 3 fair value, end of year	$	9,882	$	10,342	$	9,882	$	10,342

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 June 30, 2023 and December 31, 2022:


(In thousands)	Fair Value		Valuation Methodology	Unobservable Inputs	Range of Inputs
June 30, 2023:
Impaired loans, net	$	13,003	Real Estate Appraisals	Discount for appraisal type	5.8	%	-	20%

SBA servicing assets	977		Discounted Cash Flows	Market discount rates	14.73	%	-	14.90%

December 31, 2022:
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%

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. Certain financial instruments are excluded from disclosure requirements and, accordingly, the aggregate fair value amounts presented do not necessarily represent the complete underlying value of financial instruments included in the consolidated financial statements.

The estimated fair value amounts have been measured as of ~~fee income on letters of credit at September~~June 30, ~~2017~~2023 and December 31, ~~2016 was insignificant.~~

~~Note 10:~~ ~~Pending~~~~Merger~~2022, and ~~Acquisition~~

On August 1, 2017, a definitive merger agreement (“Merger Agreement”) was entered into by and among the Company, Patriot Bank, Prime Bank, a Connecticut bank headquartered in Orange, CT (“Prime Bank”) (PMHV:US) and a stockholder representativehave not been reevaluated or updated for purposes of ~~Prime Bank. Pursuant~~these consolidated financial statements subsequent to ~~the Merger Agreement, Prime Bank will merge into Patriot Bank and existing stockholders of Prime Bank will receive aggregate cash consideration (“Merger Consideration”) equal to 115% of Prime Bank~~’s tangible book value as of the closing date which is anticipated to be in the fourth quarter 2017. Moreover, all outstanding stock options of Prime Bank will be settled by cash payment in an amount equal to the amount by which the per share Merger Consideration exceeds the exercise price of each stock option.

The acquisition will enable Patriot to expand its consumer and small business relationships, lending operations, and community presence, all of which will improve key operating metrics. This transaction was approved by the shareholders of Prime Bank on October 17, 2017 and is also subject to customary regulatory approval. Upon closing, the acquisition will result in a new Patriot branch located in the Town of Orange, New Haven County, Connecticut.

~~Patriot is still evaluating~~those respective dates. As such, the estimated fair values of the ~~assets to~~financial instruments measured may be ~~acquired and the liabilities to~~different than if they had been subsequently valued.

The information presented should not be ~~assumed. Accordingly, the amount of any goodwill and other intangible assets to be recognized in the connection with this transaction,~~interpreted as ~~well as acquisition costs incurred and expected to be incurred, are also yet to be determined.~~ The Company incurred $39,000 of merger and acquisition expenses related to the Prime Bank merger for the nine months ended September 30, 2017. The Company anticipates that it will incur approximately $500,000 of additional merger and acquisition expenses.

~~The effect~~an estimate of the ~~merger is expected to be reflected in Patriot’s results beginning with the fourth quarter~~total fair value of ~~2017.~~

~~PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY~~

~~Notes to consolidated financial statements (unaudited)~~

~~Note~~ 11~~: Recent Accounting Pronouncements~~

~~Recently Issued Accounting Standards Updates~~

~~ASU 2014-09~~

~~In May 2014,~~ ~~the Financial Accounting Standards Board (“FASB”) issued~~ ~~Accounting Standards Update (“ASU”) 2014-09,~~ ~~Revenue from Contracts with Customers~~~~. This update will replace all current U.S. GAAP related to revenue recognition~~Patriot’s assets and ~~will eliminate all industry-specific guidance.~~ ~~During 2016, the update was further clarified by ASU 2016-08~~ ~~Revenue from~~ C~~ontracts with~~ C~~ustomers~~: ~~Principle versus Agent Considerations~~; ~~ASU2016-10,~~ ~~Revenue from Contracts with Customers~~: ~~Identifying Performance Obligations~~liabilities, since only a portion of Patriot’s assets and ~~Licensing~~~~and ASU 2016-12~~ ~~Revenue from Contracts with Customers~~: ~~Narrow-Scope Improvements and Practical Expedients.~~ In July 2015, the FASB affirmed its proposal to defer the effective date of this new standard. As a result, public companies will apply the new revenue standard to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The core principle of the new guidance is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The banking industry does not expect significant changes because major sources of revenueliabilities are from financial instruments that have been excluded from the scope of the new standard, (including loans, debt and equity securities, etc.). However, these new standards affect other fees charged by banks, such as asset management fees, credit card interchange fees, deposit account fees, etc. Adoption may be made on a full retrospective basis with practical expedients, or on a modified retrospective basis with a cumulative effect adjustment. Management continues to assess the impact that this guidance may have on its Consolidated Financial Statements with respect to new transactions entered into through the course of normal operations. Except for additional disclosures that are required management has determined that ASU 2014-09 will not have a material impact on its financial condition or results of operations with respect to its normal and customary operations, but continues to monitor potential impacts that may occur as it explores additional transactions and opportunities.

~~ASU 2016-01~~

~~In January 2016, the FASB issued ASU 2016-01,~~~~Financial Instruments - Overall~~~~. ASU 2016-01 requires equity investments,~~ ~~excluding equity investments that are consolidated or accounted for under the equity method of accounting,~~ to be measured at fair value ~~with changes~~for financial reporting purposes. Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between Patriot’s fair value ~~recognized in net income. The ASU simplifies the impairment assessment~~disclosures and those of ~~equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, and a measurement~~other bank holding companies may not be meaningful.

Table of the investment at fair value only when impairment is qualitatively identified to exist. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is not permitted. Management is currently assessing the potential impact ASU 2016-01 will have on its financial statements, but does not expect a material impact on its financial condition or results of operations.

~~ASU 2016-02~~

~~In February 2016, the FASB issued ASU No. 2016-02,~~~~Leases.~~ This ASU increases transparency and comparability among organizations by requiring the recognition of leased assets and lease liabilities on the balance sheet, and the disclosure of key information about leasing arrangements. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. ~~Management is currently evaluating the impact of the new standard on its Consolidated Financial Statements.~~

Contents

~~PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY~~

~~Notes to consolidated financial statements (unaudited)~~

~~ASU 2016-13~~

~~In June 2016, the FASB issued ASU 2016-13,~~ ~~Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments.~~~~The ASU changes the methodology for measuring credit losses on financial instruments~~ measured at amortized cost to a current expected loss (“CECL”) model. Under the CECL model, entities will 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 will 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. Management is currently evaluating the impact that the standard will have on its Consolidated Financial Statements.

~~ASU 2016-15~~

In ~~August 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows~~: ~~Classification of Certain Cash Receipts and Cash Payments~~.ASU 2016-15 addresses the classification of certain specific transactions presented on the Statement of Cash Flows, in order to improve consistency across entities. Debt prepayment or extinguishment, debt-instrument settlement, contingent consideration payments post-business combination, and beneficial interests in securitization transactions are specific items addressed by this ASU that may affect the Bank. Additionally, the ASU codifies the predominance principle for classifying separately identifiable cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. ~~Management is currently evaluating the impact that the standard will have on its Consolidated Financial Statements.~~

~~ASU 2016-18~~

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Statement of Cash Flows:~~~~Restricted Cash.~~The purpose of the standard is to improve consistency and comparability among companies with respect to the reporting of changes in restricted cash and cash equivalents on the Statement of Cash Flows. The ASU requires the Statement of Cash Flows to include all changes in total cash and cash equivalents, including restricted amounts, and to the extent restricted cash and cash equivalents are presented in separate line items on the Balance Sheet, disclosure reconciling the change in total cash and cash equivalents to the amounts shown on the Balance Sheet are required. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. As of September 30, 2017 and December 31, 2016, Patriot does not have restricted cash and cash equivalents separately disclosed on its Balance Sheet. In the future, if Patriot’s activities warrant presenting separate line items on its Balance Sheet for restricted cash and cash equivalents, management does not envision any difficulties implementing the requirements of ASU 2016-18, as applicable.

~~PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY~~

~~Notes to consolidated financial statements (unaudited)~~

~~ASU 2017-08~~

~~In March 2017, the FASB issued ASU 2017-08,~~ ~~Premium Amortization on Purchased Callable Debt Securities~~, which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Earlier application is permitted for all entities, including adoption in an interim period. If an entity early adopts the ASU in an interim period, any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. The Company has not yet determined the impact the adoption of ASU 2017-08 will have on the consolidated financial statements.

~~ASU 2017-09~~

~~In May 2017, the FASB issued ASU 2017-09,~~ ~~Scope of Modification Accounting~~, which provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718 Stock compensation. The ASU is effective all entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period. Management is currently evaluating the impact that the standard will have on its Consolidated Financial Statements.

Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations

"~~SAFE HARBOR" STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF~~Safe Harbor" Statement Under Private Securities Litigation Reform Act of 1995

This Quarterly Report on Form 10-Q contains statements that relate to future events and expectations and, as such, constitute forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Certain statements, ~~contained~~other than purely historical information, including estimates, projections, statements relating to our strategies, outlook, business and financial prospects, business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Forward-looking statements are not guarantees of future performance. Although Patriot believes that the expectations reflected in ~~the Company’s public~~ any forward-looking statements ~~including this one,~~are based on reasonable assumptions, these expectations may not be attained and ~~in particular in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”~~it is possible that actual results may ~~be forward looking and subject~~differ materially from those indicated by these forward-looking statements due to a variety of risks, uncertainties and ~~uncertainties. These~~changes in circumstances, many of which are beyond Patriot’s control.

Many possible events or factors could affect Patriot’s future financial results and performance and could cause the actual results, performance or achievements of Patriot to differ materially from any anticipated results expressed or implied by such forward-looking statements. Such risks and uncertainties include, ~~but are not limited to:~~ among others:

(1)changes in prevailing interest rates which would affect the interest earned on the Company’s interest earning assets and the interest paid on its interest bearing liabilities;

(2)the timing of ~~repricing~~re-pricing of the Company’s interest earning assets and interest bearing liabilities;

(3)the effect of changes in governmental monetary policy;

(4)the effect of changes in regulations applicable to the Company and the Bank and the conduct of its business;

(5)changes in competition among financial service companies, including possible further encroachment of non-banks on services traditionally provided by banks;

(6)the ability of competitors that are larger than the Company to provide products and services which it is impracticable for the Company to provide;

(7)the state of the economy and real estate values in the Company’s market areas, and the consequent effect on the quality of the Company’s loans;

(8)demand for loans and deposits in our market area;

(9)recent governmental initiatives that are expected to have a profound effect on the financial services industry and could dramatically change the competitive environment of the Company; ~~(9)~~

(10)other legislative or regulatory changes, including those related to residential mortgages, changes in accounting standards, and Federal Deposit Insurance Corporation (“FDIC”) premiums that may adversely affect the Company; ~~(10)~~

(11)the application of generally accepted accounting principles in the United States of America (“U.S. GAAP”), consistently applied; ~~(11)~~

(12)the fact that one period of reported results may not be indicative of future periods; ~~(12)~~

(13)the state of the economy in the greater New York metropolitan area and its particular effect on the Company's customers, vendors and communities and ~~(13)~~ other such factors, including risk factors, as may be described in the Company’s other filings with the ~~SEC.~~

~~Although~~ Securities and Exchange Commission (the “SEC”);

(14)political, social, legal and economic instability, civil unrest, war, catastrophic events, acts of terrorism;

(15)possible future outbreaks of infectious diseases, including the ~~Company believes~~ongoing novel coronavirus (COVID-19) outbreak;

(16)changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses;

(17)our ability to access cost-effective funding;

(18)our ability to implement and change our business strategies;

(19)changes in the quality or composition of our loan or investment portfolios;

(20)technological changes that may be more difficult or expensive than expected;

(21)our ability to manage market risk, credit risk and operational risk in the current economic environment;

(22)our ability to enter new markets successfully and capitalize on growth opportunities;

(23)changes in consumer spending, borrowing and savings habits;

(24)our ability to retain key employees;

(25)our compensation expense associated with equity allocated or awarded to our employees; and

(26)the premiums paid for the guaranteed portion of SBA loans by third party investors

Table of Contents

The risks and uncertainties included here are not exhaustive. In addition to those included herein further information concerning our business, including additional factors that could materially affect our financial results, is included in our other filings with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”). Further, it ~~offers~~is not possible to assess the ~~loan and deposit products and has~~effect of all risk factors on our business or the ~~resources needed for continued success, future revenues and interest spreads and yields cannot be reliably predicted. These trends~~extent to which any factor, or combination of factors, may cause ~~the Company~~actual results to ~~adjust its operations~~differ materially from those contained in ~~the future. Because of the foregoing~~any forward-looking statements. Given these risks and ~~other factors, recent trends~~uncertainties, investors should not ~~be considered reliable indicators~~place undue reliance on forward-looking statements as a prediction of ~~future financial results~~actual results. In addition, we disclaim any obligation to update any forward-looking statements to reflect events or ~~stock prices.~~

~~CRITICAL ACCOUNTING POLICIES~~

circumstances that occur after the date of this report.

Critical Accounting Policies

The preparation of consolidated financial statements in accordance with U.S. ~~generally accepted accounting principles~~GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and to disclose contingent assets and liabilities. Actual results could differ from those estimates. Management has identified the accounting for the allowance for loan and lease losses, the analysis and valuation of its investment securities, ~~and~~ the valuation of deferred tax assets, the impairment of goodwill, the valuation of derivatives, and the valuation of servicing assets as certain of the Company’s most critical accounting policies and estimates in that they are important to the portrayal of the Company’s financial condition and results of operations. They require management’s most subjective and complex judgment as a result of the need to make estimates about the effect of matters that are inherently uncertain. Refer to the ~~Company’s Annual Report on~~2022 Form 10-K ~~filed with the Securities and Exchange Commission on March 31, 2017~~ for additional information.

Summary

~~Summary~~

The Company reported net ~~income for the third quarter~~loss of ~~2017 of $1,013,000~~$615,000 ($~~0.26 basic and diluted earnings per share) compared to a net income of $814,000 ($0.21~~0.16 basic and diluted loss per share) for the quarter ended ~~September~~June 30, ~~2016. On~~2023, compared to a ~~pre-tax basis, the Company earned $1.7 million for the three month period ended September 30, 2017, an increase of $339,000 over the third quarter of 2016.~~

~~For the~~ ~~nine months ended September 30, 2017, the Company reported~~ net income of ~~$3.5~~$1.3 million ($~~0.91 basic and diluted earnings per share) compared to net income of $885,000 ($0.22~~0.32 basic and diluted earnings per share) for the ~~nine~~quarter ended June 30, 2022.

