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Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.60pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-1.42pp
Big -
Net-tone change vs last year's 10-K.
MD&A
+0.21pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
adversely+14
penalties+8
litigation+8
deficiencies+8
fail+7
Positive rising
effective+5
stability+3
enhanced+3
adequately+3
leadership+3
Risk Factors (Item 1A)
6,754 words
ITEM 1A. Risk Factors
An investment in our securities involves risks. You should carefully consider the risks and uncertainties described below, together with the other information in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The occurrence of any of the following risks, alone or in combination with other events or circumstances, could materially adversely affect our business, financial condition, results of operations, liquidity, capital, reputation, and the trading price of our common stock.
Risks Relating to Regulatory Oversight, Remediation and Strategic Repositioning
The Bank is subject to the Formal Agreement, and failure to satisfy its requirements could result in additional supervisory or enforcement actions, restrictions on our business, and other material adverse consequences.
On January 17, 2025, the Bank entered into the Formal Agreement. The OCC found unsafe or unsound practices and violations of law, rule, or regulation relating to, among other things, strategic planning, capital planning, BSA/AML risk management, payment activities oversight, credit administration, and concentration risk management. The Formal Agreement requires the Bank to implement extensive corrective actions relating to capital, liquidity, governance, strategic planning, BSA/AML, payments oversight, credit administration, concentration risk, and related reporting and controls.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
declined+7
nonperforming+4
absence+2
critical+1
limitations+1
Positive rising
improved+7
improvement+3
enhanced+2
benefited+2
improve+1
MD&A (Item 7)
7,391 words
Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding the consolidated financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the consolidated financial statements and accompanying notes thereto included in Item 8 of this Annual Report on Form 10-K.
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Critical Accounting Estimates
The Company’s consolidated financial statements are prepared in accordance with United States of America (“U.S. GAAP”) and follow general practices within the financial services industry. A summary of Patriot’s significant accounting policies is included in the Notes to consolidated financial statements that are referenced in Item 8. Financial Statements and Supplementary Data. Although all of Patriot’s policies are integral to understanding its consolidated financial statements, certain accounting policies involve management to exercise judgment, develop assumptions, and make estimates that may have a material impact on the financial information presented in the consolidated financial statements or Notes thereto. Management considers an accounting estimate to be critical if it requires assumptions that are highly uncertain at the time the estimate is made and changes in those assumptions are reasonably likely to have a material effect on the Company’s financial condition or results of operations. Management has discussed the development and selection of its accounting estimates with the Audit Committee. The assumptions and estimates are based on historical experience and other factors representing the available information to management as of the date of the consolidated financial statements, up to and including the date of issuance or availability for issuance. As the basis for the assumptions and estimates incorporated in the consolidated financial statements may change, actual results could differ from those estimates.
Compliance with the Formal Agreement requires substantial management attention, Board oversight, personnel, systems, and expense. There can be no assurance that our remediation efforts will be completed on the timelines we expect, that they will be viewed by the OCC as satisfactory, or that the OCC will terminate the Formal Agreement within any particular period. If we fail to satisfy the requirements of the Formal Agreement, or if the OCC determines that our corrective actions are not sufficiently effective or sustainable, we could be subject to additional supervisory or enforcement actions, restrictions on growth or activities, limitations on dividends or other capital actions, objections to new products, services, or personnel changes, civil money penalties, receivership, or other adverse consequences. Any of these outcomes could materially adversely affect our business, financial condition, results of operations, reputation, and strategic flexibility.
The Bank is in “troubled condition” for regulatory purposes, which may subject us to heightened scrutiny, limit our flexibility, and adversely affect our business and growth prospects.
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The Formal Agreement provides that, as a result of the Agreement, the Bank is in “troubled condition,” a regulatory designation that applies, among other circumstances, when a national bank is subject to a formal written agreement requiring action to improve its financial condition, unless otherwise informed in writing by the OCC. The Formal Agreement also provides that the Bank is not an “eligible bank” for certain purposes unless otherwise informed in writing by the OCC. This status may increase supervisory scrutiny and may affect our ability to pursue acquisitions, branches, new business activities, new offices, product launches, strategic deviations, or other corporate actions on the timeline or in the manner we would otherwise prefer. It may also adversely affect counterparties’, customers’, investors’, and employees’ perceptions of the Bank and could make it more difficult or more expensive for us to attract deposits, retain or recruit key personnel, raise capital, obtain regulatory approvals, or pursue aspects of our strategic plan.
Our business is undergoing a substantial strategic repositioning and we may not successfully execute the transition to our revised business model.
During 2025, we substantially reconstituted our management team and Board, recapitalized the Company, and began repositioning the Bank around targeted client segments, including high net worth individuals, family offices, entrepreneurs, investors, business leaders and the businesses that serve them, digital payments and related institutional banking clients, and certain underbanked but creditworthy customers. The strategic plan contemplates narrowing certain legacy activities, reducing or eliminating certain non-core products, replacing portions of the legacy portfolio, and building enhanced risk management, reporting, and operating capabilities.
Our repositioning may not succeed, may take longer than expected, or may expose us to execution risk, operational disruption, client attrition, elevated expenses, and financial underperformance. We may not achieve the revenue mix, deposit mix, credit performance, operating efficiency, or risk-adjusted returns contemplated by management. If the repositioning is unsuccessful, our business, financial condition, and results of operations could be materially adversely affected.
Our remediation efforts are extensive and ongoing and they may not be effective, timely, or sustainable.
The Formal Agreement requires corrective action across a broad range of areas, including strategic planning, capital planning, BSA/AML, customer identification, program manager due diligence and monitoring, suspicious activity monitoring and look-back reviews, BSA/AML risk assessment, BSA staffing and training, payment activities oversight, credit administration, concentration risk management, and liquidity risk management.
These remediation efforts are complex and interdependent. They require timely design, implementation, documentation, testing, governance, and sustained effectiveness. Even if corrective actions are adopted, they may not operate as intended, may reveal additional gaps, may require costly redesign, or may be challenged by staffing turnover, data quality issues, vendor limitations, or business growth. If our remediation efforts are delayed, ineffective, or not sustained over time, we could remain subject to heightened supervisory concerns and additional restrictions or enforcement action.
We are subject to numerous laws and governmental regulations and to regular examinations by regulators of our business and compliance with laws and regulations, and our failure to comply with such laws and regulations or to adequately address any matters identified during our examinations could materially and adversely affect us.
Federal banking agencies regularly conduct comprehensive examinations of our business, including our compliance with applicable laws, regulations and policies. Examination reports and ratings (which often are not publicly available) and other aspects of this supervisory framework can materially impact the conduct, organic and acquisition growth and profitability of our business. Our regulators have extensive discretion in their supervisory and enforcement activities and have imposed and may in the future impose a variety of remedial actions if, as a result of an examination, they determined that our financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of our operations had become unsatisfactory, or that we or our management were in violation of any law, regulation or policy. Examples of those actions could include requiring affirmative actions to correct any conditions resulting from any asserted violation of law, issuing administrative orders that can be judicially enforced, enjoiningunsafe or unsound practices, directing increases in our capital, assessing civil monetary penaltiesagainst our officers or directors, removing officers and directors and, if a conclusion was reached that the offending conditions cannot be corrected, or there is an imminent risk of loss to depositors, terminating our deposit insurance. Other actions, formal or informal, that may be imposed could restrict our growth, including regulatory denials to expand branches, relocate, add or restructure subsidiaries and affiliates, expand into new financial activities or merge with or purchase other financial institutions. The timing of these examinations, including the timing of the resolution of any issues identified by our
2025 FORM 10-K 10
regulators in the examinations and the final determination by them with respect to the imposition of any remedial actions, conditions or limitations on our business operations, is generally not within our control. We also could suffer reputational harm in the event of any perceived or actual noncompliance with certain laws and regulations. If we become subject to such regulatory actions, we could be materially and adversely affected.
Regulations addressing consumer privacy and data use and security could increase our costs and impact our reputation.
We are subject to federal, state and local laws related to consumer privacy and data use and security, including information safeguard rules under the Gramm-Leach-Bliley Act. These rules require financial institutions to develop, implement, and maintain a written, comprehensive information security program containing safeguards that are appropriate to the financial institution’s size and complexity, the nature and scope of the financial institution’s activities, and the sensitivity of any customer information at issue. The United States has experienced a heightened legislative and regulatory focus on privacy and data security, including requirements as to consumer notification in the event of data breaches and certain types of security breaches. Additional regulations in these areas may increase compliance costs, which could negatively impact earnings. In addition, failure to comply with the privacy, data use and security laws and regulations to which we are subject, including by reason of inadvertent disclosure of confidential information, could result in fines, sanctions, penalties, reputational harm, loss of consumer confidence, and other adverse consequences, any of which could have a material adverse effect on our results of operations and business.
