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Patriot National Bancorp(PNBK) - 2023 Q4 - Annual Report
PNBKPatriot National Bancorp(PNBK)2024-04-01 18:48

Credit Losses and Allowances - The Company's allowance for credit losses totaled 15.9millionasofDecember31,2023,consistingof15.9 million as of December 31, 2023, consisting of 11.7 million for collectively evaluated loans and 4.2millionforindividuallyevaluatedloans[211].−Theallowanceforcreditlossesisinfluencedbyvariouseconomicindicators,includingGDPandunemploymentrates[212].−Theallowanceforcreditlossesincreasedto4.2 million for individually evaluated loans[211]. - The allowance for credit losses is influenced by various economic indicators, including GDP and unemployment rates[212]. - The allowance for credit losses increased to 15.925 million in 2023 from 10.310millionin2022,indicatingamorecautiousapproachtocreditrisk[331].−Theprovisionforcreditlossesroseto10.310 million in 2022, indicating a more cautious approach to credit risk[331]. - The provision for credit losses rose to 7,429 thousand in 2023, compared to 1,885thousandin2022,indicatingasignificantincreaseinexpectedcreditlosses[226].−Theallowanceforcreditlossesmayincreaseduetoadeclineinloanportfolioperformanceandhigherincurredlosses[365].−Theallowanceforcreditlossesonunfundedlendingcommitmentswas1,885 thousand in 2022, indicating a significant increase in expected credit losses[226]. - The allowance for credit losses may increase due to a decline in loan portfolio performance and higher incurred losses[365]. - The allowance for credit losses on unfunded lending commitments was 271,000 as of December 31, 2023[355]. - The total allowance for credit losses (ACL) increased to 23.3millionpost−ASC326adoptionfrom23.3 million post-ASC 326 adoption from 10.3 million pre-adoption, reflecting a significant rise in reserves[260]. - The Company evaluates loans using a probability of default/loss given default (PD/LGD) method, which forecasts expected credit losses over the remaining life of the portfolio[263]. - The Company employs a risk rating system to assess the credit quality of its loan portfolio, with risk ratings reviewed and adjusted as necessary[361]. - The total charge-offs for the year ended December 31, 2023, amount to (18,417,000)[357].−Thetotalrecordedinvestmentinindividuallyevaluatedloanswas(18,417,000)[357]. - The total recorded investment in individually evaluated loans was 17,133,000, with a principal outstanding of 22,535,000andanallowanceof22,535,000 and an allowance of 4,205,000[376]. Financial Performance - The company reported a net loss of 4,179thousandin2023,comparedtoanetincomeof4,179 thousand in 2023, compared to a net income of 6,161 thousand in 2022, indicating a significant downturn[226]. - Net interest income decreased to 28,500thousandin2023from28,500 thousand in 2023 from 33,259 thousand in 2022, a decline of about 14.3%[226]. - Total assets increased to 1,093,425thousandin2023,upfrom1,093,425 thousand in 2023, up from 1,043,359 thousand in 2022, representing a growth of approximately 4.8%[223]. - Total deposits decreased to 840,311thousandin2023,downfrom840,311 thousand in 2023, down from 860,446 thousand in 2022, reflecting a reduction of approximately 2.5%[223]. - Interest expense surged to 30,457thousandin2023,upfrom30,457 thousand in 2023, up from 10,753 thousand in 2022, marking an increase of about 183%[226]. - Non-interest income increased to 6,005thousandin2023,upfrom6,005 thousand in 2023, up from 3,605 thousand in 2022, representing a growth of approximately 66.7%[226]. - The accumulated deficit increased to 47,026thousandin2023from47,026 thousand in 2023 from 31,337 thousand in 2022, reflecting a worsening financial position[223]. - The total shareholders' equity decreased to 44,383thousandin2023,downfrom44,383 thousand in 2023, down from 59,583 thousand in 2022, a decline of approximately 25.4%[223]. - Cash flows from operating activities resulted in a net cash used of 10,715,000in2023,adecreasefromnetcashprovidedof10,715,000 in 2023, a decrease from net cash provided of 7,036,000 in 2022[232]. - Cash paid for interest increased to 29,631,000in2023from29,631,000 in 2023 from 10,472,000 in 2022, indicating higher borrowing costs[233]. Interest Rate Risk Management - Management's interest income simulations indicate that changes in interest rates can significantly affect net interest income, with quarterly simulations presented to the Asset and Liability Committee[193]. - The Management Asset and Liability Committee monitors interest rate risk to maximize net interest income while maintaining acceptable risk levels[191]. - The Company’s strategy includes originating variable rate loans and purchasing short-term investments to manage interest rate risk[190]. - The estimated net interest income under a +200 basis points interest rate scenario is projected to decrease by 5.10% to 107,524thousandasofDecember31,2023[196].