For the six months ended ~~September~~June 30, ~~2016, an increase~~2023, net loss was $1,314,000, or $(0.33) basic and diluted loss per share, compared to a net income of ~~$2.66 million.~~

~~The comparative results~~$2.1 million, ($0.52 basic and diluted earnings per share) for the ~~nine month period~~six months ended ~~September~~June 30, ~~2016~~2022.

The first half year of 2023 financial results were adversely impacted by an elevated provision for credit losses of $3.5 million, compared to provision of $275,000 for loan losses recorded for the first half year of 2022, and ~~2017 were~~the impact of lower net interest margin which was affected by ~~a troubled~~the higher funding costs resulting from the recent uncertainty in the banking sector.

The Bank reported steady loan ~~that was ultimately resolved. In June 2016,~~growth of 6% in the ~~Bank recorded a significant~~second quarter of 2023, compared to the loan ~~loss provision~~growth of ~~$1.96 million related to this loan, but aggressively worked towards a recovery, which was successfully accomplished~~3.6% in the first quarter of ~~2017.~~

~~Excluding~~2023 while net interest income was unchanged from the ~~impact~~second quarter of 2022 and 4% below the ~~loan loss provision~~ ~~(credit) (which~~first quarter of 2023.

FINANCIAL CONDITION

Total assets increased $114.3 million to $1.2 billion as of June 30, 2023, compared to $1.0 billion at December 31, 2022, primarily included loan losses and recoveries related to this loan), Patriot’s net income for the nine-month period ending September 30, 2017 was 30% higher than the same period in 2016. These results are the by-product of aggressive value-enhancing strategies that have been underway over the past year.

The following table represents a reconciliation of the reported net income to the net income excluding loan loss provision for the three and nine months ended September 30, 2017 and 2016. The table is reported in a format that is not in compliance with Generally Accepted Accounting Principles (non-GAAP) but is beneficial to the reader and provides enhanced comparability due to the ~~loan loss~~increases in cash of $32.3 million and ~~subsequent loan recovery associated with the troubled loan described previously. Company management finds this measure useful when assessing the period to period change in core performance~~loans receivable of ~~the business.~~

(In thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Net Income excluding Loan Loss Provision (credit)

Net income reported
$ 1,013 $ 814 $ 3,547 $ 885
Tax provision
658 518 2,373 570
Loan loss provision (credit)
545 355 (944 ) 2,314

Pre-tax income reported
$ 1,671 1,332 5,920 1,455
Pre-tax income excluding loan loss provision
2,216 1,687 4,976 3,769
Net income excluding loan loss provision (credit)
1,343 1,031 2,981 2,292

~~Total assets increased $70~~$82.4 million ~~or 9%,~~as of June 30, 2023.

Cash and Cash Equivalents

Cash and cash equivalents increase from ~~$756.7~~$38.5 million at December 31, ~~2016~~2022 to ~~$826.7~~$70.8 million at ~~September~~June 30, ~~2017.~~

●

~~Cash and cash equivalents decreased $63.9 million or 69%, from $92.3 million at December 31, 2016 to $28.4 million at September 30, 2017, as the availability of~~ ~~a variety of funding strategies negated the need to maintain cash and cash equivalents on the balance sheet.~~

●

2023. The ~~net loan portfolio increased $126.9 million or 22%, from $577.0~~ ~~million at December 31, 2016 to $703.9 million at September 30, 2017.~~

~~Total liabilities increased $66.3 million or 10%, from $694.1 million at December 31, 2016 to $760.4 million at September 30, 2017.~~

●

~~Deposits increased $76.1 million or 14.4%, from $529.3 million to $605.4 million.~~

●

~~Following historical seasonal trends, non-interest bearing deposits increased by $103,000 or 0.1%.~~

●

Interest bearing deposits increased $75.9 million or 16.8%, mostly relating to increases of $40.7 million or 19.2% in Certificates of deposits, $30.1 million or 47.1% in brokered deposits, $9.9 million or 7.5% in Savings accounts, partially offset by decreases of $2.5 million or 8.4% in NOW and $2.1 million or 13.5% in Money Market accounts, respectively.

Equity increased $3.7 million or 6%, from $62.6 million at December 31, 2016 to $66.3 million at September 30, 2017, primarily due to $3.5 million of year-to-date net income, $105,000 of equity compensation, and $129,000 of investment portfolio unrealized gains.

~~Financial Condition~~

~~Cash and Cash Equivalents~~

~~Cash and cash equivalents decreased $~~63.9 million, from $92.3 million at December 31, 2016 to $28.4 million at September 30, 2017. The Company funded $73.0 million in purchases of loans, $53.4 million in net originations of loans receivable, and $20.6 million in purchases of available-for-sale securities. The effect of these outlays was partially offset by a $76.1 million increase in ~~deposits, and $15.5 million~~2023 reflects the intention to boost balance sheet liquidity in connection with recent uncertainty in the banking sector.

Table of ~~proceeds from sales and principal repayments on available for sale securities, and $4.6 million in net cash provided by operations during the period.~~

Contents

Investments

The following table is a summary of the ~~Company’s available-for-sale~~Company’s investment securities portfolio, at fair value, at the dates shown:

September 30,

December 31,

Inc/(Dec)

Inc/(Dec)

(In thousands)

2017

2016

($)
(%)
U. S. Government agency mortgage-backed securities
$ 8,036 10,441 (2,405 ) (23.03 )%
Corporate bonds
13,905 8,961 4,944 55.17 %
Subordinated notes
7,645 5,026 2,619 52.11 %
Total Available-for-Sale Securities
$ 29,586 24,428 5,158 21.12 %

~~Available-for-sale securities~~


	June 30,		December 31,		Increase /(Decrease)
(In thousands, except per share amounts)	2023		2022		($)		(%)

U. S. Government agency and mortgage-backed securities	$	67,248	$	59,046	$	8,202	13.89	%
Corporate bonds	13,255		14,655		(1,400)		-9.55	%
Subordinated notes	4,236		4,602		(366)		-7.95	%
SBA loan pools	5,326		5,718		(392)		-6.86	%
Municipal bonds	482		499		(17)		-3.41	%
Total available-for-sale securities, at fair value	90,547		84,520		6,027		7.13	%

Other investments, at cost	4,450		4,450		—		—	%

Total investment securities	$	94,997	$	88,970	$	6,027	6.77	%

Total investments increased $~~5.2~~by $6.0 million, ~~or 21.1%,~~ from ~~$24.4~~$89.0 million at December 31, ~~2016~~2022 to ~~$29.6~~$95.0 million at ~~September~~June 30, ~~2017. This~~2023. The increase in the six months ended June 30, 2023 was primarily attributable to ~~the~~an increase in purchase of ~~$2.5~~available-for-sale securities of $10.4 million, ~~subordinated notes, purchase of $4.0 million Government agency mortgage-backed securities, and purchase of $5.0 million corporate bonds,~~ which was partially offset by repayment of available-for-sale securities totaling $2.2 million. During the ~~sale~~six months ended June 30, 2023, the Bank sold available-for-sale securities of ~~approximate $6.4~~$1.8 million and recognized a net gain of Government agency mortgage-backed securities and repayments of principal on the same securities. In addition, the Company received $9.0 million from sales of corporate bonds, which was offset by a purchase of a different set of $9.0 million corporate bonds with superior rates of return.

$24,000.

Loans

held for investment

The following table ~~is a summary~~provides the composition of the ~~Company~~’sCompany’s loan held for investment portfolio ~~at the dates shown:~~

(In thousands)

September 30,

December 31,

Inc/(Dec)

Inc/(Dec)

Loan portfolio segment:

2017

2016

($)

(%)

Commercial Real Estate
$ 296,625 271,229 25,396 9.36 %
Residential Real Estate
150,664 86,514 64,150 74.15 %
Commercial and Industrial
117,673 60,977 56,696 92.98 %
Consumer and Other
90,973 101,449 (10,476 ) (10.33 )%
Construction
48,328 53,895 (5,567 ) (10.33 )%
Construction to permanent - CRE
5,855 7,593 (1,738 ) (22.89 )%
Loans receivable, gross
710,118 581,657 128,461 22.09 %
Allowance for loan losses
(6,222 ) (4,675 ) (1,547 ) 33.09 %
Loans receivable, net
$ 703,896 576,982 126,914 22.00 %

as of June 30, 2023, and December 31, 2022:


(In thousands)	June 30, 2023				December 31, 2022
	Amount		%		Amount		%
Loan portfolio segment:
Commercial Real Estate	$	511,655	54.99	%	$	437,443	51.57	%
Residential Real Estate	116,454		12.51	%	124,140		14.63	%
Commercial and Industrial	171,574		18.43	%	138,787		16.36	%
Consumer and Other	123,063		13.22	%	141,091		16.63	%
Construction	5,525		0.59	%	4,922		0.58	%
Construction to permanent - CRE	2,463		0.26	%	1,933		0.23	%
Loans receivable, gross	930,734		100.00	%	848,316		100.00	%
Allowance for credit losses	(24,098)				(10,310)
Loans receivable, net	$	906,636			$	838,006

The ~~Company’s gross~~Company’s loan portfolio increased ~~$128.4~~$82.4 million, ~~or 22.1%,~~ from ~~$581.7~~$848.3 million at December 31, ~~2016~~2022 to ~~$710.1~~$930.7 million at ~~September~~June 30, ~~2017.~~2023. The increase in loans was ~~primarily~~ attributable to $132.6 million of new loan origination and $16.4 million in purchases of ~~$73.0~~loans receivable which was partially offset by $61.3 million ~~residential~~pay-down of the loans.

SBA loans held for investment were included in the commercial real estate loans and ~~$53.4 million increase in net origination of loans receivable.~~commercial and industrial loan classifications above. As of ~~September~~June 30, ~~2017,~~2023 and December 31, 2022, SBA loans included in the commercial and industrial loan ~~pipeline is strong,~~were $20.4 million and ~~management expects continued growth.~~

$20.3 million, respectively. SBA loans included in the commercial real estate loans were $12.3 million and $12.2 million, respectively.

At ~~September~~June 30, ~~2017,~~2023, the net loan to deposit ratio was ~~116%~~105.0% and the net loan to total assets ratio was ~~85%~~78.3%. At December 31, ~~2016,~~2022, these ratios were ~~109%~~97.4% and ~~76%~~80.3%, respectively.

Table of Contents

Allowance for ~~Loan~~Credit Losses

The Company adopted ASU 2016-13 effective January 1, 2023. ASU 2016-13 requires the measurement of expected credit losses for financial assets, including loans and certain off-balance-sheet credit exposures, measured at amortized cost. See Note 2 - Summary of Significant Accounting Policies to the Company's financial statements for a description of the adoption of ASU 2016-13 and the Company's allowance methodology.

The allowance for ~~loan~~credit losses ~~increased $1.5~~on loans was $24.1 million ~~or 32% from $4.7~~as of June 30, 2023, compared to allowance for loans and lease losses of $10.3 million atas of December 31, ~~2016 to $6.2 million at September 30, 2017.~~2022. The increase in allowance was ~~primarily attributable~~mainly due to the adoption of CECL as the Company recorded a ~~$2.8~~transition adjustment of $13.0 million ~~increase in recoveries within our Commercial and Industrial category that was offset by $(944,000) provision (credit) for all loan categories.~~

~~The overall credit quality of the loan portfolio continues to be strong and stable.~~effective January 1, 2023. Based upon the overall assessment and evaluation of the loan portfolio at ~~September~~June 30, ~~2017,~~2023, management believes $24.1 million in the allowance for ~~loan~~credit losses, ~~of $6.2 million,~~ which ~~represents 0.88%~~represented 2.59% of gross loans outstanding, ~~was~~is adequate under prevailing economic conditions to absorb existing losses in the loan portfolio.

~~Non-Accrual, Past Due~~A provision for loan losses of $1.7 million and ~~Restructured Loans~~

$4.8 million was recorded for the three and six months ended June 30, 2023, respectively.

The following table ~~presents non-accruing loans~~provides detail of activity in the allowance for credit losses. During the three and ~~loans past due 90 days or more~~six months ended June 30, 2023, the Company used the CECL methodology while the incurred loss methodology was used in prior years:


	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands)	2023			2022			2023			2022

Balance at beginning of the period	$	24,780		$	9,737		$	10,310		$	9,905
Charge-offs:


Commercial and Industrial	(4)			—			(6)			(68)
Consumer and Other	(2,516)			(100)			(4,312)			(147)
Construction	(150)			—			(150)			(70)
Total charge-offs	(2,670)			(100)			(4,468)			(285)
Recoveries:

Residential Real Estate	11			—			11			1
Commercial and Industrial	9			11			16			26
Consumer and Other	260			6			433			7
Total recoveries	280			17			460			34

Net charge-offs	(2,390)			(83)			(4,008)			(251)

Impact of CECL adoption	—			—			13,001			—
Provision for credit losses	1,708			275			4,795			275
Balance at end of the period	$	24,098		$	9,929		$	24,098		$	9,929

Ratios:
Net charge-offs to average loans	0.26		%	0.01		%	(0.451)		%	(0.032)		%
Allowance for credit losses to total loans	2.59		%	1.16		%	2.59		%	1.16		%

Table of Contents

The following table provides an allocation of allowance for credit losses by portfolio segment:


(In thousands)	June 30, 2023				December 31, 2022
	Allowance for credit losses		Percent of loans in each category to total loans		Allowance for loan losses		Percent of loans in each category to total loans
Commercial Real Estate	$	10,039	54.99	%	$	6,966	51.57	%
Residential Real Estate	1,027		12.51	%	665		14.63	%
Commercial and Industrial	1,673		18.43	%	1,403		16.36	%
Consumer and Other	11,275		13.22	%	1,207		16.63	%
Construction	33		0.59	%	24		0.58	%
Construction to permanent - CRE	51		0.26	%	10		0.23	%
Unallocated	—		N/A		35		N/A
Total Allowance for credit losses	$	24,098	100.00	%	$	10,310	100.00	%

Non-performing Assets

The following table presents non-performing assets as of June 30, 2023 and ~~still accruing:~~

(In thousands)

September 30,

December 31,

Inc/(Dec)

Inc/(Dec)

2017

2016

($)

(%)

Loans past due over 90 days and still accruing
$ 4,447 1,452 2,995 206.27 %
Non-accruing loans
2,051 1,821 230 12.63 %
Total
$ 6,498 3,273 3,225 98.53 %

% of Total Loans
0.92 % 0.57 %
% of Total Assets
0.79 % 0.43 %

~~The $2.1~~December 31, 2022:


	June 30, 2023			December 31, 2022
Non-accruing loans:
Commercial Real Estate	$	11,368		$	11,241
Residential Real Estate	2,565			2,470
Commercial and Industrial	6,655			4,833
Consumer and Other	46			49

Total non-accruing loans	20,634			18,593

Loans past due over 90 days and still accruing	1,428			1,155

Total nonperforming assets	$	22,062		$	19,748

Nonperforming assets to total assets	1.91		%	1.89		%
Nonperforming loans to total loans, net	2.43		%	2.36		%

As of June 30, 2023, the $20.6 million of non-accrual loans ~~at September 30, 2017 is~~was comprised of ~~six relationships,~~31 borrowers, for which a specific reserve of ~~$285,000 has been~~$7.3 million was established.