The Bank may be required to pay significantly higher FDIC premiums, special assessments, or taxes that could adversely affect its earnings.
Market developments have significantly impacted the insurance fund of the FDIC. As a result, the Bank may be required to pay higher premiums, or special assessments, that could adversely affect earnings. Our designation as a troubled institution operating under the Formal Agreement may also subject us to elevated FDIC and other regulatory fees. The amount of premiums the FDIC requires for the insurance coverage it provides is outside the Bank’s control. If there are additional banks or financial institution failures, the Bank may be required to pay higher FDIC premiums than are currently assessed. Increases in FDIC insurance premiums, including any future increases or required prepayments, may materially adversely affect the Bank’s results of operations.
Changing regulation of corporate governance and public disclosure.
Patriot is subject to laws, regulations, and standards relating to corporate governance and public disclosure, SEC rules and regulations, and NASDAQ rules. These laws, regulations, and standards are subject to varying interpretations, and as a result, their practical application may evolve over time as new guidance is provided by regulatory and governing bodies. Due to the evolving legal and regulatory environment, compliance may become more difficult and result in higher costs. The Company is committed to maintaining high standards of corporate governance and public disclosure. As a result, the Company’s efforts to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. The Company’s reputation may be harmed, if it does not continue to comply with these laws, regulations and standards.
Litigation and regulatory actions, including enforcement actions, could subject us to significant fines, penalties, judgments or other requirements resulting in increased expenses or restrictions on our business activities.
Our business is subject to litigation and regulatory risks as a result of a number of factors, including the highly regulated nature of the financial services industry and the focus of state and federal prosecutors on banks and the financial services industry generally. Legal or regulatory actions may subject us to substantial compensatory or punitivedamages, significant fines, penalties, obligations to change our business practices or other requirements resulting in increased expenses, operational burdens, diminished income and damage to our reputation. Our involvement in any such matters, even if the matters are ultimately determined in our favor, could also cause significant harm to our reputation and divert management attention from the operation of our business. Further, any settlement, consent order or adverse judgment in connection with any formal or informal proceeding or investigation by government agencies may result in litigation, investigations or proceedings as other litigants and government agencies begin independent reviews of the same activities. As a result, the outcome of legal and regulatory actions could be material to our business, results of operations, financial condition and cash flows, depending on, among other factors, the level of our earnings for that period and could have a material adverse effect on our business, financial condition or results of operations.
We depend on a new management team and Board, and our failure to have prudent change management including to retain, integrate, and effectively align new leadership could impair execution of our strategy and remediation efforts.
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In 2025, the Company replaced or added leadership in numerous key roles, including Chief Executive Officer, President, Chief Credit Officer, Chief Financial Officer, Chief Risk Officer, and leadership in operations, treasury management, BSA, legal, relationship management, accounting, finance, technology, and reporting. Our strategic and remediation efforts depend heavily on these leaders’ ability to work effectively together, establish sound controls, implement new policies and reporting, attract additional talent, and maintain constructive regulatory relationships.
Competition for experienced banking, risk, BSA/AML, payments, and technology personnel is significant. If we lose key executives or fail to recruit, integrate, incentivize, and retain qualified personnel, our remediation, growth, and risk management efforts could be delayed or impaired, and our financial condition and results of operations could be materially adversely affected.
Risks Relating to Institutional Banking, Digital Payments and BSA/AML
Our institutional banking and digital payments activities involve heightened operational, compliance, fraud, and BSA/AML risks.
A significant part of our revised strategy and non-interest income profile depends on institutional banking and digital payments activities, including sponsor-bank services, ACH and money movement, debit and credit card-related services, and products and services provided to and through program managers and other non-depository financial institutions. Institutional Banking is currently the largest driver of non-interest income and the Bank has increased annualized digital payments revenue since recapitalization.
These activities present elevated risks relative to traditional community banking, including fraud, sanctions, money laundering, transaction monitoring, third-party oversight, operational processing failures, consumer complaints, settlement and reconciliation issues, and reputational risk. The Formal Agreement specifically requires enhanced oversight of prepaid cards, ACH and wire activity, suspicious activity review, program manager due diligence, and BSA staffing and training. If we fail to identify, measure, monitor, and control these risks, we could face losses, customer attrition, litigation, regulatory criticism, enforcement action, and restrictions on our ability to grow or continue these activities.
Deficiencies in our BSA/AML, sanctions, customer identification, or suspicious activity monitoring programs could result in enforcement action, penalties, losses, and reputational damage.
Banking regulations require compliance with BSA/AML laws and regulations. The Bank was not in compliance with these regulations and therefore entered into the Formal Agreement with the OCC which requires a detailed BSA/AML action plan and corrective action relating to customer identification for reloadable prepaid cards, program manager due diligence and monitoring, suspicious activity monitoring and reporting, suspicious activity look-back, BSA/AML risk assessment, and BSA staffing and training. These requirements reflect supervisory findings that our BSA/AML framework required significant enhancement.
If our BSA/AML, sanctions, or fraud-monitoring controls are inadequate, if third-party program managers fail to perform as expected, if transaction monitoring rules or case management processes are ineffective, or if we fail to identify and report suspicious activity on a timely basis, we may be subject to additional enforcement actions, penalties, remediation costs, activity restrictions, customer losses, and significant reputational harm. The review or amendment of prior suspicious activity determinations could also create operational burden, increased expense, and heightened supervisory attention.
Our reliance on third-party program managers, fintech relationships, vendors, and other counterparties exposes us to significant third-party risk.
Our institutional banking, digital payments, treasury, and technology activities depend on third-party relationships, including program managers, processors, technology providers, monitoring vendors, and other counterparties. The Formal Agreement requires risk-based due diligence, ongoing monitoring, periodic reviews, and in some cases on-site visits and review of independent audit reports for program managers.
Third parties may fail to comply with law, contract, or our policies; may have inadequate controls; may experience financial distress, fraud, cyber incidents, operational failures, or business interruption; or may not provide us with timely and accurate data. Because regulators increasingly expect banks to manage third-party risk as if the activity were conducted internally, failures by our vendors or partners could expose us to losses, remediation costs, litigation, regulatory criticism, and reputational damage even where the immediate failure occurred outside the Bank.
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Digital Payments and Institutional Banking Deposits can be highly concentrated and have significant volatility which could result in heightened Liquidity Risks to the Bank.
Digital Payments and Digital Payments deposits can be highly concentrated with individual decision makers in control of large deposits. Additionally, many of these deposits are short term, unpredictable, or volatile by their nature and can be withdrawn on demand. These factors contribute to the Bank’s liquidity risk and if not managed appropriately can result in the liquidation of assets, the inability to hold long-term assets, and other adverse impacts up to and including insolvency.
Our reliance on Program Managers increases our exposure to risks from third party negligence or misconduct.
Our digital payments business relies on third party program managers to provide certain marketing, banking and treasury management services to our clients on behalf of the Bank. The Bank oversees the activities of its Program Managers, however errors, negligence, or malfeasance by the program managers can pose significant risks to the Bank and can subject the Bank to material liabilities, losses, and other risks such as violations of regulations and law.
Risks Relating to Credit, Concentrations and Legacy Assets
Our legacy portfolio, including criticized, classified, nonperforming, or non-core assets, may continue to adversely affect our results of operations, capital, and management attention.
The Bank historically held certain loan categories and purchased assets that were not strategic, including unsecured consumer loans, HELOCs, single-family residential loans, and securities, and the Bank is seeking to reduce, run off, sell, and replace certain legacy portfolios and concentration exposures. Legacy assets may continue to generate elevated credit costs, valuation adjustments, workout expenses, and management distraction, and their runoff or sale may occur on less favorable terms than we expect. We may also incur losses, lower yields, or liquidity constraints in connection with repositioning the portfolio.
Our commercial real estate and other secured lending activities expose us to concentration risk, collateral risk, and credit losses.
Commercial real estate has historically represented a significant portion of the Bank’s loan portfolio, and both management and the OCC have identified concentration risk management as an area requiring enhancement. Commercial real estate and relationship-based secured lending can involve larger balances, more complex underwriting, and repayment that depends on business cash flow, tenant performance, market values, and refinancing conditions. Deterioration in real estate values, occupancy, rents, debt-service coverage, sponsor liquidity, or capital market conditions could materially increase defaults and losses.
Our allowance for credit losses may prove insufficient, and changes in estimates, portfolio performance, or supervisory expectations could require additional provisions.
The determination of the allowance for credit losses requires management to make significant judgment regarding current conditions, reasonable and supportable forecasts, borrower performance, collateral values, and portfolio risk characteristics. Actual losses may differ materially from our estimates. During 2025, the Bank increased its reserve for loan losses relative to loan balances and continued resolving special assets. If economic conditions worsen, if credit migration exceeds our expectations, if collateral values decline, or if regulators require different classifications, methodologies, or assumptions, we may need to increase our provision for credit losses, which could materially adversely affect our earnings and capital.
