Company: PNBK
Filing Date: 2025-11-14
Form Type: 10-Q
Source: 0001628280-25-052358
Chunk: 164

Company: PATRIOT NATIONAL BANCORP INC
Filing Date: 2025-11-14
Form: 10-Q
Item: Part I, Item 8
Chunk 164
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 standards and underwriting guidelines.   The new loan programs comply with the Bank’s concentration limits, and risk-management controls, including heightened portfolio management routines, borrower and guarantor liquidity testing, and ongoing regulatory reporting. Early production volumes in the third quarter of 2025 remain modest as the Bank completes pilot transactions and validates credit performance metrics.  Each of the new loan products includes minimum deposit requirements designed to strengthen client relationships and promote additional business activities such as treasury management and card services.  

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

Allowance for Credit Losses The Company adopted ASU 2016-13 on January 1, 2023, which introduced the current expected credit loss (“CECL”) methodology for estimating all expected losses over the life of a financial asset. Under the CECL methodology, the ACL is measured on a collective basis for pools of loans with similar risk characteristics. For loans that do not share similar risk characteristics with the collectively evaluated pools, and have been characterized as non-accrual loans, evaluations are performed on an individual basis. For all loan segments collectively evaluated, losses are predicted over a period of time determined to be reasonable and supportable, and at the end of the reasonable and supportable forecast period losses are reverted to long-term historical averages. The estimated credit losses for all loan segments are adjusted for changes in qualitative factors not inherently considered in the quantitative analyses.The Company estimates expected credit losses for pooled loans using a modeling method that incorporates probability of default (“PD”) and loss given default (“LGD”). The PD model employs a quarterly risk-rating transition method to estimate the probability of default by simulating loan downgrades and assigning increasing default probabilities to each loan. This captures the likelihood that borrowers will be unable to repay their loans according to the original terms. The LGD calculation considers characteristics such as collateral value and vintage, underlying collateral characteristics (e.g., CRE vs. residential, owner-occupied vs. investment), a floor for the LGD calculation (minimum loss in event of default regardless of collateral protection), and other relevant underwriting characteristics. Also calculated is the exposure at default.  The probability of default is multiplied by the loss given default and the exposure at default. This calculation is forecasted for every year remaining in the life of each loan, and the results are aggregated to determine the necessary level of ACL for the pooled loans.  Forecasted exposure at default can be influenced by prepayments