~~The Company~~ For collateral dependent loans, the Bank has obtained appraisal reports from independent licensed appraisal firms and discounted those values based on the Bank’s experience selling OREO properties and for estimated selling costs to determine estimated impairment.

~~The $1.8~~ For cash flow dependent loans, the Bank determined the reserve based on the present value of expected future cash flows discounted at the loan's effective interest rate.

Loans held for sale

SBA loans held for sale totaled $5.9 million and $5.2 million as of ~~non-accrual~~June 30, 2023 and December 31, 2022, respectively. SBA loans held for sale represent the guaranteed portion of SBA loans and are reflected at the lower of aggregate cost or market value. SBA loans held for sale at June 30, 2023, consisted of $3.6 million SBA commercial real estate and $2.3 million SBA commercial and industrial loans, respectively. SBA loans held for sale at December 31, ~~2016~~2022, consisted of $3.1 million SBA commercial and industrial loans and $2.1 million SBA commercial real estate, respectively.

Goodwill

The Company completed its acquisition of Prime Bank in May 2018 and recorded $1.1 million of goodwill after adjustments as of May 10, 2019. No further adjustment to the goodwill was ~~comprised~~made as of June 30, 2023.

Table of Contents

The Company did not perform an interim goodwill test for the three ~~borrowers, for~~and six months ended June 30, 2023 as no events occurred which ~~a specific reserve of $231,000 had been established.~~

~~Other Real Estate Owned~~

~~As of~~ ~~September~~would trigger an impairment assessment.

Deferred Taxes

Deferred tax assets were $20.4 million and $15.5 million at June 30, ~~2017~~2023 and December 31, 2016, OREO of $851,000, consisting of a single undeveloped property (i.e., raw land) zoned for multi-use construction, was reported on the Balance Sheet. The carrying amount was comprised of $840,000 representing the value of the loan receivable due from the mortgagor of the foreclosed property and a gain of $11,000 recognized upon taking possession of the property in May 2016. The gain was the excess of the fair value of the property at the date of possession over the loan receivable's carrying amount, after deducting an estimate of costs to liquidate the property.

~~Deferred Taxes~~

2022, respectively. Deferred tax assets ~~decreased $1.9 million~~consist predominately of state net operating losses, capitalized costs and allowances for loan losses.

The effective tax benefit rate for the three and six months ended June 30, 2023 was 27.30% and 27.08%, ~~from $12.6 million at December 31, 2016 to $10.7 million at September 30, 2017. This decrease was primarily due~~respectively, compared to the ~~utilization~~effective tax provision rate of 27.34% and 27.59% for the three and six months ended June 30, 2022, respectively. The Company’s effective rates for both periods was affected by state taxes and non-deductible expenses.

Patriot anticipates utilizing the state net operating loss carry forwards to reduce income taxes otherwise payable on ~~current year~~future years taxable ~~income~~income.

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 ~~net unrealized gains on~~negative, to determine whether it is more likely than not that the ~~investment portfolio to the~~deferred tax assets will be realized. In addition, management assesses tax attributes including available tax planning strategies and state net operating loss ~~carry forward.~~

carry-forwards that do not begin to expire until the year of 2030. No valuation allowance was recorded as of June 30, 2023 and December 31, 2022. The Company will continue to evaluate its ability to realize its net deferred tax ~~asset.~~assets. If future evidence suggests that it is more likely than not that ~~a portion of the~~additional deferred tax ~~asset~~assets will not be realized, the valuation allowance ~~may~~will be ~~increased.~~

adjusted.

Deposits

~~Deposits~~

The following table is a summary of the ~~Company~~’sCompany’s deposits at the dates shown:

(In thousands)

September 30,

December 31,

Inc/(Dec)

Inc/(Dec)

2017

2016

($)

(%)

Non-interest bearing
$ 76,875 76,772 103 0.13 %
Interest bearing:

NOW
27,420 29,912 (2,492 ) (8.33 )%
Savings
141,256 131,429 9,827 7.48 %
Money market
13,477 15,593 (2,116 ) (13.57 )%
Certificates of deposit, less than $250,000
182,960 160,609 22,351 13.92 %
Certificates of deposit, $250,000 or greater
69,415 51,077 18,338 35.90 %
Brokered deposits
94,011 63,932 30,079 47.05 %
Total Interest bearing
528,539 452,552 75,987 16.79 %

Total Deposits
$ 605,414 529,324 76,090 14.37 %

~~Deposits increased $76.1~~


(In thousands)	June 30,			December 31,			Increase/(Decrease)
	2023			2022			$		%
Non-interest bearing:
Non-interest bearing	$	104,413		$	118,541		$	(14,128)	-11.92	%
Prepaid DDA	23,404			151,095			(127,691)		-84.51	%
Total non-interest bearing	127,817			269,636			(141,819)		-52.60	%

Interest bearing:
Negotiable order of withdrawal accounts	37,970			34,440			3,530		10.25	%
Savings	50,981			71,002			(20,021)		-28.20	%
Money market	163,982			164,827			(845)		-0.51	%
Money market - prepaid deposits	134,735			46,173			88,562		191.80	%
Certificates of deposit, less than $250,000	182,680			165,793			16,887		10.19	%
Certificates of deposit, $250,000 or greater	56,088			59,877			(3,789)		-6.33	%
Brokered deposits	109,126			48,698			60,428		124.09	%
Total Interest bearing	735,562			590,810			144,752		24.50	%

Total Deposits	$	863,379		$	860,446		$	2,933	0.34	%

Total Prepaid deposits	$	158,139		$	197,268		$	(39,129)	-19.84	%

Total deposits excluding Prepaid deposits	$	705,240		$	663,178		$	42,062	6.34	%

Total uninsured deposits	$	285,752		$	343,980		$	(58,228)	-16.93	%
Uninsured deposits to total deposits	33.10		%	39.98		%
Uninsured deposits to total deposits excluding prepaid deposits	17.71		%	22.35		%

Table of Contents

Borrowings

Total borrowings were $237.1 million ~~or 14.4%, from $529.3~~and $115.2 million atas of June 30, 2023 and December 31, ~~2016 to $605.4 million at September 30, 2017.~~ The increase was substantially the result of an effort to attract new deposits and strengthen the loyalty of the existing customer base by offering attractive rates. The effort was part of a strategy to establish long-term relationships for sustained growth and profitability. The increase in deposits, most notably in the category of time certificates, signifies the success in strengthening the Bank’s liquidity by refocusing its operations on its customer base. The Company continues to implement deposit growth initiatives.

~~Borrowings~~

~~Total borrowings declined by $8.1 million or 5.1%, from $159.5 million at December 31, 2016 to $151.4~~ ~~million at September 30, 2017.~~2022, respectively. Borrowings consist primarily of ~~Federal Home Loan Bank (“FHLB”)~~FHLB advances, senior notes, subordinated notes, junior subordinated debentures and a note payable.

The senior notes, subordinated notes and junior subordinated debentures contain affirmative covenants that require the Company to maintain its and its subsidiaries’ legal entity and tax status, pay its income tax obligations on a timely basis, and comply with SEC and FDIC reporting requirements.

Federal Home Loan Bank borrowings

The Company is a member of the Federal Home Loan Bank of Boston ("~~FHLB"~~FHLB-B"). Borrowings from the ~~FHLB~~FHLB-B are limited to a percentage of the value of qualified collateral, as defined on the ~~FHLB~~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

FHLB-B advances are structured to facilitate the Bank’s management of ~~September~~its balance sheet and liquidity requirements. Outstanding advances from the FHLB-B increased from $85.0 million at December 31, 2022 to $195.0 million at June 30, ~~2017,~~2023.

At June 30, 2023, the ~~Bank had $19.3 million~~FHLB-B advances bore fixed rates of ~~available~~interest ranging from 2.40% to 5.27% with maturities ranging from 3 days to 1.22 years, and have a weighted average interest rate of 4.82%.

At June 30, 2023, collateral for FHLB-B borrowings consisted of a mixture of real estate loans and securities with book value of $369.1 million. Remaining unused borrowing capacity ~~from the FHLB.~~

under this line totaled $46.3 million at June 30, 2023.

In addition, Patriot has a $2.0 million revolving line of credit with the ~~FHLB. At~~ ~~September~~FHLB-B. For the three and six months ended June 30, ~~2017~~2023 and ~~December 31, 2016,~~2022, no funds had been borrowed under the line of credit.

Interest expense incurred for the three and six months ended June 30, 2023 were $1.7 million and $3.0 million, respectively. Interest expense incurred for the three and six months ended June 30, 2022 were $747,000 and $1.5 million, respectively.

Correspondent Bank - Line of Credit

~~Effective July 2016,~~

Patriot has entered into ~~a Federal~~unsecured federal funds sweep and ~~Federal~~federal funds line of credit facility ~~agreement (the “Correspondent Bank Agreement”)~~agreements with ~~ZB, N.A. (“Zions Bank”).~~certain correspondent banks. Borrowings available under the agreements totaled $17.0 million at both June 30, 2023 and December 31, 2022. The purpose of the ~~agreement~~agreements is to provide a credit facility intended to satisfy overnight ~~Fed~~federal account balance requirements and to provide for daily settlement of FRB, ~~ACH,~~Automated Clearing House (ACH), and other clearinghouse transactions.

There was no outstanding balance under the agreements at June 30, 2023 and December 31, 2022. Interest expense incurred for the three and six months ended June 30, 2023 was $54,000 and $117,000, respectively, and none for three and six months ended June 30, 2022.

Other Borrowing

The ~~Correspondent~~Federal Reserve Bank ~~Agreement provides~~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 June 30, 2023, the book value of the pledged loans totaled $18.2 million, with a collateral value of $13.0 million. A total of $12.0 million was borrowed from the Discount Window under the FRBNY's Borrower-in-Custody ('BIC") program at June 30, 2023. Interest expense incurred for ~~up to $16 million in funds of which~~the three and six months ended June 30, 2023 was $5,000. In 2022, no funds was ~~outstanding as~~borrowed under the BIC program, and no interest expense was incurred for the three and six months ended June 30, 2022.

In addition, during July of ~~September 30, 2017.~~2023, the Bank established a collateralized funding line of $80 million under the Federal Reserve's newly established Bank Term Funding Program. The ~~Correspondent Bank Agreement is unsecured, currently requires~~line allows for a ~~compensating balance~~fixed rate borrowing at market rates of ~~$250,000~~up to ~~remain on account~~one year with ~~Zions Bank~~repayment permitted at all times, pays interest on funds on account (e.g., Fed funds sweep, compensating balance) at variable rates depending on the total deposit, and charges interest on advances at Zions Bank’s daily Fed funds rate, which is variable.

any time without penalty.

Table of Contents

Senior notes

On December 22, 2016, the Company issued $12 million of senior notes ("2016 Senior Notes") bearing interest at 7% per ~~annum and maturing on~~annum. On November 17, 2021, the original maturity date of the 2016 Senior Notes was extended from December 22, 2021 ~~(the “Senior notes”). Interest on~~to June 30, 2022.

On June 22, 2022, the Company amended and restated the 2016 Senior Notes. The maturity date of the Senior Notes was further extended to December 31, 2022, and the interest rate increased from (i) 7% to 7.25% from July 1, 2022 until September 30, 2022 and (ii) from 7.25% to 7.50% thereafter. The 2016 Senior Notes was repaid in December 2022.

On December 21, 2022, the Company completed an issuance and sale of $12 million in aggregate principal amount of 8.50% fixed rate senior notes ~~is payable semi-annually on June 22 and December 22 of each year beginning on June 22, 2017.~~

due January 15, 2026 (“2022 Senior Notes”). In connection with the issuance of the 2022 Senior ~~notes,~~Notes, the Company incurred ~~$374,000~~$347,000 of costs, which are being amortized over the term of the 2022 Senior Notes to recognize a constant rate of interest expense. The unamortized debt issuance cost of was deducted from the face amount of the 2022 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 2022 Senior Notes are not subject to any sinking fund and are not convertible into or exchangeable for any other securities or assets of the Company or any of its subsidiaries. The 2022 Senior Notes are not subject to redemption at the option of the holders. Principal and interest on the 2022 Senior Notes are subject to acceleration only in limited circumstances. The 2022 Senior Notes are an unsecured, unsubordinated obligation and ranks equally in right of payment to all of the Company’s existing and future unsecured indebtedness, liabilities and other obligations that are not subordinated in right of payment to the Senior Note, and will be effectively subordinated to any of the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing such indebtedness. The 2022 Senior Notes are the obligations of the Company only and are not obligations of, and are not guaranteed by, any of the Company’s affiliates. At June 30, 2023 and December 31, 2022, $347,000 and $360,000 of unamortized debt issuance costs were deducted from the face amount of the 2022 Subordinated Notes included in the Consolidated Balance Sheet, respectively.

For the three and six months ended June 30, 2023, the Company recognized interest expense of $289,000 and $579,000, respectively. Interest expense incurred for the three and six months ended June 30, 2022 was $210,000 and $420,000, respectively.

Subordinated notes

On June 29, 2018, the Company entered into certain subordinated note purchase agreements with two institutional accredited investors and completed a private placement of $10 million of fixed-to-floating rate subordinated notes with the maturity date of September 30, 2028 (the “Subordinated Notes”) pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506(b) of Regulation D promulgated thereunder.

The Subordinated Notes initially bears interest at 6.25% per annum, from and including June 29, 2018, to but excluding, June 30, 2023, payable semi-annually in arrears. From and including June 30, 2023, until but excluding June 30, 2028 or an early redemption date, the interest rate shall reset quarterly to an interest rate per annum equal to the then current three-month LIBOR (but not less than zero) plus 332.5 basis points, payable quarterly in arrears. The Company may, at its option, beginning on June 30, 2023 and on any scheduled interest payment date thereafter, redeem the Subordinated Notes.