Risks Relating to Capital, Liquidity and Balance Sheet Management
If we fail to maintain sufficient capital, we may be subject to restrictions, may be unable to execute our strategy, and may need to raise additional capital on unfavorable terms or at all.
The Formal Agreement requires the Bank to maintain minimum capital ratios of 10.0% common equity Tier 1, 10.0% Tier 1 capital, 11.5% total capital, and 9.0% leverage, and requires an internal capital planning process and OCC non-objection to the Bank’s capital plan. The Bank’s ability to maintain these levels depends on earnings, credit performance, balance sheet mix, asset growth, market values, and access to capital.
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Although the Company raised substantial capital in 2025, there can be no assurance that our capital levels will remain sufficient under stress, that our business plan will generate the expected earnings, or that we would be able to raise additional capital on acceptable terms if needed. Capital raises could be dilutive to existing shareholders, could involve burdensome terms, or could be unavailable during periods of market stress or heightened regulatory scrutiny.
Our liquidity could be adversely affected by deposit volatility, funding concentration, market disruption, deterioration in our regulatory or financial condition, or the characteristics of our deposit base.
Liquidity risk is a central risk for us, particularly as we reposition our business and manage deposit mix. We believe that prior liquidity planning did not adequately reflect the impact of rising rates on the liquidity of loans and securities, deposit concentrations including digital payments deposits, reduced Federal Home Loan Bank (“FHLB”) and Federal Reserve financing capacity from capital impairment, and risks to uninsured and other deposits. The Formal Agreement requires a revised liquidity risk management program emphasizing cash flow projections, diversified funding sources, a cushion of highly liquid assets, liquidity stress testing, and a contingency funding plan.
Our deposits may be more rate-sensitive, concentrated, or operationally volatile than traditional retail core deposits, particularly in institutional, digital payments, or large-balance relationship accounts. If depositors withdraw funds unexpectedly, if counterparties reduce funding availability, if collateral values decline, or if our access to brokered, reciprocal, FHLB, Federal Reserve, or other funding is constrained, our liquidity could be materially adversely affected.
Our deposit strategy may not produce the funding mix, stability, cost, or scale we expect.
Our revised strategy depends in part on growing relationship-based deposits from high-net-worth and business clients while also utilizing institutional and digital payments deposits. The Bank reduced deposit costs in 2025 and restructured its digital payments activities to improve pricing and depository services. There can be no assurance that these trends will continue. Competition for deposits remains intense, and our target clients may be highly rate-sensitive, operationally mobile, or able to move funds quickly. If we cannot attract or retain deposits at acceptable cost and stability, our net interest margin, liquidity, profitability, and growth could be adversely affected.
Changes in interest rates, asset-liability mismatches, and market values may adversely affect our net interest income, liquidity, capital, and financial condition.
Our earnings depend significantly on net interest income, which is affected by the level, slope, and volatility of interest rates, the timing of repricing, deposit betas, customer behavior, prepayments, and funding mix. The Bank previously failed to adequately evaluate and manage interest rate risk and certain fixed-rate securities and loans resulted in unrealized losses, extended durations, and liability sensitivity in a rising-rate environment.
Changes in rates may compress margins, reduce loan demand, increase deposit costs, impair borrowers’ repayment capacity, increase the market value sensitivity of securities and loans, reduce collateral values, and limit liquidity if assets must be sold at a loss. We may not be able to manage these risks successfully through balance sheet positioning, pricing, hedging, or other strategies.
Risks Relating to Operations, Technology and Competition
Our operating model depends on enhancements to infrastructure, data, reporting, and controls, and failures in those areas could impair decision-making, financial reporting, and risk management.
Our strategic plan emphasizes operational excellence and superior analytics and acknowledges prior deficiencies in change management, internal reporting, key performance indicators and key risk indicators (“KPIs/KRIs”), and risk measurement. The Bank is building or enhancing data, reporting, and governance capabilities, including those needed to support enterprise risk management, regulatory reporting, BSA/AML, payments monitoring, concentration management, and business line profitability.
These initiatives may be costly, delayed, or ineffective. Data quality problems, reporting gaps, model weaknesses, system integration failures, or control deficiencies could impair management’s ability to identify and manage risk, support accurate financial and regulatory reporting, or satisfy supervisory expectations.
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Management concluded that our disclosure controls and procedures and internal control over financial reporting were not effective as of December 31, 2025, and if we fail to remediate the underlying control deficiencies in a timely manner, our business, financial condition, results of operations, and access to capital could be adversely affected.
As described in Item 9A of this Annual Report on Form 10-K, management concluded that the Company’s disclosure controls and procedures and internal control over financial reporting were not effective as of December 31, 2025. In connection with its evaluation, management identified deficiencies concentrated in documentation, evidential support, and consistent execution of controls, including information-technology general controls, financial-close and reconciliation controls, and controls over certain third-party and digital-payments activities.
Although the Company’s independent registered public accounting firm expressed an opinion that the Company’s consolidated financial statements as of and for the year ended December 31, 2025 are fairly presented in all material respects and in conformity with U.S. GAAP, management concluded that the control deficiencies it identified, when considered together, constituted a material weakness in the Company’s internal control over financial reporting as of December 31, 2025.
The existence of these control deficiencies and the related material weakness could adversely affect the Company’s ability to record, process, summarize, and report financial information accurately and on a timely basis, and could impair its ability to comply with applicable financial reporting and disclosure obligations. Remediation requires substantial management attention, cost, and resources, including enhancement of documentation, evidencing, monitoring, information-technology general controls, financial-close and reconciliation controls, and controls over certain third-party and digital-payments activities. There can be no assurance that these remediation efforts will be completed in a timely manner or that they will be effective. If the material weakness is not remediated, or if additional material weaknesses or significant deficiencies are identified, the Company could experience delays in financial reporting, increased costs, loss of investor confidence, regulatory scrutiny, and other adverse effects on its business, financial condition, results of operations, and access to capital.
The Company is subject to certain general affirmative debt covenants, which if it cannot comply, may result in default and actions taken against it by its debt holders.
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. Proceeds of $7.8 million were directly contributed to the Bank. The subordinated debt qualifies for Tier 2 Capital of the Company and the funds contributed to the Bank qualify as Tier 1 capital at the Bank.
The affirmative covenants contained in the subordinated notes agreements are of a general nature and not uncommon in such debt agreements. Management does not anticipate an inability to maintain its compliance with the affirmative covenants contained in the subordinated notes agreements as such compliance is inherent in the Bank’s continued operation and Patriot’s public company status, as well as management’s overall strategic plan.
The Bank is subject to environmental liability risk associated with its lending activities.
A significant portion of the Bank’s loan portfolio is secured by real property. During the ordinary course of business, the Bank may foreclose on, and take title to, properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties, which may make Patriot liable for remediation costs, as well as for personal injury and property damage. In addition, Patriot owns and operates certain properties that may be subject to similar environmental liability risks.
Environmental laws may require the Bank to incur substantial expense and may materially reduce the affected property's value, or limit the Bank’s ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase the Bank’s exposure to environmental liability. Although the Bank has policies and procedures requiring the performance of an environmental site assessment before loan approval or initiating any foreclosure action on real property, these assessments may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on Patriot’s financial condition and results of operations.
Negative public opinion regarding us could adversely affect our stock price, business, results of operations, and financial condition.
Reputational harm, including as a result of our actual or alleged conduct or public opinion of the financial services industry generally, could adversely affect our stock price, business, results of operations, and financial condition. Reputation risk, or the risk to our business, earnings, liquidity, capital, stability or viability from negative public opinion, is inherent in our business and
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is expected to increase as our size, profile and product offerings in the financial services industry grows. Negative publicity or reputational harm can result from actual or alleged conduct in a number of areas, including legal and regulatory compliance, lending practices, corporate governance, litigation, inadequate protection of customer data, illegal or unauthorized acts taken by third parties that supply products or services to us, the behavior of our team members, the customers with whom we have chosen to do business, the industries in which we operate, corporate initiatives and negative publicity for other financial institutions. Damage to our reputation could adversely impact our ability to attract new, or maintain existing, loan and deposit customers, team members and business relationships, and could result in the imposition of new regulatory requirements, operational restrictions, enhanced supervision and/or civil money penalties. Further, negative public opinion can expose us to litigation and regulatory action and delay and impede our efforts to raise capital or implement our growth strategy. The proliferation and increasing influence of social media websites and the use thereof by investors who may sell our public stock short, also may increase the risk that negative, inappropriate or unauthorized information may be posted or released publicly that could harm our reputation, adversely affect our stock price or the public’s perception of our stability or viability, or have other negative consequences. Any damage to our reputation could have a material adverse effect on our stock price, business, results of operations, and financial condition.