−Theestimatednetportfoliovalueundera−200basispointsinterestratescenarioisprojectedtodecreaseby5.81107,524 thousand as of December 31, 2023[196]. - The estimated net portfolio value under a -200 basis points interest rate scenario is projected to decrease by 5.81% to 106,718 thousand as of December 31, 2023[196]. Goodwill and Intangible Assets - The Company recognized a goodwill impairment of 1.1millionandhadnogoodwillbalanceasofDecember31,2023[219].−Patriotevaluatesgoodwillforimpairmentannually,withthelastassessmentconductedonOctober31,andconsidersmultiplevaluationtechniques[286].−Thecompanyrecordedanintangibleassetimpairmentof1.1 million and had no goodwill balance as of December 31, 2023[219]. - Patriot evaluates goodwill for impairment annually, with the last assessment conducted on October 31, and considers multiple valuation techniques[286]. - The company recorded an intangible asset impairment of 1,107 thousand in 2023, which was not present in 2022[226]. Regulatory and Accounting Changes - The Company adopted ASC 326 on January 1, 2023, presenting accrued interest receivable balances separately on the Consolidated Balance Sheet and fully reserving uncollectible accrued interest receivable[271]. - The Company recorded a net reduction of retained earnings of 11.5millionuponadoptingASC326,whichincludesanincreaseincredit−relatedreservesof11.5 million upon adopting ASC 326, which includes an increase in credit-related reserves of 13.0 million and an unfunded commitment reserve of 2.7million[259].−TheCompanyadoptedASU2022−02effectiveJanuary1,2023,whicheliminatedtheaccountingguidancefortroubleddebtrestructurings(TDRs)whileenhancingdisclosurerequirements[270].−TheadoptionofASU2022−02didnothaveamaterialimpactontheCompany′sConsolidatedFinancialStatements[314].−TheCompanydoesnotexpecttheadoptionofASU2023−06toimpactitsfinancialconditionbutmaychangecertaindisclosures[317].−TheCompanywilladoptASU2023−09forannualperiodsbeginningJanuary1,2025,withoutexpectingamaterialimpactonitsConsolidatedFinancialStatements[318].LoanPortfolioandPerformance−Thegrossloansreceivabletotal2.7 million[259]. - The Company adopted ASU 2022-02 effective January 1, 2023, which eliminated the accounting guidance for troubled debt restructurings (TDRs) while enhancing disclosure requirements[270]. - The adoption of ASU 2022-02 did not have a material impact on the Company's Consolidated Financial Statements[314]. - The Company does not expect the adoption of ASU 2023-06 to impact its financial condition but may change certain disclosures[317]. - The Company will adopt ASU 2023-09 for annual periods beginning January 1, 2025, without expecting a material impact on its Consolidated Financial Statements[318]. Loan Portfolio and Performance - The gross loans receivable total 848,859,000 as of December 31, 2023, compared to 848,316,000in2022[359].−Thecommercialrealestateloanportfolioincreasedto848,316,000 in 2022[359]. - The commercial real estate loan portfolio increased to 472.093 million in 2023, up from 437.443millionin2022[331].−Thecompanyhasnotemphasizedoriginatingconsumerloans,focusinginsteadonhigher−yieldingloans[338].−Themaximumloan−to−valueforcommercialrealestateloansislimitedto75437.443 million in 2022[331]. - The company has not emphasized originating consumer loans, focusing instead on higher-yielding loans[338]. - The maximum loan-to-value for commercial real estate loans is limited to 75% of the market value of the underlying collateral[332]. - The company does not engage in subprime lending practices, focusing on borrowers with stronger credit histories[340]. - The loan portfolio aging analysis indicated that as of December 31, 2023, total performing loans were 830.732 million, with non-performing loans at 18.127million[369].−Thecompanyismonitoringtheperformanceofitsloanportfolioclosely,withafocusonaddressingidentifiedweaknessesinsubstandardassets[366].−Thecommercialrealestatesegmentreportedpassloansof18.127 million[369]. - The company is monitoring the performance of its loan portfolio closely, with a focus on addressing identified weaknesses in substandard assets[366]. - The commercial real estate segment reported pass loans of 452.841 million, while special mention and substandard loans were 6.482millionand6.482 million and 12.770 million, respectively[367]. - The residential real estate segment had total loans of 106.783million,allclassifiedaspassloans[367].−Theconsumerandothersegmentreportedpassloansof106.783 million, all classified as pass loans[367]. - The consumer and other segment reported pass loans of 98.711 million, with substandard loans amounting to 977thousand[367].−ThetotalamountofSBAloansheldforinvestmentwas977 thousand[367]. - The total amount of SBA loans held for investment was 30.0 million in 2023, down from 32.5millionin2022[346].−ThetotalamountofSBAloansheldforsaleincreasedfrom32.5 million in 2022[346]. - The total amount of SBA loans held for sale increased from 5.2 million in 2022 to 9.9millionin2023,with9.9 million in 2023, with 3.5 million in commercial and industrial loans and $6.4 million in commercial real estate loans[381].