In connection with the issuance of the Subordinated Notes, the Company incurred $291,000 of debt issuance costs, which are being amortized over the term of the Subordinated Notes to recognize a constant rate of interest expense. At ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016, $316,000~~2022, $146,000 and ~~$372,000~~$160,000 of unamortized debt issuance costs ~~have been~~were deducted from the face amount of the ~~Senior notes~~Subordinated Notes included in the ~~Consolidated Balance Sheet.~~

~~The Senior Notes contain affirmative covenants that require~~consolidated balance sheet, respectively.

For the three and six months ended June 30, 2023, the Company ~~to: maintain its~~recognized interest expense of $164,000 and ~~its subsidiaries’ legal entity~~$327,000, respectively. Interest expense incurred for the three and ~~tax status, pay its income tax obligations on a timely basis,~~six months ended June 30, 2022 was $165,000 and ~~comply with SEC and FDIC reporting requirements. The 7% Senior Notes are unsecured, rank equally with all other senior obligations~~$328,000, respectively.

Table of ~~the Company, are not redeemable nor may they be put to the Company by the holders of the notes, and require no payment of principal until maturity.~~

Contents

Junior subordinated debt owed to unconsolidated trust

In 2003, the Patriot National Statutory Trust I (“the Trust”), which has no independent assets and is wholly-owned by the Company, issued $8.0 million of trust preferred securities. The proceeds, net of a $240,000 placement fee, were invested in junior subordinated debentures issued by the Company, which invested the proceeds in the Bank. The Bank used the proceeds to fund its operations.

Trust preferred securities currently qualify for up to 25% of the Company’s Tier I Capital, with the excess qualifying as Tier 2 Capital.

The junior subordinated debentures are unsecured obligations of the Company. The debentures are subordinate and junior in right of payment to all present and future senior indebtedness of the Company. In addition to its obligations under the junior subordinated debentures and in conjunction with the Trust, the Company issued an unconditional guarantee of the trust preferred securities.

The junior subordinated debentures bear interest at three-month LIBOR plus 3.15% and mature on March 26, 2033, at which time the principal amount borrowed will be due. The placement fee of $240,000 is amortized and included as a component of the periodic interest expense on the junior subordinated debentures, in order to produce a constant rate of interest expense. As of June 30, 2023 and December 31, 2022, the unamortized placement fee deducted from the face amount of the junior subordinated debt owed to the unconsolidated trust amounted to $116,000 and $120,000, respectively, and accrued interest on the junior subordinated debentures was $10,000 and $9,000, respectively.

For the three and six months ended June 30, 2023, the Company recognized interest expense of $169,000 and 332,000, respectively. Interest expense incurred for the three and six months ended June 30, 2022 was $86,000 and $157,000, respectively.

At its option, exercisable on a quarterly basis, the Company may redeem the junior subordinated debentures from the Trust, which would then redeem the trust preferred securities.

Note Payable

In September 2015, the Bank purchased the property in which its Fairfield, Connecticut branch is located for approximately $2$2.0 million, a property it had been leasing until that date. The purchase price was primarily satisfied by issuing the seller a $2.0 million, nine-year, promissory note bearing interest at a fixed rate of 1.75% per annum. As of ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016,~~2022, the note had a balance outstanding of ~~$1.6 million~~$481,000 and ~~$1.8 million,~~$585,000, respectively. The note matures in August 2024 and requires a balloon payment of approximately ~~$234,000.~~$234,000 at that time. The note is secured by a first Mortgage Deed and Security Agreement on the purchased property.

For the three and six months ended June 30, 2023, the Company recognized interest expense of $3,000 and $5,000, respectively. Interest expense incurred for the three and six months ended June 30, 2022 was $2,000 and $6,000, respectively.

Table of Contents
Derivatives
As of June 30, 2023, Patriot entered into four interest rate swaps (“swaps”). Two swaps are with a loan customer to provide a facility to mitigate the fluctuations in the variable rate on the respective loan. The other two swaps are with an outside third party. The customer interest rate swaps are matched in offsetting terms to the third party interest rate swaps. The swaps are reported at fair value in other assets or other liabilities on the consolidated balance sheets. Patriot’s swaps are derivatives, but are not designated as hedging instruments, thus any net gain or loss resulting from changes in the fair value is recognized in other noninterest income. The Company recognized no gain on the swaps for the three and six months ended June 30, 2023 and 2022.
Further discussion of the fair value of derivatives is set forth in Note 8 to the consolidated financial statements.

Equity

Equity ~~increased $3.7~~decreased $13.2 million, from ~~$62.6~~$59.6 million at December 31, ~~2016~~2022 to ~~$66.3~~$46.4 million at ~~September~~June 30, ~~2017,~~2023, primarily due to ~~$3.5~~a cumulative adjustment to the opening balance of accumulated deficit of $11.5 million upon adoption of ~~year-to-date~~CECL effective January 1, 2023, a net ~~income, $105,000~~loss of ~~equity compensation,~~$1,314,000 for the six months ended June 30, 2023, and ~~$129,000 of~~a net unrealized holding loss for investment portfolio ~~unrealized gains.~~

of $394,000.

Off-Balance Sheet Commitments

The ~~Company~~’sCompany’s off-balance sheet commitments ~~which~~ primarily consist of commitments to lend ~~increased $4.9~~of $131.7 million ~~from $98.4~~and $154.3 million atas of June 30, 2023 and December 31, ~~2016 to $103.3 million at September 30, 2017.~~

2022, respectively.

~~RESULTS OF OPERATIONS~~

~~Distribution~~

Table of ~~Assets, Liabilities and Shareholders’ Equity; Interest Rates and Interest Differential~~

Contents

Average Balances

The following ~~table~~stables present daily average balance sheets, interest income, interest expense and the corresponding yields earned and rates paid for the three and six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016:~~

(In thousands)

Three months ended September 30,

2017

2016

Daily
Average
Balance ($)

Interest
($)

Yield
(%)

Daily
Average
Balance ($)

Interest
($)

Yield
(%)

ASSETS

Interest Earning Assets:

Loans
$ 702,307 8,522 4.81 530,068 6,188 4.64
Cash equivalents
23,383 65 1.11 24,326 25 0.41
Investments
39,923 380 3.81 35,564 219 2.45

Total interest earning assets
765,613 8,967 4.65 589,958 6,432 4.34

Cash and due from banks
2,766 3,938
Premised and equipment, net
34,618 30,361
Allowance for loan losses
(6,120 ) (7,210 )
OREO
851 851
Other assets
16,076 17,085

Total Assets
$ 813,804 634,983

Liabilities

Interest bearing liabilities:

Deposit
$ 511,941 1,339 1.04 379,352 549 0.58
Borrowings
137,027 248 0.72 105,326 73 0.28
Senior notes
11,673 229 7.77 - - -
Subordinated debt
8,237 92 4.47 8,248 85 4.10
Note Payable
1,639 7 1.74 1,829 9 1.96

Total interest bearing liabilities
670,517 1,915 1.13 494,755 716 0.58

Demand deposits
75,081 74,594
Other liabilities
1,811 3,213

Total Liabilities
747,409 572,562

Shareholders' equity
66,395 62,421

Total Liabilities and Shareholders' Equity
$ 813,804 634,983

Net interest income
7,052 5,716
Interest margin
3.65 3.85
Interest spread
3.52 3.76

2022:


(In thousands)	Three Months Ended June 30,
	June 30, 2023						June 30, 2022
	Average Balance		Interest		Yield		Average Balance		Interest		Yield
ASSETS
Interest Earning Assets:
Loans	$	916,321	$	14,052	6.15	%	$	819,532	$	9,044	4.43	%
Investments	104,551		858		3.28	%	91,622		575		2.51	%
Cash equivalents and other	25,435		399		6.29	%	34,862		68		0.78	%

Total interest earning assets	1,046,307		15,309		5.87	%	946,016		9,687		4.11	%

Cash and due from banks	2,348						6,904
Allowance for loan losses	(23,587)						(9,695)

Other assets	67,711						67,246

Total Assets	$	1,092,779					$	1,010,471

Liabilities
Interest bearing liabilities:
Deposits	$	721,917	$	5,248	2.92	%	$	576,310	$	757	0.53	%
Borrowings	147,374		1,723		4.69	%	91,868		747		3.26	%
Senior notes	11,631		289		9.94	%	12,000		210		7.00	%
Subordinated debt	17,980		333		7.43	%	17,942		251		5.61	%
Note Payable and other	496		3		2.43	%	703		2		1.14	%

Total interest bearing liabilities	899,398		7,596		3.39	%	698,823		1,967		1.13	%

Demand deposits	136,975						239,082
Other liabilities	6,644						10,707

Total Liabilities	1,043,017						948,612

Shareholders' equity	49,762						61,859

Total Liabilities and Shareholders' Equity	$	1,092,779					$	1,010,471

Net interest income			$	7,713					$	7,720

Interest margin					2.96	%					3.27	%
Interest spread					2.48	%					2.98	%

~~The following tables present daily average balance sheets, interest income, interest expense and the corresponding yields earned and rates paid for the nine months ended September 30, 2017 and 2016:~~

(In thousands)

Nine months ended September 30,

2017

2016

Daily
Average
Balance ($)

Interest
($)

Yield
(%)

Daily
Average
Balance ($)

Interest
($)

Yield
(%)

ASSETS

Interest Earning Assets:

Loans
$ 642,742 22,720 4.73 508,033 17,811 4.68
Cash equivalents
23,365 148 0.85 36,384 94 0.35
Investments
36,871 968 3.50 38,210 669 2.33

Total interest earning assets
702,978 23,836 4.53 582,627 18,574 4.26

Cash and due from banks
4,092 3,395
Premised and equipment, net
33,816 29,969
Allowance for loan losses
(5,547 ) (5,913 )
OREO
851 851
Other assets
16,717 16,270

Total Assets
$ 752,907 627,199

Liabilities

Interest bearing liabilities:

Deposit
$ 487,248 3,457 0.95 367,415 1,518 0.55
Borrowings
102,900 509 0.66 108,835 258 0.32
Senior notes
11,655 686 7.87 - - -
Subordinated debt
8,244 266 4.32 8,248 250 4.04
Note Payable
1,689 24 1.76 1,876 25 1.75
��
Total interest bearing liabilities
611,736 4,942 1.08 486,374 2,051 0.56

Demand deposits
73,815 75,045
Other liabilities
2,344 3,212

Total Liabilities
687,895 564,631

Shareholders' equity
65,012 62,568

Total Liabilities and Shareholders' Equity
$ 752,907 627,199

Net interest income
18,894 16,523
Interest margin
3.59 3.79
Interest spread
3.45 3.70

Table of Contents

The


(In thousands)	Six Months Ended June 30,
	2023						2022
	Average Balance		Interest		Yield		Average Balance		Interest		Yield
ASSETS
Interest Earning Assets:
Loans	$	888,461	$	26,602	6.04	%	$	784,091	$	16,708	4.30	%
Investments	102,139		1,673		3.28	%	97,441		1,210		2.48	%
Cash equivalents and other	26,518		680		5.17	%	37,282		89		0.48	%

Total interest earning assets	1,017,118		28,955		5.74	%	918,814		18,007		3.95	%

Cash and due from banks	3,856						7,584
Allowance for loan losses	(23,135)						(9,788)

Other assets	69,102						67,880

Total Assets	$	1,066,941					$	984,490

Liabilities
Interest bearing liabilities:
Deposits	$	673,440	8,827		2.64	%	$	552,734	1,166		0.43	%
Borrowings	142,215		3,159		4.48	%	93,542		1,484		3.20	%
Senior notes	11,625		579		9.96	%	12,000		420		7.00	%
Subordinated debt	17,976		659		7.39	%	17,938		485		5.45	%
Note Payable and other	522		5		1.93	%	730		6		1.66	%

Total interest bearing liabilities	845,778		13,229		3.15	%	676,944		3,561		1.06	%

Demand deposits	163,844						233,111
Other liabilities	7,546						10,305

Total Liabilities	1,017,168						920,360

Shareholders' equity	49,773						64,130

Total Liabilities and Shareholders' Equity	$	1,066,941					$	984,490

Net interest income			$	15,726					$	14,446

Interest margin					3.12	%					3.17	%
Interest spread					2.59	%					2.89	%

Table of Contents

The following table presents the ~~dollar amount of changes~~change in ~~interest income and interest expense for the major categories of our interest-bearing~~interest-earning assets and interest-bearing liabilities ~~for~~by major category and the related change in the interest income earned and interest expense incurred thereon attributable to the change in transactional volume in the financial instruments and the rates of interest applicable thereto, comparing the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016:~~

(In thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

2017 compared to 2016

2017 compared to 2016

Increase/(Decrease)

Increase/(Decrease)

Volume

Rate

Total

Volume

Rate

Total

Interest Earning Assets:

Loans
$ 1,902 432 2,334 $ 4,492 417 4,909
Cash equivalents
(1 ) 41 40 (34 ) 88 54
Investments
25 136 161 (29 ) 328 299

Total interest earning assets
1,926 609 2,535 4,429 833 5,262

Interest bearing liabilities:

Deposit
224 566 790 581 1,358 1,939
Borrowings
22 153 175 (14 ) 265 251
Senior notes
229 - 229 686 - 686
Subordinated debt
- 7 7 - 16 16
Note payable
(2 ) - (2 ) (1 ) - (1 )

Total interest bearing liabilities
473 726 1,199 1,252 1,639 2,891

Net interest income
$ 1,453 (117 ) 1,336 $ 3,177 (806 ) 2,371

2022.