A cyberattack, fraud event, information security breach, payments disruption, or technology failure could affect us materially and adversely.
We rely extensively on information systems, online and mobile channels, payments systems, vendors, data processors, and communications networks. Our institutional banking and digital payments activities increase our exposure to cyber, fraud, payments, and operational threats. Like other financial institutions, we face risks from phishing, ransomware, credential compromise, vendor compromise, insider threats, account takeover, business email compromise, data theft, fraud rings, and service outages. Public company and bank peer filings continue to identify cybersecurity, employee misconduct, and operational breakdown as material risks.
A successful attack or system failure could disrupt operations, compromise customer data, result in financial losses, trigger remediation costs, regulatory scrutiny, litigation, and reputational damage, and materially adversely affect our business and financial condition.
The development and use of artificial intelligence presents risks and challenges that may adversely impact our business.
We or our third-party vendors, customers or counterparties may develop or incorporate artificial intelligence (“AI”) technology in certain business processes, services or products. The development and use of AI presents a number of risks and challenges, including concerns around safety and soundness, privacy and data-handling, fair access to financial services, fair treatment to customers, inaccuracy of results broadly known as “hallucinations” and compliance with applicable laws and regulations. The legal and regulatory environment relating to AI is uncertain and rapidly evolving, both in the U.S. and internationally, and includes regulatory schemes targeted specifically at AI as well as provisions in intellectual property, privacy, consumer protection, employment, and other laws applicable to the use of AI. These evolving laws and regulations could require changes in our implementation of AI technology and increase our compliance costs and the risks to us of non-compliance.
AI models, particularly generative or agentic AI models, may produce outputs or take action that is incorrect, that reflects biases included in the data on which they are trained, that results in the release of private, confidential, or proprietary information, that infringes on the intellectual property rights of others, or that is otherwise harmful. Further, we may rely on AI models developed by third parties, and, to that extent, would be dependent in part on the manner in which those third parties develop and train their models, including risks arising from the inclusion of any unauthorized material in the training data for their models and the effectiveness of the steps these third parties have taken to limit the risks associated with output of their models, matters over which we may have limited visibility. Any of these risks could expose us to liability or adverse legal or regulatory consequences and harm our reputation and the public perception of our business or the effectiveness of our security measures.
We face intense competition in our markets and in our target client segments, and we may not be able to compete effectively.
We compete with money-center banks, regional and community banks, private banks, specialty finance companies, fintechs, and other non-bank providers. Our strategy specifically targets client segments that may also be targeted by larger institutions with broader capabilities, stronger brands, lower cost of funds, greater lending capacity, more advanced technology, or wider product offerings. We recognize that the Bank is attempting to differentiate itself in client segments that larger institutions and specialty providers also serve. If we cannot compete effectively on service, convenience, pricing, expertise, technology, or risk-adjusted product offerings, our growth and profitability could suffer.
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The Company is subject to risks associated with taxation.
The amount of income taxes the Company is required to pay on its earnings is based on federal and state legislation and regulations. the Company provides for current and deferred taxes in its financial statements, based on the results of operations, business activity, legal structure, interpretation of tax statutes, assessment of risk of adjustment upon audit, and application of financial accounting standards. The Company may take tax return filing positions for which the final determination of tax is uncertain, and tax authorities could assess additional taxes, penalties, or interest that may adversely affect the Company’s results of operations, financial condition, or cash flows.
The Company also has significant federal and state net operating loss carryforwards, the utilization of which may be limited by Section 382 of the Internal Revenue Code and similar state law provisions. The Company’s existing Section 382 analysis does not yet reflect the effect, if any, of ownership changes or additional limitations that may have resulted from the Private Placement or the registered direct offerings completed during 2025. As a result, the amount and future availability of the Company’s net operating loss carryforwards could be reduced once updated analyses are completed.
In addition, although the Company maintained a full valuation allowance against its deferred tax assets at December 31, 2025, there can be no assurance regarding the timing or amount of any future reduction in that valuation allowance, or whether future changes in tax law, taxable income projections, ownership changes, or tax audit outcomes may adversely affect the Company’s effective tax rate, tax expense, net income, or capital.
Risks Relating to the Company and its Common Stock
The Holding Company depends on dividends and other distributions from the Bank, which are restricted and may be further limited by regulation and supervisory actions.
The Holding Company is a separate legal entity from the Bank and relies primarily on dividends and other distributions from the Bank to fund holding company expenses, debt service, and any shareholder distributions. The Formal Agreement requires prior written non-objection before the Bank may declare or pay dividends or make capital distributions, and the Bank may do so only if it remains in compliance with its capital plan and applicable law. Regulatory restrictions, earnings limitations, capital requirements, or supervisory objections could limit the Bank’s ability to distribute funds to the Holding Company, which could adversely affect the Holding Company’s liquidity and ability to meet its obligations.
Our common stock price may be volatile, and shareholders may experience dilution or other adverse effects from future capital actions or market perceptions of our business and regulatory status.
The market price of our common stock may fluctuate significantly due to our operating results, regulatory developments, remediation progress, capital actions, perceptions of our strategic execution, broader bank-sector conditions, or general market volatility. Banks subject to heightened regulatory scrutiny or undergoing strategic restructuring may experience greater share price volatility. If we issue additional equity, convertible securities, preferred stock, or other capital instruments in the future, existing shareholders may experience dilution or the market may react adversely to such issuances.
2025 FORM 10-K 17
Risks Relating to General Economic and Market Conditions
We may be adversely affected by national financial markets and economic conditions, as well as local conditions.
Our business and results of operations are affected by the financial markets and general economic conditions in the United States, including factors such as the level and volatility of interest rates, inflation, home prices, unemployment and under-employment levels, bankruptcies, household income, consumer spending, investor confidence and the strength of the U.S. economy. The deterioration of any of these conditions can adversely affect our securities and loan portfolios, our level of charge-offs and provision for credit losses, our capital levels, liquidity and our results of operations.
Geopolitical conflicts and military tensions, including the ongoing conflict between Russia and Ukraine and hostilities involving Iran and the Middle East, may contribute to volatility in energy prices, inflation, financial markets, cybersecurity threats, and broader macroeconomic conditions, any of which could adversely affect our borrowers, deposit base, liquidity, capital, and results of operations.
In addition, we are affected by the economic conditions within our Connecticut and New York trade areas. Unlike larger banks that are more geographically diversified, the Bank has a total of eight branch offices comprised of seven branch offices located in Fairfield and New Haven Counties, Connecticut and one branch office located in Westchester County, New York. Therefore, any decline in the economy of the Fairfield or New Haven counties of Connecticut or the New York metropolitan area could have an adverse impact on us.
Our loans, the ability of borrowers to repay these loans, and the value of collateral securing these loans are impacted by economic conditions. Our financial results, the credit quality of our existing loan portfolio, and the ability to generate new loans with acceptable yield and credit characteristics may be adversely affected by changes in prevailing economic conditions, including declines in real estate values, changes in interest rates, adverse employment conditions and the monetary and fiscal policies of the federal government.
Natural disasters, acts of war or terrorism, the impact of health epidemics and other adverse external events could detrimentally affect our financial condition and results of operations.
Natural disasters (including severe weather events of increasing strength and frequency due to climate change), acts of war or terrorism, health epidemics, geopolitical conflicts, and other adverse external events could have a significant negative impact on our ability to conduct business or upon third parties that provide services for us or our customers. Although we do not believe we have material direct exposure to the ongoing conflict between Russia and Ukraine or hostilities involving Iran and the Middle East, such events may adversely affect us indirectly through volatility in financial markets, energy and commodity prices, inflation, cyber threats, vendor or payment-system disruption, changes in customer behavior, deterioration in borrower credit quality, instability in our deposit base, or declines in collateral values. Any such effects could result in lost revenue, higher expenses, reduced liquidity, or other adverse effects on our financial condition and results of operations.
Risks related to environmental and other global matters
Concerns over the long-term impacts of climate change have led and will continue to lead to governmental efforts around the world to mitigate those impacts. Consumers and businesses also may change their behavior on their own as a result of these concerns. We and our customers will need to respond to new laws and regulations as well as consumer and business preferences resulting from climate change concerns. We and our customers may face cost increases, asset value reductions, operating process changes and other issues. The impact on our customers will likely vary depending on their specific attributes, including reliance on or role in carbon intensive activities. Among the impacts to us could be a drop in demand for our products and services, particularly in certain sectors. In addition, we could face reductions in creditworthiness on the part of some customers or in the value of assets securing loans. Our efforts to take these risks into account in making lending and other decisions, including by increasing our business with climate-focused companies, may not be effective in protecting us from the negative impact of new laws and regulations or changes in consumer or business behavior.
critical
best
Allowance for Credit Losses (ACL)
The Company determines its allowance for credit losses (“ACL”) under the current expected credit loss (“CECL”) methodology in ASC 326, which requires management to estimate expected credit losses over the remaining contractual life of financial assets carried at amortized cost, adjusted for expected prepayments when appropriate. The ACL is established through a provision for credit losses charged to earnings and is reduced by charge-offs, net of recoveries. The Company also maintains a reserve for unfunded lending commitments for those commitments that are not unconditionally cancellable.