	Three Months Ended June 30,						Six Months Ended June 30,
	2023 compared to 2022						2023 compared to 2022
(In thousands)	Increase/(Decrease)						Increase/(Decrease)
	Volume		Rate		Total		Volume		Rate		Total
Interest Earning Assets:
Loans	$	1,282	$	3,726	$	5,008	$	2,738	$	7,156	$	9,894
Investments	86		197		283		67		396		463
Cash equivalents and other	(18)		349		331		(26)		617		591

Total interest earning assets	1,350		4,272		5,622		2,779		8,169		10,948

Interest bearing liabilities:
Deposit	379		4,112		4,491		542		7,119		7,661
Borrowings	432		544		976		704		971		1,675
Senior notes	(7)		86		79		(13)		172		159
Subordinated debt	—		82		82		—		174		174
Note payable and other	1		—		1		(1)		—		(1)

Total interest bearing liabilities	805		4,824		5,629		1,232		8,436		9,668

Net interest income	$	545	$	(552)	$	(7)	$	1,547	$	(267)	$	1,280

Results of Operations

For the ~~quarter~~three months ended ~~September~~June 30, ~~2017,~~2023, interest income and dividend income was $15.3 million, which increased $2.5 million or 39% as compared to the quarter ended September 30, 2016, as focused growth and diversification in the loan portfolio yielded an increase in interest income. Average loan balances increased $172.2 million or 32% as compared to the quarter ended September 30, 2016. Total interest expense increased $1.2 million or 167% as compared to the quarter ended September 30, 2016, primarily driven by $790,000 increase in interest on deposits as the result of an increase in deposit rates, $229,000 increase in interest expense on senior debt that was issued in December 2016, and $175,000 increase in interest expense on FHLB borrowings, due to the increase in general market borrowing rates.

~~For the nine-month period ended September 30, 2017, interest income increased $5.3 million or 28% as compared to the nine-months ended September 30, 2016. Average loan balances increased $134.7~~$5.6 million as compared to ~~the nine-months ended September 30, 2016, primarily driven by $73.0 million purchases of loan pools during the first quarter of 2017 and $53.4 million new loans originated in 2017.~~

~~As the loan pipeline continue~~d to grow in 2017, so did the need to increase the Bank’s deposit base and liquidity sources. Since the second half of 2016, the Bank has adopted a certificate of deposits (CD) program to attract term deposits at competitive rates. For the nine-month period ended September 30, 2017, total interest expense increased $2.9 million or 141% as compared to the nine-months ended September 30, 2016, primarily driven by $1.9 million increase in interest on deposits as the result of an increase in deposit rates, and the $686,000 increase in interest expense associated with the issuance of senior debt in December 31, 2016.

~~Net interest income was $7.0~~$9.7 million for the quarter ended ~~September~~June 30, ~~2017, up 23% from the corresponding 2016 period, reflecting strong loan and deposit growth. Net~~2022. Total interest ~~income of $18.9~~expense was $7.6 million for the ~~nine~~three months ended ~~September~~June 30, ~~2017 was 14% higher than the $16.5~~2023, which increased $5.6 million ~~in the nine month period ended September 30, 2016. Net interest margin~~as compared to $2.0 million for the quarter ended ~~September~~June 30, ~~2017~~2022. Net interest income was ~~3.65% as compared to 3.85%~~$7.7 million for the quarter ended ~~September~~June 30, ~~2016.~~ 2023, which was unchanged from net interest income of $7.7 million for the quarter ended June 30, 2022.

For the ~~nine-months~~six months ended ~~September~~June 30, ~~2017,~~2023, interest income and dividend income was $29.0 million, which increased $10.9 million as compared to $18.0 million for the six months ended June 30, 2022. Total interest expense was $13.2 million, which increased $9.7 million as compared to $3.6 million for the six months ended June 30, 2022. Net interest income was $15.7 million for the six months ended June 30, 2023, which increased $1.3 million from $14.4 million for the six months ended June 30, 2022.

The net interest margin was ~~3.59% as compared to 3.79% for the year-ago period.~~

~~Provision (Credit) for Loan Losses~~

~~Provision for loan losses~~ ~~increased $190,000 from $355,000~~2.96% for the quarter ended ~~September~~June 30, ~~2016 to $545,000~~2023, compared with 3.27% for the quarter ~~ended September~~June 30, ~~2017. The increase is primarily attributable to a higher loan balance in 2017.~~

2022. For the ~~nine~~six months ended ~~September~~June 30, ~~2017, provision (credit)~~2023 and 2022, the net interest margin was 3.12% and 3.17%, respectively. The decline in interest margins for ~~loan~~the three and six months ended June 30, 2023 compared to the same periods in 2022, was primarily associated with an increase in the cost of deposits due to the significant rise in market interest rates.

Table of Contents

Provision for Credit Losses

Beginning January 1, 2023, the Company adopted the CECL accounting standard. Provision for credit losses ~~decreased $3.3~~for the three and six months ended June 30, 2023, amounted to $1.3 million ~~from $2.3 million~~and $3.5 million. This encompassed a provision for ~~the nine month period ended September 30, 2016 to a~~ credit ~~balance~~losses on loans of ~~provision for loan losses $(944,000). This is primarily attributable to a single recovery in its Commercial~~$1.7 million and ~~Industrial portfolio segment. Potential loss on the loan was fully reserved during 2016 and the loan was charged off during the fourth quarter of 2016. In March 2017, the Bank received a $2.8~~$4.8 million, ~~insurance recovery, which was recorded as a credit to the allowance for loan losses.~~

~~Non-interest income~~

Non-interest income decreased $26,000 from $412,000 for the quarter ended September 30, 2016 to $386,000 for the quarter ended September 30, 2017. The decrease was primarily attributable to a decrease of $39,000 in loan application and processing fees,respectively, which was partially offset by ~~an increase~~a credit reserve of ~~$13,000 in rental income.~~

$382,000 and $1,250,000, respectively, for the off-balance-sheet exposure. For the ~~nine~~three and six months ended ~~September~~June 30, ~~2017,~~2022, a loan loss provision of $275,000 was recorded, with no recorded reserve for the off-balance-sheet exposure.

Non-interest income

Non-interest income for the three months ended June 30, 2023 was $829,000, compared to $798,000 for the three months ended June 30, 2022. For the six months ended June 30, 2023 and 2022, non-interest income ~~decreased $175,000~~was $1.7 million and $1.6 million, respectively. The increase was primarily attributable to ~~$1.0~~higher non-interest income from the prepaid card program in 2023.

Non-interest expense

Non-interest expense for the three months ended June 30, 2023 increased to $8.1 million, as compared to ~~$1.2~~$6.5 million for the ~~nine~~three months ended ~~September~~June 30, ~~2016.~~2022. Non-interest expense for the six months ended June 30, 2023 was $15.6 million, compared to $12.9 million for the six months ended June 30, 2022. The ~~decrease is primarily attributable to $91,000 reduction of loan activity fees and a $78,000 loss on sale of investment securities~~increase in the first ~~quarter~~half of ~~2017.~~

~~Non-interest expense~~

~~Non-interest expense increased $781,000 from $4.4 million for the quarter ended September 30, 2016~~2023 was primarily due to ~~$5.2 million for the quarter ended September 30, 2017. The increase is primarily attributable to $572,000~~ increase in salaries and benefits~~, $71,000 increase in regulatory assessments, and $52,000 increase in data processing expense. The increase in salaries and benefits was primarily~~ due to ~~new hires~~staffing increases needed to support continuing business initiatives.

Provision for income taxes

The Company reported a benefit for income taxes of $231,000 and $488,000 for the ~~Company’s expanding business activities.~~

~~For the nine~~three and six months ended ~~September~~June 30, ~~2017, non-interest expense increased $989,000 to $14.9 million as~~2023, respectively, compared to ~~$13.9 million~~a provision for income taxes of $476,000 and $787,000 for the ~~nine~~three and six months ended ~~September~~June 30, ~~2016.~~ 2022, respectively.

Liquidity

The ~~increase is primarily attributable to $46~~9,000 increase in professional and other outside services incurred in connection with implementation of operational improvements, $334,000 increase in salaries and benefits, and $119,000 increase in regulatory assessments due to growth in the Bank’s balance sheet.

~~Liquidity~~

~~The Company~~’sCompany’s balance sheet liquidity towas 8.4% of total assets ~~ratio was 6.8%~~ at ~~September~~June 30, ~~2017~~2023, compared to ~~14.9%~~9.3% at December 31, ~~2016. The Company’s~~2022. Liquidity including readily available ~~total liquidity (including off balance~~off-balance sheet funding ~~sources) to~~sources was 13.2% of total assets ~~ratio was 17.9%~~ at ~~September~~June 30, ~~2017~~2023, compared to ~~19.1%~~18.0% at December 31, ~~2016.~~

2022. The readily available liquidity ratio remained well above the Company's 10% policy minimum.

The following categories of assets are considered balance sheet liquidity: cash and due from banks, federal funds sold (if any), short-term investments (if any), loans held for sale, and unpledged available-for-sale securities. In addition, off balance sheet funding sources include ~~collateral based~~collateral-based borrowing available from the FHLB, correspondent bank borrowing lines, and brokered deposits subject to internal limitations.

Liquidity is a measure of the ~~Company~~’sCompany’s ability to generate adequate cash to meet its financial obligations. The principal cash requirements of a financial institution are to cover downward fluctuations in deposit accounts. Management believes the Company’s liquid assets provide sufficient coverage to satisfy loan demand, cover potential fluctuations in deposit accounts, and to meet other anticipated operational cash requirements.

Management manages its capital resources by seeking to maintain a capital structure that will ensure an adequate level of capital to support anticipated asset growth and absorb potential losses while effectively leveraging capital to enhance profitability and return to shareholders. Dividends have not been paid to shareholders since 2020 but may resume in future periods.

~~Capital~~

The ~~following table illustrates~~primary source of liquidity at the Company’s is returns of capital from the Bank. These capital returns are subject to OCC approval and are needed periodically to provide funds needed to service debt payments at the Company.

Table of Contents

Capital

In September 2019, the community bank leverage ratio (CBLR) framework was jointly issued by the FDIC, OCC and FRB. The final rule gives qualifying community banks the option to use a simplified measure of capital adequacy instead of risk-based capital, beginning with their March 31, 2020 Call Report. Under the final rule a community bank may qualify for the CBLR framework if it has a Tier 1 leverage ratio of greater than 9%, less than $10 billion in total consolidated assets, and limited amounts of off-balance sheet exposures and trading assets and liabilities. In September 2021, the Bank adopted the CBLR framework. The Bank’s ~~regulatory capital ratios~~Tier 1 leverage ratio as of ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016:~~

Patriot National Bancorp, Inc.

Patriot Bank, N.A.

(In thousands)

September 30, 2017

December 31, 2016

September 30, 2017

December 31, 2016

Amount
($)

Ratio
(%)

Amount
($)

Ratio
(%)

Amount
($)

Ratio
(%)

Amount
($)

Ratio
(%)

Total Capital (to risk weighted assets)
74,470 10.222 66,254 10.603 83,558 11.554 74,303 11.928
Tier 1 Capital (to risk weighted assets)
68,240 9.367 61,571 9.854 77,328 10.692 69,620 11.176
Common Equity Tier 1 Capital (to risk weighted assets)
60,240 8.269 53,571 8.573 77,328 10.692 69,620 11.176
Tier 1 Leverage Capital (to average assets)
68,240 8.449 61,571 9.296 77,328 9.574 69,620 10.518

~~Capital adequacy is one~~2022 was 8.54% and 9.27%, respectively. The bank continues to be classified as "well capitalized" under the CBLR framework as the leverage ratio remains above 8% and the Bank has elected to use the two-quarter grace period provided under the framework. Per the CBLR framework, at the conclusion of the ~~most important factors used~~grace period (December 31, 2023), it is the bank's intention to ~~determine~~either meet all qualifying criteria to remain in the ~~safety and soundness of individual banks~~CBLR framework, or to comply with the generally applicable BASEL III capital rules and the banking system. Under the regulatory framework for prompt correction action, to be considered “well capitalized,” an institution must generally have a leverage capital ratio of at least 5.0%, Common Equity Tier 1 capital ratio at least 6.5%, a Tier 1 risk-based capital ratio of at least 8.0% and a total risk-based capital ratio of at least 10%. However, the OCC has the discretion to require increased capital ratios.

Under the final capital rules that became effective on January 1, 2015, there is a requirement for a CET1 Capital conservation buffer of 2.5% of risk-weighted assets, which is in addition to the other minimum risk-based capital standards in the rule. 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 buffer requirement is being phased in over three years beginning in 2016. The 0.625% capital conservation buffer for 2016 has been included in the minimum capital adequacy ratios in~~ ~~2016 column in the table above. The capital conversation buffer increased to 1.25% for 2017, which has been included in the minimum capital adequacy ratios in the 2017 column above.~~

The capital buffer requirement effectively raises the minimum required Total Capital ratio to 10.5%, the Tier 1 Capital ratio to 8.5%, and the CET1 Capital ratio to 7.0% on a fully phased-in basis, which will be effective beginning on January 1, 2019. Management believes that, as of ~~September 30, 2017, Patriot satisfies all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis, as if all such requirements were currently in effect.~~

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

Impact of Inflation and Changing Prices

~~IMPACT OF INFLATION AND CHANGING PRICES~~

The ~~Company~~’sCompany’s Consolidated Financial Statements have been prepared in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than the effect of general levels of inflation. Interest rates do not necessarily move in the same direction or with the same magnitude as the prices of goods and services. Notwithstanding this, inflation can directly affect the value of loan collateral, in particular, real estate. Inflation, deflation or disinflation could significantly affect the Company’s earnings in future periods.

~~Stock Repurchase Program~~

~~The following table presents share repurchases of Patriot’s common stock during the three months ended September 30, 2017 and December 31, 2016.~~

Period Beginning

Period Ending

No. of
Shares
Purchased⁽¹⁾

Average Price
Paid per
Share

No. of Shares Purchased
as part of
Publicly Announced
Plans⁽¹⁾

Maximum No. of Shares
that may yet be
Purchased Under the
Plans⁽¹⁾

November 1, 2016

November 30, 2016
629 $ 13.73 629 498,853
December 1, 2016

December 31, 2016
71,324 $ 14.04 71,324 427,529

Three-months ended December 31, 2016
71,953 $ 14.04

August 1, 2017

August 31, 2017
100 ⁽²⁾ $ 17.10 0 ⁽²⁾ 427,529⁽²⁾

Three-months ended September 30, 2017
100 $ 17.10

⁽¹⁾

All shares have been repurchased in connection with the stock repurchase program (the "Program") authorized by the Company's Board of Directors on July 29, 2016. The Program authorized the Company's chairman to direct the Company to repurchase up to 500,000 shares of Patriot's common stock on the open-market or in private transactions, through July 31, 2017.

⁽²⁾

~~After the Program closed, one shareholder elected to sell 100 shares back to the Company. This transaction was accepted and executed on the same terms as those executed during the Program.~~

~~There were 100 shares of Patriot~~’s common stock repurchased during the three and nine months period ended September 30, 2017. No shares of Patriot’s common stock were repurchased during the three and nine months period ended September 30, 2016.

Item 3: Quantitative and Qualitative Disclosures about Market Risk

Market risk is defined as the sensitivity of income to fluctuations in interest rates, foreign exchange rates, equity prices, commodity prices and other market-driven rates or prices. The Company’s market risk is primarily limited to interest rate risk.

The ~~Company~~’sCompany’s goal is to maximize long term profitability while minimizing its exposure to interest rate fluctuations. The first priority is to structure and price the Company’s assets and liabilities to maintain an acceptable interest rate spread while reducing the net effect of changes in interest rates. In order to accomplish this, the focus is on maintaining a proper balance between the timing and volume of assets and liabilities re-pricing within the balance sheet. One method of achieving this balance is to originate variable rate loans for the portfolio and purchase short-term investments to offset the increasing ~~short term~~short-term re-pricing of the liability side of the balance sheet. In fact, a number of the interest-bearing deposit products have no contractual maturity. Therefore, deposit balances may run off unexpectedly due to changing market conditions. Additionally, loans and investments with longer term rate adjustment frequencies can be matched against longer term deposits and borrowings to lock in a desirable spread.

The exposure to interest rate risk is monitored by the Management Asset and Liability Committee consisting of senior management personnel. The Committee reviews the interrelationships within the balance sheet to maximize net interest income within acceptable levels of risk. This Committee reports to the Board of Directors. In addition to the Management Asset and Liability Committee, there is a Board Asset and Liability Committee (“ALCO”), which meets quarterly. ALCO monitors the interest rate risk analyses, reviews investment transactions during the period and determines compliance with the Company’s Investment, ALCO and Liquidity policies.

Management analyzes the Company’s interest rate sensitivity position to manage the risk associated with interest rate movements through the use of interest income simulation and ~~GAP~~gap analysis. The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest sensitive.” An asset or liability is said to be interest sensitive within a specific time period if it will mature or reprice within that time period.

~~Management~~’s

Table of Contents

Management’s goal is to manage asset and liability positions to moderate the effects of interest rate fluctuations on net interest income. Interest income simulations are completed quarterly and presented to ALCO. The simulations provide an estimate of the impact of changes in interest rates on net interest income under a range of assumptions. Changes to these assumptions can significantly affect the results of the simulations. The simulation incorporates assumptions regarding the potential timing in the repricing of certain assets and liabilities when market rates change and the changes in spreads between different market rates.

Simulation analysis is only an estimate of the Company’s interest rate risk exposure at a particular point in time. Management regularly reviews the potential effect changes in interest rates could have on the repayment of ~~rate- sensitive~~rate-sensitive assets and funding requirements of rate-sensitive liabilities.

The ~~table~~stables below set forth examples of changes in estimated net interest income and the estimated net portfolio value based on projected scenarios of interest rate increases and decreases. The analyses indicate the rate risk embedded in the Company’s portfolio at the dates indicated should all interest rates instantaneously rise or fall. The results of these changes are added to or subtracted from the base case; however, there are certain limitations to these types of analyses. Rate changes are rarely instantaneous and these analyses may therefore overstate the impact of short-term repricings. ~~As a result of the historically~~In certain low interest rate ~~environment,~~environments, the calculated effects of the 100 and 200 basis point downward shocks cannot absolutely reflect the risk to earnings and equity, since the interest rates on certain balance sheet items have approached their minimums. Therefore, it is not possible for the analyses to fully measure the true impact of these downward shocks.

(In thousands)

Net Portfolio Value - Performance Summary

As of September 30, 2017

As of December 31, 2016

Projected Interest
Rate Scenario

Estimated
Value

Change
from
Base ($)

Change
from
Base (%)

Estimated
Value

Change
from
Base ($)

Change
from
Base (%)

+200
99,330 (5,093 ) (4.9 ) 102,546 (1,629 ) (1.6)
+100
102,910 (1,513 ) (1.5 ) 104,044 (130 ) (0.1)
BASE
104,423 - - 104,174 - -
-100 104,873 450 0.4 105,408 1,233 1.2
-200 106,334 1,911 1.8 107,152 2,977 2.9

Net Interest Income - Performance Summary

September 30, 2017

Year ended December 31, 2016

Projected Interest
Rate Scenario

Estimated
Value

Change
from
Base ($)

Change
from
Base (%)

Estimated
Value

Change
from
Base ($)

Change
from
Base (%)

+200
29,474 397 1.4 25,588 976 4.0
+100
29,373 296 1.0 25,149 538 2.2
BASE
29,076 - - 24,611 - -
-100 28,447 (629 ) (2.2 ) 23,956 (655 ) (2.7)
-200 28,367 (709 ) (2.4 ) 24,073 (538 ) (2.2)


	Net Portfolio Value - Performance Summary
(In thousands)	June 30, 2023						As of December 31, 2022
Projected Interest Rate Scenario	Estimated Value		Change from Base ($)		Change from Base (%)		Estimated Value		Change from Base ($)		Change from Base (%)
+200	$	113,674	$	(16,044)	(12.37)	%	$	146,888	$	(15,357)	(9.47)	%
+100	123,876		(5,842)		(4.50)	%	157,368		(4,877)		(3.01)	%
BASE	129,718		—		—		162,245		—		—
-100	133,459		3,741		2.88	%	163,472		1,227		0.76	%
-200	128,069		(1,649)		(1.27)	%	155,386		(6,859)		(4.23)	%


	Net Interest Income - Performance Summary
(In thousands)	June 30, 2023						December 31, 2022
Projected Interest Rate Scenario	Estimated Value		Change from Base		Change from Base (%)		Estimated Value		Change from Base ($)		Change from Base (%)
+200	$	41,089	$	(1,869)	(4.35)	%	$	46,131	$	(1,177)	(2.49)	%
+100	42,150		(808)		(1.88)	%	46,938		(370)		(0.78)	%
BASE	42,958		—		—		47,308		—		—
-100	43,957		999		2.33	%	47,657		349		0.74	%
-200	45,082		2,124		4.94	%	46,747		(561)		(1.19)	%

Table of Contents
Item 4: Controls and Procedures

Evaluation of Disclosure Controls and Procedures

~~The Bank~~

Patriot maintains disclosure controls and procedures that are designed to provide reasonable assurance that information ~~which~~that is required to be disclosed ~~timely, is accumulated and communicated to management~~ in a timely fashion. In designing and evaluating such controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management is necessarily required to use judgment in evaluating controls and procedures.

~~An evaluation of the effectiveness of the Company~~’s disclosure controls and procedures was performed by the Company’s management, with the participation of the Company’s Chief Executive Officer and its Chief Financial Officer, as of the end of the period covered by this report. As used herein, “disclosure controls and procedures” means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports ~~that it files~~filed or ~~submits~~submitted under the ~~Securities~~ Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and ~~forms.~~

~~Disclosure controls~~forms and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is accumulated and communicated to management in a timely fashion.

Patriot’s management, with the ~~Company’s management, including~~participation of its ~~principal executive~~Chief Executive Officer and ~~principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on the~~its Chief Financial Officer, conducted an evaluation, ~~the aforementioned officers concluded that,~~ as of ~~September 30, 2017,~~ the ~~Company’s~~end of the period covered by this report, of the effectiveness of its disclosure controls and procedures, ~~were effective.~~

~~Internal Control over Financial Reporting~~

~~A material weakness~~as such term is defined in Exchange Act Rule 13a-15(e). In connection with our self-evaluation an accounting error was identified as explained in the ~~Company’s internal control over~~explanatory note contained in this filing, Patriot's Chief Executive Officer and Chief Financial Officer have determined that the Company’s financial reporting ~~was disclosed in Item 9A, Controls~~controls and ~~Procedures, of~~procedures with respect to the ~~Company’s annual report on Form 10-K,~~allowance for credit losses were not operating effectively for the ~~year~~quarter ended December 31, 2016. The Company did not have effective controls over (i) the recording, monitoring and valuation of eligible collateral when calculating specific reserves on impaired loans; and (ii) controls over the development and monitoring of qualitative factors used in calculating the general component of the loan loss reserve in accordance with the approved allowance for loan losses policy. Based on their evaluation,June 30, 2023. Accordingly, management ~~concluded~~has determined that ~~as of December 31, 2016,~~ the Company's disclosure controls and procedures were not effective as ~~a result~~ of June 30, 2023.

Changes in Internal Control Over Financial Reporting

Except as described above, there was no change in the ~~material weakness in internal controls over financial reporting that affected its financial reporting during the second and third quarters of 2016.~~

~~In response to the identified material weakness, management implemented changes to its disclosure controls and procedures and its system of~~Company’s internal control over financial reporting ~~in each of the quarters ended December 31, 2016~~, March 31, 2017, June 30, 2017 and September 30, 2017, including changes to the process and procedures for establishing allowances for loan loss and enhancements to create a more robust review process. Other implemented enhancements include strengthened controls over the monitoring and valuation of collateral related to loans deemed to be impaired and for which specific reserves have been established.

~~Management believes all disclosure controls and procedures needed to provide reasonable assurance that information will be communicated in a timely fashion to management are now in place~~ and such controls related to the allowance for loan losses have operated for a sufficient period of time for Management to evaluate the operating effectiveness of the controls and, accordingly, Management believes the material weakness in internal control described in the preceding paragraph has been remediated.

No ~~changes in the Company’s internal controls over financial reporting have occurred~~ during the Company’s fiscal quarter ended ~~September~~June 30, ~~2017~~2023 that ~~have~~has materially affected, or ~~are~~is reasonably likely to materially affect, the Company’s internal ~~controls~~control over financial reporting.

Limitations on the Effectiveness of Controls

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. In addition, projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and/or procedures may deteriorate.

Table of Contents

PART II - OTHER INFORMATION

Item 1: Legal Proceedings

~~Neither the Company nor the Bank has~~

Patriot does not have any pending legal proceedings, other than ordinary routine litigation, incidental to its business, to which ~~the Company or the Bank~~Patriot is a party or any of its property is subject.

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.

Item ~~1A:~~ ~~Risk Factors~~

~~During~~ 5: Other Information

On August 8, 2023, the ~~three~~Company and ~~nine months ended September 30, 2017, there were no material changes~~the Bank entered into a Retention and Severance Agreement (the “Agreement”) with Joseph Perillo, the Executive Vice President and Chief Financial Officer of the Company and the Bank, in exchange for Mr. Perillo’s ongoing services to the ~~risk factors relevant~~Company and the Bank, and for providing an orderly transition at the time of Mr. Perillo’s retirement in the future. Pursuant to the ~~Company’s operations, which are described~~Agreement, Mr. Perillo will be eligible to receive certain additional compensation including: (i) a payment in the ~~Annual Report on Form 10-K for the year ended December 31, 2016, except as follows.~~

~~Our stockholders may experience dilution upon the repurchase~~amount of ~~common shares.~~ ~~On July 26, 2016, our Board of Directors authorized a stock repurchase plan permitting the Company~~$340,000 (the “Retention Payment”); (ii) an option to ~~repurchase~~convert up to ~~500,000 shares~~$140,000 of the Retention Payment into restricted stock under the Company’s Amended and Restated 2020 Restricted Stock Award Plan, subject to a vesting schedule; and (iii) a payment of the full medical insurance premium under COBRA for up to 12 months after Mr. Perillo’s final day of employment (collectively, the “Additional Compensation”).

The Additional Compensation is subject to certain conditions and restrictions provided under the Agreement, including that Mr. Perillo provides not less than six months’ advance written notice of his retirement, which shall not be tendered prior to January 31, 2024.

The preceding description of the Agreement does not purport to be complete and is qualified in its ~~common stock.~~ entirety by reference to the Agreement, a form of which is filed herewith as Exhibit 10.1.

Table of Contents

ITEM 6: Exhibits

The ~~Company could have repurchased shares of its common stock in~~exhibits marked with the open market, including block purchases, at prices that may be above or below the net asset value as reported in the most recently published financial statements. The share repurchase program was in effect until July 31, 2017, or until suspended, discontinued or replaced. If the Company had repurchased shares at a price above net asset value per share, such repurchases would have resulted in an immediate dilution in net asset value per share to existing common stockholders.

section symbol (#) are interactive data files.

~~Item 6:~~ ~~Exhibits~~

No.

~~Description~~

~~3(i) (C)~~ No.						Description



3(i)						~~Certificate of Amendment of~~ Certificate of Incorporation of Patriot National Bancorp, Inc. (incorporated by reference to Exhibit 3(i) to the Company’s Current Report on Form 8-K filed on December 1, 1999).

3(i)(A)						Certificate of Amendment of Certificate of Incorporation of Patriot National Bancorp, Inc. dated July 16, 2004 (incorporated by reference to Exhibit 3(i)(A) to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2004 filed on March 25, 2005).

3(i)(B)						Certificate of Amendment of Certificate of Incorporation of Patriot National Bancorp, Inc. dated June 15, 2006 (incorporated by reference to Exhibit 3(i)(B) to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 filed on November 14, 2006).

3(i) (C)						Certificate of Amendment of Certificate of Incorporation of Patriot National Bancorp Inc. dated October 6, 2010 (incorporated by reference to Exhibit 3.1 to the Company’s ~~current report~~Current Report on Form 8-K ~~dated~~filed on October 21, 2010)

~~3(ii)~~
3(ii)						Amended and Restated By-laws of Patriot National Bancorp, Inc. (incorporated by reference to Exhibit 3(ii) to the Company’s Current Report on Form 8-K ~~dated~~filed on November 1, ~~2010 (Commission File No. 000-29599))~~2010)

~~10(a) (2)~~


10.1						~~2012 Stock Plan~~Form of ~~Bancorp (incorporated by reference from Annex A to the Proxy Statement on Form 14C filed November 1, 2011)~~

~~10(a) (20)~~

~~Amended Financial Services~~Retention and Severance Agreement, ~~(incorporated by reference to Exhibit 10(a) (20) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 (Commission File No. 000-29599)~~

~~10(a) (21~~)

~~Agreement and Plan of Merger~~dated August 8, 2023, by and ~~among~~between Patriot Bank, N.A., Patriot National Bancorp, Inc.~~, Patriot Bank, National Association, Prime Bank~~ and Jasper J. Jaser, as stockholders’ representative, dated as of August 1, 2017 (incorporated by reference to Exhibit 10(a) (21) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017)Joseph Perillo

Code of Conduct for Senior Financial Officers (incorporated by reference to Exhibit 14 to the Company’s Annual Report on Form 10 -KSB for the year ended December 31, 2004 (Commission File No. 000-29599))

31(1)

~~Subsidiaries of Bancorp (incorporated by reference to Exhibit 21 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 1999 (Commission File No. 000-29599))~~

~~31(1)~~

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

~~31(2)~~
31(2)						Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

32
32*						Section 1350 Certifications

~~101.INS#~~
101.INS#						Inline XBRL Instance Document

~~101.SCH#~~
101.SCH#						Inline XBRL Schema Document

~~101.CAL#~~
101.CAL#						Inline XBRL Calculation Linkbase Document

~~101.LAB#~~
101.LAB#						Inline XBRL Labels Linkbase Document

~~101.PRE#~~
101.PRE#						Inline XBRL Presentation Linkbase Document

~~101.DEF#~~
101.DEF#						Inline XBRL Definition Linkbase Document

104						Cover Page Interactive Data File (embedded with the Inline XBRL and contained in Exhibit 101)

The exhibits marked with the section symbol (#) are interactive data files.