The ACL is a critical accounting estimate because it requires significant management judgment and is sensitive to changes in assumptions, forecasts, and portfolio conditions. The estimate incorporates both quantitative and qualitative factors, including historical loss experience, portfolio composition, delinquency trends, internal risk ratings, nonperforming asset levels, collateral values, the financial condition of borrowers, and reasonable and supportable forecasts of macroeconomic conditions. For collateral-dependent loans, expected credit losses may depend significantly on the fair value of collateral, less estimated selling costs where applicable.
Loans that do not share similar risk characteristics with other loans are evaluated individually. For loans evaluated on a collective basis, the Company segments the portfolio by loan type and other relevant risk characteristics and applies estimation methodologies that incorporate historical loss information, current conditions, and reasonable and supportable economic forecasts. Following the forecast period, the Company reverts to historical loss information over an appropriate reversion period. Management also applies qualitative adjustments, as needed, to reflect factors not fully captured in the quantitative model.
The ACL estimate is particularly sensitive to changes in economic forecasts, borrower performance, collateral values, portfolio mix, and the credit quality of the Company’s loans. Changes in these assumptions or in the condition of the loan portfolio could result in material changes to the ACL and the related provision for credit losses in future periods.
The Company’s ACL methodology and the judgments used in determining the ACL are described more fully in the Notes to Consolidated Financial Statements included in Item 8.
FINANCIAL CONDITION
Assets
The Company’s total assets increased $75.5 million, or 7.5%, from $1.01 billion at December 31, 2024 to $1.09 billion at December 31, 2025. This was primarily reflected as a $140.2 million increase in investment securities and a $44.5 million increase in cash, cash equivalents and restricted cash, which was partially offset by a $114.4 million decline in loans receivable. The change in asset mix reflected the Company’s continued balance sheet repositioning during 2025, including reduced loan exposure, increased liquidity, and deployment of funds into investment securities.
Cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash increased $44.5 million or 27.4%, to $207.1 million as of December 31, 2025 from $162.6 million as of December 31, 2024. The increase in 2025 was primarily driven by loan repayments, loan sales, and cash proceeds from issuance of common and preferred stock. For further details, refer to the Consolidated Statements of Cash Flows.
2025 FORM 10-K 22
The higher liquidity position improved the Bank’s funding flexibility and supported the Company’s balance sheet repositioning during 2025.
Investment securities
Total investments increased $140.2 million or 166.1%, to $224.7 million at December 31, 2025 from $84.4 million at December 31, 2024. This increase primarily reflected purchases of available-for-sale securities of $145.2 million during 2025, as the Company deployed liquidity into investment securities as part of its balance sheet repositioning. The portfolio at December 31, 2025 consisted primarily of U.S. Government agency and mortgage-backed securities. During 2025, the Bank sold $4.5 million of available-for-sale securities and recognized no net gain or loss on sale, compared to sales of $8.3 million and a net loss of $334 thousand in 2024.
Loans held for investment
Gross loans receivable decreased $114.9 million, or 16.2%, to $592.6 million at December 31, 2025 from $707.5 million at December 31, 2024. The decline reflected the Company’s continued balance sheet repositioning during 2025, including restricted loan originations during the first three quarters of the year, portfolio runoff, loan sales and efforts to reduce risk and improve liquidity. The Company sold 1539 loans with an unpaid principal balance of $67.8 million during 2025. Net loans receivable decreased to $585.7 million at December 31, 2025 from $700.2 million at December 31, 2024.
The following table provides the composition of the Company’s loan held for investment portfolio as of December 31, for the years indicated:
December 31,
(In thousands)
Amount
Amount
Loan portfolio segment:
Commercial Real Estate
Residential Real Estate
Commercial and Industrial
Consumer and Other
Construction
Construction to permanent - CRE
Loans receivable, gross
Allowance for credit losses
Loans receivable, net
Commercial real estate remained the largest loan category at December 31, 2025, representing 58.4% of total gross loans, compared to 59.3% at December 31, 2024. Commercial and industrial loans increased as a percentage of the portfolio to 24.8% from 18.3%, while consumer and other loans declined to 3.4% from 8.5%. SBA loans held for investment are included in the commercial real estate loans and commercial and industrial loan classifications above. As of December 31, 2025 and 2024, SBA loans included in the commercial real estate loans were $9.7 million and $18.7 million, respectively, and SBA loans included in the commercial and industrial loan were $8.7 million and $11.2 million as of December 31, 2025 and 2024, respectively.
As of December 31, 2025, the net loan-to-deposit ratio was 60.6%, compared to 72.4% at December 31, 2024, and the net loan to total assets ratio was 53.8%, compared to 69.2% at December 31, 2024. These declines reflected lower loan balances and higher deposits and liquidity during 2025.
The following table presents loans receivable, gross by portfolio segment, by contractual maturity as of December 31, 2025:
2025 FORM 10-K 23
Contractual Maturity of Loan Balance
(In thousands)
One year or less
One through Five Years
After Five Years
Total
Loan portfolio segment:
Commercial Real Estate
Residential Real Estate
Commercial and Industrial
Consumer and Other
Total
Fixed rate loans
Variable rate loans
Total
At December 31, variable-rate loans represented 57.0% of the total loan portfolio. Approximately 30.8% of the variable-rate loan portfolio reprices within three months of a change in interest rates. The remainder of the variable-rate portfolio generally carries an initial fixed-rate period, such as one, three, or five years, followed by periodic repricing. These repricing characteristics are reflected in the Bank’s aggregate analysis of net interest sensitivity included in Item 7A.
Commercial real estate and commercial and industrial loans represented approximately 83.2% of total gross loans at December 31, 2025. Accordingly, the Company’s credit performance remains significantly influenced by borrower operating performance, collateral values, and economic conditions in the markets and customer segments served by the Bank. For purposes of internal and regulatory CRE concentration monitoring, owner-occupied CRE loans are excluded from CRE totals and classified as commercial and industrial loans, although owner-occupied CRE loans are included in the CRE portfolio presentation above.
Allowance for Credit Losses on Loans
The Company estimates its ACL under the CECL methodology in ASC 326.
The allowance for credit losses was $6.8 million at December 31, 2025, compared to $7.3 million at December 31, 2024. Based on management’s evaluation of the loan portfolio at December 31, 2025, the ACL of $6.8 million, or 1.15% of gross loans, was considered appropriate to absorb expected credit losses in the loan portfolio as of that date.
The following table summarizes activity in the ACL:
Year Ended December 31,
(In thousands)
Balance at beginning of the period
Provision for credit losses
Net charge-offs
Balance at end of the period
Ratios:
Net charge-offs to average loans
Allowance for credit losses to total loans
Allowance for credit losses to nonaccrual loans
2025 FORM 10-K 24
The net charge-offs decreased $19.1 million to $2.1 million as of December 31, 2025 from $21.2 million as of December 31, 2024, Net charge-offs to average loans improved to 0.32% for the year ended December 31, 2025 from 2.66% for the year ended December 31, 2024. The decrease in net charge-offs in 2025 was primarily due to charge-offs totaling $13.6 million related to two large commercial real estate loans recognized in the fourth quarter of 2024.
Average loans decreased by $153.2 million to $642.1 million for the year ended December 31, 2025 from$795.2 million for the year ended December 31, 2024. The decline reflected the Company’s continued balance sheet repositioning during 2025, including restricted loan growth, portfolio runoff, and efforts to reduce risk and improve liquidity.
Although the ACL decreased to $6.8 million at December 31, 2025 from $7.3 million at December 31, 2024, the ACL-to-total loans ratio increased to 1.15% from 1.03%, primarily because gross loans declined during 2025. The 2024 ACL balance and related coverage ratios were also affected by significant charge-offs of reserved commercial real estate and consumer loans during 2024.
Non-accrual loans were $24.4 million as of December 31, 2025, compared to $25.9 million as of December 31, 2024. The ACL-to-non-accrual loans ratio was 26.44% as of December 31, 2025, compared to 28.24% as of December 31, 2024. The 2024 ratio was higher primarily due to reserves on individually evaluated commercial real estate loans that were subsequently charged off in the fourth quarter of 2024. Non-accrual CRE loans of $376 thousand have been charged-off to net realizable value as of December 31, 2025.
Nonperforming Assets
The following table presents non-accrual loans and other real estate owned (“OREO”) as of the dates indicated:
December 31,
(In thousands)
Non-accruing loans:
Commercial Real Estate
Residential Real Estate
Commercial and Industrial
Consumer and Other
Construction to Permanent - CRE
Total non-accruing loans
Loans past due over 90 days and still accruing
Other real estate owned
Total nonperforming assets
Nonperforming assets to total assets
Nonperforming loans to total loans, net
Non-accrual loans decreased $1.5 million, to $24.4 million at December 31, 2025 from $25.9 million at December 31, 2024. Total nonperforming assets decreased $4.4 million to $24.4 million from $28.7 million, primarily reflecting the resolution of certain troubled loans and the sale of the sole OREO asset during 2025.
At December 31, 2025, non-accrual loans were comprised of 151 borrowers, compared to 335 borrowers at December 31, 2024. At December 31, 2025, 9 loans were individually evaluated and a specific reserve of $2.1 million was established, compared to 14 individually evaluated loans and a specific reserve of $463 thousand at December 31, 2024. The increase in specific reserves on individually evaluated loans reflected enhanced loan-level analysis performed during 2025 on certain credits within the portfolio, which resulted in refined reserve estimates for those loans. Individually evaluated loans are measured based on collateral value or discounted expected cash flows, as applicable.
Nonperforming assets to total assets improved to 2.24% at December 31, 2025 from 2.84% at December 31, 2024. Nonperforming loans to total loans, net increased to 4.16% from 3.69%, primarily because total loans declined during 2025.
2025 FORM 10-K 25
Loans held for sale
Loans held for sale totaled $24.5 million at December 31, 2025, compared to $15.7 million at December 31, 2024.
These balances primarily consist of credit card receivables originated for certain digital payments customers and sold shortly after origination to a third party. These loans are fully cash-secured by deposits and are typically sold within three days at par value.
Premises and equipment
Premises and equipment totaled $28.1 million at December 31, 2025, compared to $28.9 million at December 31, 2024. The decrease was primarily due to depreciation expense during 2025.
Management continues to evaluate its branch and office footprint in connection with operating efficiency, client service, and the Company’s strategic repositioning.
Other Real Estate Owned (“OREO”)
As of December 31, 2025, the Bank had no other real estate owned, compared to $2.8 million at December 31, 2024.
During 2025, the Bank sold its remaining OREO asset and recognized a gain of approximately $176 thousand following a valuation allowance recorded prior to sale.
Goodwill
The Company had no goodwill recorded on its Consolidated Balance Sheets at December 31, 2025 or December 31, 2024. During 2023, the Company recorded a goodwill impairment charge of $1.1 million, which eliminated its remaining goodwill balance.
Core deposit intangible (“CDI”)
Core deposit intangible (“CDI”) represents the value assigned to deposit relationships acquired in connection with the Prime Bank business combination in 2018. The CDI is amortized over a 10-year period using the straight-line method. CDI decreased $47 thousand to $109 thousand at December 31, 2025 from $156 thousand at December 31, 2024, solely due to the amortization.
Deferred Taxes
As of December 31, 2025 and 2024 the carrying value of the deferred tax assets (“DTAs”) was zero because a full valuation allowance was maintained against all DTAs.
As of December 31, 2025, Patriot had available approximately $50.8 million of Federal net operating loss carryforwards (“NOL”), of which approximately $15.5 million was subject to limitations under Internal Revenue Code §382. After giving effect to those limitations, the Company had approximately $35.3 million post-change federal NOL carryforwards, which do not expire. These amounts reflect the Company’s existing Section 382 analysis and do not reflect the effect, if any, of ownership changes or additional limitations that may have resulted from the Private Placement or the registered direct offerings completed during 2025, as no updated Section 382 analysis with respect to those transactions had been completed as of the date of these consolidated financial statements. Because the Company maintained a full valuation allowance against its deferred tax assets at December 31, 2025, management does not expect completion of such analysis to materially affect the net deferred tax asset balance reported as of that date, although it could affect the amount and availability of NOL carryforwards for future periods.
In addition, at December 31, 2025, the Company had approximately $64.2 million of Connecticut NOL carryforwards, which may be used to offset up to 50% of taxable income in any year and expire between 2030 and 2055.
The Company evaluates the realizability of DTAs on a quarterly basis. In assessing whether a valuation allowance is required, management considers all available positive and negative evidence, including recent operating results, cumulative earnings or losses, projections of future taxable income, reversal of existing taxable temporary differences, and tax planning strategies. The principal factor supporting the full valuation allowance at December 31, 2025 was the existence of cumulative losses in recent years, which constituted significant negative evidence regarding realizability.
During 2025, the Bank returned to profitability at the bank level, although the Company remained unprofitable on a consolidated basis for the year ended December 31, 2025. Based on improved operating performance and current projections, the Company is evaluating whether a full valuation allowance will remain appropriate in future periods. The Company will continue to reassess
2025 FORM 10-K 26
the appropriateness of the valuation allowance in future periods. If management concludes, based on sufficient positive evidence, that some or all of the valuation allowance is no longer necessary, the release of all or a portion of the valuation allowance could materially affect income tax expense and net income in the period of release.
For the year ended December 31, 2025, the Company recorded income tax expense of $0.1 million.
Derivatives
As of December 31, 2025, the Company had two interest rate swaps outstanding. One swap was executed with a loan customer to provide a facility to mitigate fluctuations in the variable rate on the related loan, and the other was executed with an outside third party. The customer interest rate swap is matched in offsetting terms with the third-party interest rate swap. These swaps are reported at fair value in other assets or other liabilities on the Consolidated Balance Sheets. Because the swaps are not designated as hedging instruments, changes in the fair value are recognized in other non-interest income. The Company did not recognize any unrealized and realized gain or loss for the year ended December 31, 2025 and 2024.
Further discussion of the final derivatives is set forth in Note 11 and Note 21 to the Consolidated Financial Statements.
Deposits
Deposits are the Company’s primary source of funding for lending and investment activities and an important component of liquidity management. Total deposits were $965.8 million at December 31, 2025, compared to $966.6 million at December 31, 2024.
The following table summarizes the Company’s deposits at the dates indicated:
December 31,
(In thousands)
Non-interest bearing:
Total non-interest bearing deposits
Interest bearing:
Negotiable order of withdrawal accounts (NOW)
Savings
Interest bearing DDA
Money market
Certificates of deposit, $250,000 or less
Certificates of deposit, more than $250,000
Brokered deposits
Total interest bearing deposits
Total Deposits
Additional deposit metrics
Deposits associated with digital payments customers
Total retail branch bank deposits
Total uninsured deposits
Deposit composition changed during 2025 as the Company continued to reposition its funding base, including reductions in brokered deposits and uninsured deposits. Brokered deposits decreased $26.3 million to $54.7 million at December 31, 2025 from $69.7 million at December 31, 2024, while uninsured deposits decreased $103.6 million to $194.3 million from $297.8 million over the same period. Deposits associated with digital payments customers decreased $43.9 million to $297.7 million at December 31, 2025 from $265.5 million at December 31, 2024. These changes reflected the Company’s ongoing efforts to manage liquidity, reduce certain deposit concentrations, and support its broader balance sheet repositioning during 2025.
2025 FORM 10-K 27
Borrowings
Total borrowings were $16.4 million compared to $33.1 million at December 31, 2024. Borrowings consist of Federal Home Loan Bank (“FHLB”) advances, FRB borrowing, and junior subordinated debt.
The decrease reflected reduced reliance on wholesale funding during 2025 as part of the Company’s broader balance sheet repositioning and liquidity management efforts. During 2025, the Bank’s funding flexibility also benefited from improved FHLB terms following an upgrade in the Bank’s FHLB status.
Shareholders’ Equity
Equity increased $90.4 million to $94.7 million at December 31, 2025 from $4.3 million at December 31, 2024. The increase was primarily due to the Company’s recapitalization and related capital raises during 2025, partially offset by a net loss of $12.7 million for the year ended December 31, 2025. For more information on shareholders’ equity and the net loss for the year ended December 31, 2025 see Note 16 and “Results of Operations” included elsewhere in this Management’s Discussion and Analysis.
Average Balances
Average interest-earning assets were substantially unchanged at $935.7 million for 2025 compared to $934.2 million for 2024, but asset mix changed significantly during the year. Average loans declined $153.2 million, while average cash equivalents and restricted cash increased $147.1 million, reflecting the Company’s balance sheet repositioning and higher liquidity levels during 2025. The yield on average interest-earning assets declined to 5.11% in 2025 from 5.59% in 2024, primarily due to the reduction in average loan balances and the shift into higher average balances of cash equivalents and restricted cash, which earned lower yields in 2025 than in 2024.
Average interest-bearing liabilities declined $23.5 million to $817.5 million for 2025 from $841.0 million for 2024, primarily due to lower average borrowings, partially offset by higher average interest-bearing deposits. The average rate paid on interest-bearing liabilities declined to 3.51% in 2025 from 3.83% in 2024. Net interest income decreased to $19.1 million in 2025 from $20.1 million in 2024, and net interest margin decreased to 2.04% from 2.14%.