*The certification is being furnished and shall not be deemed filed.

Table of Contents

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

~~Date: November 9, 2017~~
Date: November 14, 2023	Patriot National Bancorp, Inc. (Registrant)

	By:	/s/ Joseph D. Perillo
		Joseph D. Perillo
		Executive Vice President and Chief Financial Officer

	By:	/s/ David Lowery
		David Lowery
		President and Chief Executive Officer

(In thousands, except share data)	September 30, 2017			December 31, 2016

ASSETS
Cash and due from banks:
Noninterest bearing deposits and cash	$	3,337			2,596
Interest bearing deposits		25,075			89,693
Total cash and cash equivalents		28,412			92,289
Investment securities:
Available-for-sale securities, at fair value		29,586			24,428
Other investments, at cost		4,450			4,450
Total investment securities		34,036			28,878

Federal Reserve Bank stock, at cost		2,460			2,109
Federal Home Loan Bank stock, at cost		6,353			5,609
Loans receivable (net of allowance for loan losses: 2017: $6,222, 2016: $4,675)		703,896			576,982
Accrued interest and dividends receivable		3,501			2,726
Premises and equipment, net		34,713			32,759
Other real estate owned		851			851
Deferred tax asset		10,686			12,632
Other assets		1,823			1,819
Total assets	$	826,731			756,654

Liabilities
Deposits:
Noninterest bearing deposits	$	76,875			76,772
Interest bearing deposits		528,539			452,552
Total deposits		605,414			529,324

Federal Home Loan Bank and correspondent bank borrowings		130,000			138,000
Senior notes, net		11,684			11,628
Junior subordinated debt owed to unconsolidated trust		8,085			8,079
Note payable		1,627			1,769
Advances from borrowers for taxes and insurance		1,799			2,676
Accrued expenses and other liabilities		1,812			2,608
Total liabilities		760,421			694,084

Commitments and Contingencies

Shareholders' equity
Preferred stock, no par value; 1,000,000 shares authorized, no shares issued and outstanding		-			-
Common stock, $.01 par value, 100,000,000 shares authorized; 2017: 3,969,461 shares issued; 3,895,720 shares outstanding. 2016: 3,965,538 shares issued; 3,891,897 shares outstanding		40			40
Additional paid-in capital		106,834			106,729
Accumulated deficit		(39,394	)		(42,902	)
Less: Treasury stock, at cost: 2017 and 2016, 73,741 and 73,641 shares, respectively		(1,179	)		(1,177	)
Accumulated other comprehensive gain (loss)		9			(120	)
Total shareholders' equity		66,310			62,570
Total liabilities and shareholders' equity	$	826,731			756,654


	June 30, 2023		December 31, 2022
(In thousands, except share data)	Unaudited

Assets
Cash and due from banks:
Noninterest bearing deposits and cash	$	2,320	$	5,182
Interest bearing deposits	68,489		33,311
Total cash and cash equivalents	70,809		38,493
Investment securities:
Available-for-sale securities, at fair value	90,547		84,520
Other investments, at cost	4,450		4,450
Total investment securities	94,997		88,970

Federal Reserve Bank stock, at cost	2,523		2,627
Federal Home Loan Bank stock, at cost	8,072		3,874
Loans receivable (net of allowance for credit losses: 2023: $24,098 and 2022: $10,310)	906,636		838,006
Loans held for sale	5,860		5,211
Accrued interest and dividends receivable	7,628		7,267
Premises and equipment, net	30,262		30,641

Deferred tax asset	20,386		15,527
Goodwill	1,107		1,107
Core deposit intangible, net	226		249
Other assets	9,202		11,387
Total assets	$	1,157,708	$	1,043,359

Liabilities
Deposits:
Noninterest bearing deposits	$	127,817	$	269,636
Interest bearing deposits	735,562		590,810
Total deposits	863,379		860,446

Federal Home Loan Bank and correspondent bank borrowings	207,000		85,000
Senior notes, net	11,653		11,640
Subordinated debt, net	9,854		9,840
Junior subordinated debt owed to unconsolidated trust, net	8,132		8,128
Note payable	481		585
Advances from borrowers for taxes and insurance	3,094		886
Accrued expenses and other liabilities	7,704		7,251
Total liabilities	1,111,297		983,776

Commitments and Contingencies

Shareholders' equity
Preferred stock, no par value; 1,000,000 shares authorized, no shares issued and outstanding	—		—
Common stock, $.01 par value, 100,000,000 shares authorized; As of June 30, 2023: 4,038,927 shares issued; 3,965,186 shares outstanding; As of December 31, 2022: 4,038,927 shares issued; 3,965,186 shares outstanding.	106,611		106,565
Accumulated deficit	(44,161)		(31,337)
Accumulated other comprehensive loss	(16,039)		(15,645)
Total shareholders' equity	46,411		59,583
Total liabilities and shareholders' equity	$	1,157,708	$	1,043,359

	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except per share amounts)	2017		2016		2017			2016

Interest and Dividend Income
Interest and fees on loans	$	8,522		6,188		22,720			17,811
Interest on investment securities		275		131		688			405
Dividends on investment securities		105		88		280			264
Other interest income		65		25		148			94
Total interest and dividend income		8,967		6,432		23,836			18,574

Interest Expense
Interest on deposits		1,339		549		3,457			1,518
Interest on Federal Home Loan Bank borrowings		248		73		509			258
Interest on senior debt		229		-		686			-
Interest on subordinated debt		92		85		266			250
Interest on note payable		7		9		24			25
Total interest expense		1,915		716		4,942			2,051

Net interest income		7,052		5,716		18,894			16,523

Provision (Credit) for Loan Losses		545		355		(944	)		2,314

Net interest income after provision (credit) for loan losses		6,507		5,361		19,838			14,209
Non-interest Income
Loan application, inspection and processing fees		25		64		61			152
Deposit fees and service charges		149		150		444			451
Rental Income		117		104		302			311
Loss on sale of investment securities		-		-		(78	)		-
Other income		95		94		283			273
Total non-interest income		386		412		1,012			1,187

Non-interest Expense
Salaries and benefits		2,741		2,169		7,668			7,334
Occupancy and equipment expense		796		783		2,378			2,313
Data processing expense		340		288		786			814
Professional and other outside services		449		409		1,651			1,182
Advertising and promotional expense		81		128		266			341
Loan administration and processing expense		22		14		45			30
Regulatory assessments		230		159		572			453
Insurance expense		66		57		181			168
Material and communications		97		106		287			314
Other operating expense		400		328		1,096			992
Total non-interest expense		5,222		4,441		14,930			13,941

Income before income taxes		1,671		1,332		5,920			1,455

Expense for Income Taxes		658		518		2,373			570

Net income	$	1,013		814		3,547			885

Basic earnings per share	$	0.26		0.21		0.91			0.22
Diluted earnings per share	$	0.26		0.21		0.91			0.22

(In thousands)	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016

Net income	$	1,013			814			3,547			885
Other comprehensive income
Unrealized holding gains on securities		2			71			289			186
Income tax effect		(1	)		(28	)		(112	)		(72	)

Reclassification for realized losses on sale of investment securities		-			-			(78	)		-
Income tax effect		-			-			30			-

Total other comprehensive income		1			43			129			114

Comprehensive income	$	1,014			857			3,676			999

(In thousands, except shares)	Number of Shares			Common Stock		Additional Paid-in Capital		Accumulated Deficit			Treasury Stock			Accumulated Other Comprehensive Loss			Total


Balance at December 31, 2016		3,891,897		$	40		106,729		(42,902	)		(1,177	)		(120	)		62,570
Comprehensive income:
Net income		-			-		-		3,547			-			-			3,547
Other comprehensive income		-			-		-		-			-			129			129
Total comprehensive income		-			-		-		3,547			-			129			3,676
Purchase of treasury stock		(100	)									(2	)					(2	)
Common stock dividends									(39	)								(39	)
Share-based compensation expense		-			-		105		-			-			-			105
Vesting of restricted stock		3,923			-		-		-			-			-			-
Balance at September 30, 2017		3,895,720		$	40		106,834		(39,394	)		(1,179	)		9			66,310



Balance at December 31, 2015		3,956,207			40		106,568		(44,832	)		(160	)		(152	)		61,464
Comprehensive income:
Net income		-			-		-		885			-			-			885
Unrealized holding gain on available-for-sale securities, net of tax		-			-		-		-			-			114			114
Total comprehensive income		-			-		-		885			-			114			999
Purchase of treasury stock		(518	)									(7	)					(7	)
Share-based compensation expense		-			-		126		-			-			-			126
Vesting of restricted stock		4,214			-		-		-			-			-			-
Balance at September 30, 2016		3,959,903		$	40		106,694		(43,947	)		(167	)		(38	)		62,582

	Nine Months Ended September 30,
(In thousands)	2017			2016

Cash Flows from Operating Activities:
Net income	$	3,547			885
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of investment premiums, net		66			97
Amortization and accretion of purchase loan premiums and discounts, net to loans		476			118
Amortization of debt issuance costs		62			5
(Credit) provision for loan losses		(944	)		2,314
Depreciation and amortization		926			920
Loss on sales of available-for-sale securities		78			-
Share-based compensation		105			126
Deferred income taxes		1,864			351
Gain on acquisition of OREO		-			(11	)
Changes in assets and liabilities:
Increase in accrued interest and dividends receivable		(775	)		(298	)
Increase in other assets		(4	)		(426	)
Decrease in accrued expenses and other liabilities		(796	)		(40	)
Net cash provided by operating activities		4,605			4,041

Cash Flows from Investing Activities:
Proceeds from sales on available-for-sale securities		13,846			5,000
Principal repayments on available-for-sale securities		1,639			2,092
Purchases of available-for-sale securities		(20,576	)		(1,000	)
Purchases of Federal Reserve Bank stock		(351	)		-
(Purchases) redemptions of Federal Home Loan Bank stock		(744	)		827
Increase in net originations of loans receivable		(53,424	)		(57,991	)
Purchase of loan pools receivable		(73,022	)		(18,976	)
Purchase of premises and equipment		(2,880	)		(2,349	)
Net cash used in investing activities		(135,512	)		(72,397	)

Cash Flows from Financing Activities:
Increase in deposits, net		76,090			26,505
(Repayments of) increase in FHLB and correspondent bank borrowings		(8,000	)		3,000
Principal repayments of note payable		(142	)		(139	)
Decrease in advances from borrowers for taxes and insurance		(877	)		(889	)
Purchases of treasury stock		(2	)		(7	)
Dividends paid on common stock		(39	)		-
Net cash provided by financing activities		67,030			28,470

Net decrease in cash and cash equivalents		(63,877	)		(39,886	)

Cash and cash equivalents at beginning of period		92,289			85,400

Cash and cash equivalents at end of period	$	28,412			45,514


Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	4,467			2,398
Cash paid for income taxes	$	475			253

Supplemental Disclosures of Noncash Investing Activities:
Transfers of loans receivable to other real estate owned	$	-			840


(In thousands)	As of January 1, 2023
Adoption of CECL effective January 1, 2023:	Previously Reported		Adjustment		Restated
CECL adoption transition_ ACL on loans	$	(7,371)	$	(5,630)	$	(13,001)
CECL adoption transition_ ACL on Off-BS exposure	(1,094)		(1,643)		(2,737)
CECL adoption transition_ DTA Adjustment	2,274		1,954		4,228
Cumulative change in accounting principle Balance at January 1, 2023 - Adoption of CECL	(6,191)		(5,319)		(11,510)


	As of June 30, 2023
(In thousands)	Previously Reported			Adjustment			Restated
Loans receivable, net of allowance for credit losses	$	913,876		$	(7,240)		$	906,636
Deferred tax asset	18,169			2,217			20,386
Total assets	1,162,731			(5,023)			1,157,708
Accrued expenses and other liabilities	6,693			1,011			7,704
Accumulated deficit	(38,127)			(6,034)			(44,161)
Total shareholders' equity	52,445			(6,034)			46,411

Tier 1 Leverage ratio	8.70		%	(0.16)		%	8.54		%


	Three Months Ended June 30, 2023						Six Months Ended June 30, 2023
(In thousands, except shares and per share amounts)	Previously Reported		Adjustment		Restated		Previously Reported		Adjustment		Restated
Provision for credit losses	$	1,231	$	94	$	1,325	$	2,567	$	978	$	3,545
Net interest income after provision for credit losses	6,482		(94)		6,388		13,159		(978)		12,181
Loss before income taxes	(752)		(94)		(846)		(824)		(978)		(1,802)
Benefit for income taxes	(206)		(25)		(231)		(225)		(263)		(488)
Net loss	(546)		(69)		(615)		(599)		(715)		(1,314)
Total comprehensive loss	(2,187)		(69)		(2,256)		(993)		(715)		(1,708)

Basic and diluted income per share	$	(0.14)	$	(0.02)	$	(0.16)	$	(0.15)	$	(0.18)	$	(0.33)

Consolidated Statement of Cash Flows:
Net loss	N/A		N/A		N/A		$	(599)	$	(715)	$	(1,314)
Provision for credit losses	N/A		N/A		N/A		2,567		978		3,545
Deferred income taxes	N/A		N/A		N/A		(231)		(263)		(494)

(In thousands)	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized (Loss)			Fair Value		Unrealized (Loss)			Fair Value		Unrealized (Loss)
September 30, 2017:
U. S. Government agency mortgage-backed securities	$	626		(2	)		3,329		(67	)		3,955		(69	)
Corporate bonds		13,905		(95	)		-		-			13,905		(95	)
	$	14,531		(97	)		3,329		(67	)		17,860		(164	)

December 31, 2016:
U. S. Government agency mortgage-backed securities	$	5,969		(144	)		3,356		(48	)		9,325		(192	)
Corporate bonds		-		-			5,961		(39	)		5,961		(39	)
	$	5,969		(144	)		9,317		(87	)		15,286		(231	)