The following table presents average balances, interest income, interest expense and the corresponding yields earned, and rates paid for each of the years in the three-year period ended December 31, 2025.
2025 FORM 10-K 28
Year Ended December 31,
(In thousands)
Average Balance
Interest
Yield
Average Balance
Interest
Yield
Average Balance
Interest
Yield
Assets
Interest earning assets:
Loans
Investments
Cash equivalents and restricted cash
Total interest earning assets
Cash and due from banks
Allowance for credit losses
OREO
Other assets
Total Assets
Liabilities
Interest bearing liabilities:
Deposits
Borrowings
Senior notes
Subordinated debt
Note Payable and other
Total interest bearing liabilities
Demand deposits
Other liabilities
Total Liabilities
Shareholders' equity
Total liabilities and equity
Net interest income
Net interest margin
Interest spread
2025 FORM 10-K 29
The following table presents the change in interest-earning assets and interest-bearing liabilities 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 years ended December 31, 2025 to 2024 and December 31, 2024 to 2023.
Year Ended December 31,
2025 compared to 2024
2024 compared to 2023
Increase/(Decrease)
Increase/(Decrease)
(In thousands)
Volume
Rate
Total
Volume
Rate
Total
Interest earning assets:
Loans
Investments
Cash equivalents and restricted cash
Total interest earning assets
Interest bearing liabilities:
Deposits
Borrowings
Senior notes
Subordinated debt
Note payable and other
Total interest bearing liabilities
(Decrease) increase in net interest income
RESULTS OF OPERATIONS
A discussion regarding the financial condition and results of operations for fiscal 2025 compared to fiscal 2024 is presented below. Discussions of fiscal 2024 items and year-to-year comparisons between fiscal 2024 and fiscal 2023 that are not included in this Form 10-K can be found under Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, as filed with the SEC on April 15, 2025.
Comparison of Results of Operations for the years 2025 and 2024
For the year ended December 31, 2025, the Company reported a net loss of $12.7 million, or $(0.17) per basic and diluted share, compared to a net loss of $39.9 million, or $(10.03) per basic and diluted share, for the year ended December 31, 2024.
The Company reported a pre-tax loss of $12.7 million for 2025, an improvement from a pre-tax loss of $16.1 million in 2024. The improvement in pre-tax results was primarily driven by a substantially lower provision for credit losses in 2025, following significant credit-related charges in 2024, including large charge-offs associated with two commercial real estate credits, as the Company continued to address legacy credit issues. This improvement was partially offset by lower net interest income and higher non-interest expense. Net interest income decreased $1.0 million in 2025, while non-interest expense increased $8.7 million, reflecting higher compensation expense, including equity-based compensation, as well as elevated professional fees and other transition-related operating costs associated with management changes, remediation efforts, and the Company’s broader
2025 FORM 10-K 30
strategic repositioning. Non-interest income increased $2.2 million in 2025. The year-over-year improvement in net loss was also affected by a significantly lower provision for income taxes in 2025 compared to 2024.
Net interest income
Net interest income represents the difference between interest income earned on interest-earning assets and interest expense paid on interest-bearing liabilities. It is affected by the relative levels of interest-earning assets and interest-bearing liabilities, as well as the interest rates earned or paid on these balances.
For the year ended December 31, 2025, interest income decreased to $47.8 million, compared with $52.4 million for the year ended December 31, 2024. The decrease primarily reflected lower average loan balances a shift in asset mix toward higher average balances of cash equivalents and restricted cash, which earned lower yields in 2025 than in 2024.
Interest expense for the year ended December 31, 2025 decreased to $28.7 million from $32.3 million in 2024, reflecting lower average wholesale borrowings and a lower average rate paid on interest-bearing liabilities, partially offset by higher average interest-bearing deposit balances.
As a result, net interest income decreased to $19.1 million in 2025 from $20.1 million in 2024. Net interest margin decreased to 2.04% in 2025 from 2.14% in 2024.
Provision (Credit) for credit losses
For the year ended December 31, 2025, the provision for credit losses was $1.5 million, consisting of a $1.6 million provision for credit loss on loans and a $0.1 million credit in reserve for the off-balance-sheet credit exposures. For the year ended December 31, 2024, the provision for credit losses was $12.5 million, consisting of a $12.5 million provision for loan losses and a $0.1 million credit in reserve for the off-balance-sheet exposure.
The substantially lower provision in 2025 reflected the absence of the unusually elevated credit costs recognized in 2024, as well as lower net charge-offs and lower reserve requirements in 2025. The 2024 provision was significantly affected by large charge-offs associated with two commercial real estate credits and the related reserve implications. Gross loans declined from $707.5 million at December 31, 2024 to $592.6 million at December 31, 2025 as the Company continued its balance sheet repositioning and allowed portions of the loan portfolio to run off. The allowance for credit losses on loans decreased to $6.8 million at December 31, 2025 from $7.3 million at December 31, 2024.
Non-interest income
For the year ended December 31, 2025, non-interest income increased to $10.5 million from $8.4 million in 2024. The increase was primarily attributable to higher fee income associated with increased business activity from certain existing larger digital payments program managers during 2025, as well as gains on certain financial instruments.
Non-interest expense
For the year ended December 31, 2025, non-interest expense increased to $40.8 million from $32.1 million in 2024. The increase reflected higher compensation expense, including equity-based compensation, as well as elevated professional fees and other transition-related operating costs associated with management changes, remediation efforts, and the Company’s broader strategic repositioning. Non-interest expense in 2025 also reflected overlap costs incurred during the transition as the Company added executive management and other personnel while retaining significant legacy staffing during portions of the year.
Provision for income taxes
The Company reported a provision for income taxes of $0.1 million for the year ended December 31, 2025, compared to a provision for income taxes of $23.8 million for the year ended December 31, 2024. The 2024 provision was significantly affected by the recording of a full valuation allowance against deferred tax assets during that year. At December 31, 2025, the Company continued to maintain a full valuation allowance against its deferred tax assets. See Note 14 - Income Taxes to the Consolidated Financial Statements.
2025 FORM 10-K 31
Other financial measures and ratios:
As of and for the year ended December 31,
(Loss) return on average assets
(Loss) return on average equity
Average equity to average assets
We derived the selected balance sheet measures as of December 31, 2025, 2024, and 2023 and the selected statement of income measures for the years ended December 31, 2025, 2024, and 2023 from our audited Consolidated Financial Statements included elsewhere in this annual report. Average balances have been computed using daily averages.
Selected Quarterly Financial Data:
The following tables present the summarized quarterly results of operations (unaudited) to the Consolidated Financial Statements for the calendar year 2025:
(In thousands, except per share amounts)
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Interest and dividend income
Interest expense
Net interest income
Provision for credit losses(a)
Non-interest income
Non-interest expense
Loss before income taxes
Provision (benefit) for income taxes
Net loss(b)
Loss per share
Basic
Diluted
Weighted average shares outstanding - Basic(c)
Weighted average shares outstanding - Diluted(c)
(a) In the second quarter of 2025, the increase in allowance was mainly attributed to qualitative factors incorporated into the ACL calculations, even though a reduction in loan balances and the recognition of charge-offs on the unsecured consumer loan portfolio would typically suggest a decrease.
(b) Due to significant changes above, the net loss in the second quarter 2025 was mainly attributed to loss on sales of loans and increased non-interest expenses primarily attributed to the higher salaries and benefits, along with other operating expenses.
(c) The weighted average diluted shares outstanding did not include 112,771, 4,597,710, 5,809,410, and 10,000,970 anti-dilutive restricted shares of common stock as of March 31, 2025, June 30, 2025, September 30, 2025 and December 31, 2025, respectively.
2025 FORM 10-K 32
The following tables present the summarized quarterly results of operations (unaudited) to the Consolidated Financial Statements for the calendar year 2024:
(In thousands, except per share amounts)
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Interest and dividend income
Interest expense
Net interest income
Provision for credit losses(a)
Non-interest income
Non-interest expense
Loss before income taxes
Provision (benefit) for income taxes(b)
Net loss(c)
Loss per share
Basic
Diluted
Weighted average shares outstanding - Basic(d)
Weighted average shares outstanding - Diluted(d)
(a) In the fourth quarter of 2024, the provision for credit loss increased , primarily attributable to significant charge-offs for two individually evaluated commercial real estate loans.
(b) In the third quarter of 2024, a full valuation allowance on the Company’s U.S. federal and state deferred tax assets was recorded. This resulted in an increase in the Company’s income tax expense of approximately $25 million.
(c) Due to significant changes above, the net loss in the fourth quarter of 2024 decreased to $9.5 million, compared to a $27.0 million net loss in the third quarter of 2024.
(d) The weighted average diluted shares outstanding did not include 22,269, 8,695, 91,697, and 93,710 anti-dilutive restricted shares of common stock as of March 31, 2024, June 30, 2024, September 30, 2024 and December 31, 2024, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company monitors liquidity using, among other measures, on-hand liquidity to total liabilities, and total liquidity to total liabilities. On-hand liquidity is comprised of interest-bearing cash and cash equivalents and unpledged available-for-sale securities. Total liquidity includes on-hand liquidity plus unused borrowing capacity and other available contingent funding
2025 FORM 10-K 33
sources, including brokered deposit capacity subject to internal limits. The Company also monitors other metrics to manage liquidity and concentration risk in its funding base.
The Company's on-hand liquidity and total liquidity ratios for the year ended December 31, 2025 and December 31, 2024, are as follows:
(In thousands)
December 31, 2025
December 31, 2024
On-hand liquidity
Interest-bearing cash and cash equivalents
Available-for-sale securities, at fair value
Less: pledged available-for-sale securities
Total on-hand liquidity
Borrowing capacity
FHLB borrowing capacity
FRB borrowing capacity
Unsecured credit lines from correspondent banks
Brokered deposit capacity
Total borrowing capacity
Less: used borrowing capacity
FHLB capacity used (including the standby letter of credit)
FRB capacity used
Outstanding brokered deposits
Total used borrowing capacity
Total liquidity
Total liabilities
On-hand liquidity to total liabilities
Total liquidity to total liabilities
On-hand liquidity increased $229.5 million from December 31, 2024 to December 31, 2025 primarily reflecting higher balances of cash, cash equivalents, and unpledged available-for-sale securities following the Company’s capital raises and broader balance sheet repositioning during 2025. These changes improved the Company’s funding flexibility and contingent liquidity position.
Liquidity represents the Company’s ability to meet its financial obligations as they come due, including deposit withdrawals, funding commitments, debt service, and other operating needs. Management believes the Company’s liquidity position at December 31, 2025 was sufficient to meet expected funding needs and reasonably anticipated deposit fluctuations.
Capital raised during 2025, including the March 2025 private placement and subsequent capital transactions, provided additional liquidity and enhanced both the Bank’s and the Company’s funding flexibility.
Net cash provided by operating activities was $14.3 million for the year ended December 31, 2025, compared to net cash provided by operating activities of $2.7 million for the year ended December 31, 2024. The year-over-year change was primarily driven by a larger net cash outflow related to loans held for sale activity, as originations exceeded sale proceeds by a greater amount in 2025 than in 2024, and by a lower provision for credit losses, which reduced a non-cash add-back to operating cash flow. These factors were partially offset by higher share-based compensation, which increased non-cash expense in 2025. Activity in loans held for sale primarily related to credit card receivables originated for certain digital payments customer programs, which are generally sold shortly after origination.
Net cash used in investing activities was $20.7 million for the year ended December 31, 2025, compared to net cash provided by investing activities of $135.0 million for the year ended December 31, 2024. The 2025 investing cash outflow primarily reflected
2025 FORM 10-K 34
$145.2 million of purchases of available-for-sale securities. That outflow was partially offset by $114.9 million of payments received on loans receivable, $4.5 million of proceeds from the maturity of other investments, and the absence of loan originations in 2025 compared to $48.9 million of loan originations in 2024. In 2024, investing activities also benefited from higher loan repayments and materially lower securities purchases .
Net cash provided by financing activities was $79.1 million for the year ended December 31, 2025, compared to net cash used in financing activities of $41.6 million for the year ended December 31, 2024. The 2025 financing cash inflow was primarily driven by proceeds from issuances of common stock and preferred stock, net of offering costs. Financing activities in 2025 also reflected lower reliance on wholesale funding, including a $3.0 million net repayment of Federal Home Loan Bank advances and no net Federal Reserve Bank or correspondent bank borrowings outstanding at year end, as well as $3.0 million of senior note repayments and a modest net decrease in deposits. In 2024, financing activities reflected a $126.3 million increase in deposits that was more than offset by $68.0 million of net repayments of Federal Home Loan Bank advances and $70.0 million of net repayments of Federal Reserve Bank and correspondent bank borrowings.
As a result of the foregoing, cash, cash equivalents and restricted cash increased $44.0 million during 2025, compared to an increase of $96.1 million during 2024.
As of December 31, 2025, the maturities of Patriot’s contractual obligations are as follows:
(In thousands)
Contractual Obligations Due
Contractual Obligation Category
Less than One Year
One to Three Years
Three to Five Years
Over Five Years
Total
Certificates of deposit
Brokered deposits
Subordinated debt
Junior subordinated debt
Operating lease obligations
Total contractual obligations
Management seeks to maintain a capital structure that supports regulatory requirements, planned balance sheet activity, and the ability to absorb potential losses, while also positioning the Company to improveprofitability and shareholder value over time. The Company has not paid dividends to shareholders during the most recent three-year period.
The primary source of liquidity at the parent company is dividends or other return of capital from the Bank. Such payments are subject to regulatory restrictions, including OCC supervisory requirements and the Bank’s capital plan, and are used in part to service debt payments at the Company. Return of capital payments from the Bank to the Company totaled zero for the year ended December 31, 2025, $1.0 million for the year ended December 31, 2024, and $2.5 million for the year ended December 31, 2023.
OFF-BALANCE SHEET ARRANGEMENTS
The Bank’s off-balance sheet arrangements consist primarily of unfunded loan commitments and standby letters of credit. Because these commitments may expire unused or are contingent on the customer’s compliance with the underlying terms, the total commitment amounts do not necessarily represent future cash requirements. As of December 31, 2025 and 2024, the Bank’s off-balance sheet commitments were $69 million and $87.6 million, respectively.
As of December 31, 2025, the Bank had an irrevocable stand-by letter of credit for a maximum of $55 million, issued by the Federal Home Loan Bank of Boston on behalf of the Bank, with Mastercard as the beneficiary, which expires on April 30, 2026.
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REGULATORY CAPITAL REQUIREMENTS
The following tables illustrate the Company’s and the Bank’s regulatory capital ratios at December 31, 2025 and 2024:
December 31, 2025
December 31, 2024
Patriot National Bancorp, Inc.
Patriot Bank, N.A.
Patriot National Bancorp, Inc.
Patriot Bank, N.A.
(Dollar amounts in thousands)
Amount
Ratio
Amount
Ratio
Amount
Ratio
Amount
Ratio
Total Capital (to risk weighted assets)
Formal Agreement minimum (Bank only)(a)
Tier 1 Capital (to risk weighted assets)
Formal Agreement minimum (Bank only)(a)
Common Equity Tier 1 Capital (to risk weighted assets)
Formal Agreement minimum (Bank only)(a)
Tier 1 Leverage Capital (to average assets)
Formal Agreement minimum (Bank only)(a)
(a) On January 17, 2025, the OCC notified the Bank that the individual minimum capital ratios established in April 2024 had been terminated in connection with the Bank’s entry into the Formal Agreement dated January 14, 2025. The minimum ratios shown above for the Bank reflect the capital requirements established by the Formal Agreement. Although the Bank’s reported capital ratios at December 31, 2025 exceeded those minimum ratios, the Formal Agreement provides that meeting and maintaining such ratios does not mean the Bank may be deemed to be “well capitalized” for purposes of 12 U.S.C. § 1831o and 12 C.F.R. Part 6.
Federal banking regulations establish minimum leverage and risk-based capital requirements for insured depository institutions, including standards applicable to institutions seeking to be considered “well capitalized.”
In April 2024, the OCC established individual minimum capital ratios for the Bank. On January 17, 2025, in connection with the Bank’s entry into the Formal Agreement on January 14, 2025, the OCC notified the Bank that the April 2024 individual minimum capital ratios had been terminated. As reflected in the table above, the minimum capital ratios applicable to the Bank at December 31, 2025 were those established by the Formal Agreement.
At December 31, 2025, the Bank’s reported capital ratios exceeded both the standard “well capitalized” thresholds and the higher minimum capital ratios required by the Formal Agreement. Specifically, the Bank’s common equity tier 1 capital ratio was 18.66%, its Tier 1 capital ratio was 18.66%, its total capital ratio was 19.25%, and its Tier 1 leverage ratio was 11.42%. By comparison, at December 31, 2024, the Bank did not meet the higher minimum capital ratios then applicable. The Company’s capital actions during 2025, including the March 2025 private placement and related recapitalization transactions, materially improved the Bank’s capital position.
Notwithstanding the Bank’s reported capital ratios at December 31, 2025, the Formal Agreement provides that meeting and maintaining specified capital levels does not mean that the Bank may be deemed to be “well capitalized” for purposes of 12 U.S.C. § 1831o and 12 C.F.R. Part 6.