(In thousands)	Amortized Cost								Fair Value
	Due Within 5 years		Due After 5 years through 10 years		Due After 10 years		Total		Due Within 5 years		Due After 5 years through 10 years		Due After 10 years		Total
September 30, 2017:
Corporate bonds	$	-		9,000		5,000		14,000		-		8,954		4,951		13,905
Subordinated Notes		1,000		6,500		-		7,500		1,019		6,626		-		7,645
Available-for-sale securities with single maturity dates		1,000		15,500		5,000		21,500		1,019		15,580		4,951		21,550
U. S. Government agency mortgage-backed securities		-		940		7,131		8,071		-		920		7,116		8,036
	$	1,000		16,440		12,131		29,571		1,019		16,500		12,067		29,586

December 31, 2016:
Corporate bonds	$	9,000		-		-		9,000		8,961		-		-		8,961
Subordinated Notes		1,000		4,000		-		5,000		1,026		4,000		-		5,026
Available-for-sale securities with single maturity dates		10,000		4,000		-		14,000		9,987		4,000		-		13,987
U. S. Government agency mortgage-backed securities		-		2,132		8,492		10,624		-		2,106		8,335		10,441
	$	10,000		6,132		8,492		24,624		9,987		6,106		8,335		24,428

(In thousands)
Loan portfolio segment:	September 30, 2017			December 31, 2016
Commercial Real Estate	$	296,625			271,229
Residential Real Estate		150,664			86,514
Commercial and Industrial		117,673			60,977
Consumer and Other		90,973			101,449
Construction		48,328			53,895
Construction to permanent - CRE		5,855			7,593
Loans receivable, gross		710,118			581,657
Allowance for loan losses		(6,222	)		(4,675	)
Loans receivable, net	$	703,896			576,982

(In thousands)	Non-accruing Loans
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Non-accruing Loans
As of September 30, 2017:
Loan portfolio segment:
Residential Real Estate:
Sub-standard	$	-		-		1,590		1,590		-		1,590
Commercial and Industrial:
Sub-standard		-		-		286		286		-		286
Consumer and Other
Sub-standard		-		-		175		175		-		175
Total non-accruing loans	$	-		-		2,051		2,051		-		2,051

As of December 31, 2016:
Loan portfolio segment:
Residential Real Estate:
Sub-standard	$	-		-		1,590		1,590		-		1,590
Commercial and Industrial:
Sub-standard		-		-		231		231		-		231
Total non-accruing loans	$	-		-		1,821		1,821		-		1,821

(In thousands)	Performing (Accruing) Loans
As of September 30, 2017:	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total		Current		Total Performing Loans		Non-accruing Loans		Loans Receivable Gross
Loan portfolio segment:
Commercial Real Estate:
Pass	$	1,300		-		-		1,300		277,475		278,775		-		278,775
Special Mention		652		-		-		652		12,510		13,162		-		13,162
Substandard		-		1,699		-		1,699		2,989		4,688		-		4,688
		1,952		1,699		-		3,651		292,974		296,625		-		296,625
Residential Real Estate:
Pass		556		364		1,447		2,367		145,170		147,537		-		147,537
Special Mention		-		-		-		-		1,537		1,537		-		1,537
Substandard		-		-		-		-		-		-		1,590		1,590
		556		364		1,447		2,367		146,707		149,074		1,590		150,664
Commercial and Industrial:
Pass		1,799		500		2,500		4,799		112,088		116,887		-		116,887
Substandard		-		-		500		500		-		500		286		786
		1,799		500		3,000		5,299		112,088		117,387		286		117,673
Consumer and Other:
Pass		-		125		-		125		90,673		90,798		-		90,798
Substandard		-		-		-		-		-		-		175		175
		-		125		-		125		90,673		90,798		175		90,973
Construction:
Pass		-		-		-		-		48,328		48,328		-		48,328

Construction to permanent - CRE:
Pass		-		-		-		-		5,855		5,855		-		5,855

Total	$	4,307		2,688		4,447		11,442		696,625		708,067		2,051		710,118

Loans receivable, gross:
Pass	$	3,655		989		3,947		8,591		679,589		688,180		-		688,180
Special Mention		652		-		-		652		14,047		14,699		-		14,699
Substandard		-		1,699		500		2,199		2,989		5,188		2,051		7,239
Loans receivable, gross	$	4,307		2,688		4,447		11,442		696,625		708,067		2,051		710,118

(In thousands)
	September 30, 2017						December 31, 2016
	Recorded Investment		Principal Outstanding		Related Allowance		Recorded Investment		Principal Outstanding		Related Allowance
With no related allowance recorded:
Commercial Real Estate	$	6,081		6,531		-		6,267		6,721		-
Residential Real Estate		1,904		1,935		-		1,911		2,915		-
Commercial and Industrial		-		503		-		-		-		-
Consumer and Other		715		809		-		542		631		-
Construction		-		39		-		-		-		-
		8,700		9,817		-		8,720		10,267		-

With a related allowance recorded:
Commercial Real Estate		-		-		-		-		-		-
Residential Real Estate		-		-		-		-		-		-
Commercial and Industrial		285		285		285		231		231		231
Consumer and Other		-		-		-		-		-		-
Construction		-		-		-		-		-		-
		285		285		285		231		231		231

Impaired Loans, Total:
Commercial Real Estate		6,081		6,531		-		6,267		6,721		-
Residential Real Estate		1,904		1,935		-		1,911		2,915		-
Commercial and Industrial		285		788		285		231		231		231
Consumer and Other		715		809		-		542		631		-
Construction		-		39		-		-		-		-
Impaired Loans, Total	$	8,985		10,102		285		8,951		10,498		231

(In thousands)	Three Months Ended September 30,
	2017				2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		��	Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	6,111		10		6,428			77
Residential Real Estate		1,903		-		4,787			36
Commercial and Industrial		37		-		148			-
Consumer and Other		584		-		272			-
		8,635		10		11,635			113
With a related allowance recorded:
Commercial Real Estate		-		-		-			-
Residential Real Estate		-		-		-			-
Commercial and Industrial		245		-		3,068			-
Consumer and Other		-		-		2			-
		245		-		3,070			-
Impaired Loans, Total:
Commercial Real Estate		6,111		10		6,428			77
Residential Real Estate		1,903		-		4,787			36
Commercial and Industrial		282		-		3,216			-
Consumer and Other		584		-		274			-
Impaired Loans, Total	$	8,880		10		14,705			113


(In thousands)	Notional Amount		Maturity (Years)	Fixed Rate		Variable Rate	Fair Value
June 30, 2023
Classified in Other Assets:
3rd party interest rate swap	$	4,680	5.84	5.25	%	1 Mo. LIBOR + 1.96%	$	146
3rd party interest rate swap	1,346		6.00	4.38	%	1 Mo. LIBOR + 2.00%	98

Classified in Other Liabilities:
Customer interest rate swap	$	4,680	5.84	5.25	%	1 Mo. LIBOR + 1.96%	$	(146)
Customer interest rate swap	1,346		6.00	4.38	%	1 Mo. LIBOR + 2.00%	(98)

December 31, 2022
Classified in Other Assets:
3rd party interest rate swap	$	4,736	6.30	5.25	%	1 Mo. LIBOR + 1.96%	$	106
3rd party interest rate swap	1,363		6.50	4.38	%	1 Mo. LIBOR + 2.00%	97

Classified in Other Liabilities:
Customer interest rate swap	$	4,736	6.30	5.25	%	1 Mo. LIBOR + 1.96%	$	(106)
Customer interest rate swap	1,363		6.50	4.38	%	1 Mo. LIBOR + 2.00%	(97)

Three months ended September 30, 2017:	Number of Shares Awarded			Weighted Average Grant Date Fair Value
Unvested at June 30, 2017		32,117		$	12.39
Vested		(1,692	)	$	16.80
Forfeited		(600	)	$	15.50
Unvested at September 30, 2017		29,825		$	12.08

Nine months ended September 30, 2017:
Unvested at December 31, 2016		35,264		$	12.84
Granted		5,084		$	15.05
Vested		(3,923	)	$	14.66
Forfeited		(6,600	)	$	15.50
Unvested at September 30, 2017		29,825		$	12.08

(Net income in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Basic earnings per share:
Net income attributable to Common shareholders	$	1,013		814		3,547		885

Divided by:
Weighted average shares outstanding		3,894,237		3,958,718		3,893,702		3,957,343

Basic earnings per common share	$	0.26		0.21		0.91		0.22


Diluted earnings per share:
Net income attributable to Common shareholders	$	1,013		814		3,547		885

Weighted average shares outstanding		3,894,237		3,958,718		3,893,702		3,957,343

Effect of potentially dilutive restricted common shares		9,193		-		4,854		-

Divided by:
Weighted average diluted shares outstanding		3,903,430		3,958,718		3,898,556		3,957,343

Diluted earnings per common share	$	0.26		0.21		0.91		0.22

(In thousands)
	As of September 30, 2017
Commitments to extend credit:
Unused lines of credit	$	49,464
Undisbursed construction loans		10,433
Home equity lines of credit		20,177
Future loan commitments		21,938
Financial standby letters of credit		1,299
	$	103,311

(In thousands)	Patriot National Bancorp, Inc.								Patriot Bank, N.A.
	September 30, 2017				December 31, 2016				September 30, 2017				December 31, 2016
	Amount ($)		Ratio (%)		Amount ($)		Ratio (%)		Amount ($)		Ratio (%)		Amount ($)		Ratio (%)
Total Capital (to risk weighted assets):
Actual		74,470		10.222		66,254		10.603		83,558		11.554		74,303		11.928
To be Well Capitalized⁽¹⁾		-		-		-		-		72,320		10.000		62,292		10.000
For capital adequacy with Capital Buffer⁽²⁾		-		-		-		-		66,896		9.250		53,727		8.625
For capital adequacy		58,280		8.000		49,989		8.000		57,856		8.000		49,834		8.000

Tier 1 Capital (to risk weighted assets):
Actual		68,240		9.367		61,571		9.854		77,328		10.692		69,620		11.176
To be Well Capitalized⁽¹⁾		-		-		-		-		57,856		8.000		49,834		8.000
For capital adequacy with Capital Buffer⁽²⁾		-		-		-		-		52,432		7.250		41,269		6.625
For capital adequacy		43,710		6.000		37,491		6.000		43,392		6.000		37,375		6.000

Common Equity Tier 1 Capital (to risk weighted assets):
Actual		60,240		8.269		53,571		8.573		77,328		10.692		69,620		11.176
To be Well Capitalized⁽¹⁾		-		-		-		-		47,008		6.500		40,490		6.500
For capital adequacy with Capital Buffer⁽²⁾		-		-		-		-		41,584		5.750		31,925		5.125
For capital adequacy		32,783		4.500		28,119		4.500		32,544		4.500		28,031		4.500

Tier 1 Leverage Capital (to average assets):
Actual		68,240		8.449		61,571		9.296		77,328		9.574		69,620		10.518
To be Well Capitalized⁽¹⁾		-		-		-		-		40,384		5.000		33,096		5.000
For capital adequacy		32,308		4.000		26,494		4.000		32,308		4.000		26,477		4.000

(In thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
September 30, 2017:
U. S. Government agency mortgage-backed securities	$	-		8,036		-		8,036
Corporate bonds		-		13,905		-		13,905
Subordinated notes		-		5,610		2,035		7,645

Available-for-sale securities	$	-		27,551		2,035		29,586

December 31, 2016:
U. S. Government agency mortgage-backed securities	$	-		10,441		-		10,441
Corporate bonds		-		8,961		-		8,961
Subordinated notes		-		3,026		2,000		5,026

Available-for-sale securities	$	-		22,428		2,000		24,428

(In thousands)
	Fair Value		Valuation Methodology	Unobservable Inputs	Range of Inputs
September 30, 2017:
Impaired loans	$	8,985	Real Estate Appraisals	Discount for appraisal type	0%	-	8%
OREO		851	Real Estate Appraisals	Discount for appraisal type	21%

December 31, 2016:
Impaired loans	$	8,951	Real Estate Appraisals	Discount for appraisal type	0%	-	8%
OREO		851	Real Estate Appraisals	Discount for appraisal type	21%

	September 30,		December 31,		Inc/(Dec)			Inc/(Dec)
(In thousands)	2017		2016		($)			(%)
U. S. Government agency mortgage-backed securities	$	8,036		10,441		(2,405	)		(23.03	)%
Corporate bonds		13,905		8,961		4,944			55.17	%
Subordinated notes		7,645		5,026		2,619			52.11	%
Total Available-for-Sale Securities	$	29,586		24,428		5,158			21.12	%

Period Beginning	Period Ending	No. of Shares Purchased⁽¹⁾			Average Price Paid per Share		No. of Shares Purchased as part of Publicly Announced Plans⁽¹⁾		Maximum No. of Shares that may yet be Purchased Under the Plans⁽¹⁾
November 1, 2016	November 30, 2016		629		$	13.73		629		498,853
December 1, 2016	December 31, 2016		71,324		$	14.04		71,324		427,529

Three-months ended December 31, 2016			71,953		$	14.04

August 1, 2017	August 31, 2017		100	⁽²⁾	$	17.10		0 ⁽²⁾		427,529⁽²⁾

Three-months ended September 30, 2017			100		$	17.10

(In thousands)
	Net Portfolio Value - Performance Summary
	As of September 30, 2017								As of December 31, 2016
Projected Interest Rate Scenario	Estimated Value		Change from Base ($)			Change from Base (%)			Estimated Value		Change from Base ($)			Change from Base (%)
+200		99,330		(5,093	)		(4.9	)		102,546		(1,629	)		(1.6)
+100		102,910		(1,513	)		(1.5	)		104,044		(130	)		(0.1)
BASE		104,423		-			-			104,174		-			-
-100		104,873		450			0.4			105,408		1,233			1.2
-200		106,334		1,911			1.8			107,152		2,977			2.9

	Net Interest Income - Performance Summary
	September 30, 2017								Year ended December 31, 2016
Projected Interest Rate Scenario	Estimated Value		Change from Base ($)			Change from Base (%)			Estimated Value		Change from Base ($)			Change from Base (%)
+200		29,474		397			1.4			25,588		976			4.0
+100		29,373		296			1.0			25,149		538			2.2
BASE		29,076		-			-			24,611		-			-
-100		28,447		(629	)		(2.2	)		23,956		(655	)		(2.7)
-200		28,367		(709	)		(2.4	)		24,073		(538	)		(2.2)