Company: PNBK
Filing Date: 2025-11-14
Form Type: 10-Q
Source: 0001628280-25-052358
Chunk: 219

Company: PATRIOT NATIONAL BANCORP INC
Filing Date: 2025-11-14
Form: 10-Q
Item: Part I, Item 8
Chunk 219
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 threshold does not, by itself, indicate unsafe or unsound banking practices; however, it subjects the Bank to heightened supervisory expectations for portfolio management, risk assessment, and capital planning. Management maintains portfolio management procedures, underwriting standards, and stress testing practices consistent with these regulatory expectations. For purposes of calculating the Bank’s CRE concentration in accordance with this regulatory guidance, owner-occupied CRE loans are excluded from the CRE total and classified as commercial and industrial (“C&I”) loans; however, the CRE portfolio tables above include owner-occupied CRE for presentation purposes.

55

Allowance for Credit Losses ("ACL") on Loans

The allowance for credit losses on loans was $7.2 million as of September 30, 2025, compared to $7.3 million as of December 31, 2024, a reduction of $0.1 million. The reduction in allowance was mainly attributed to a decrease in reserve for loan portfolio sale. Based upon the overall assessment and evaluation of the loan portfolio as of September 30, 2025, management has determined that the $7.2 million allowance for credit loss representing 1.22% of gross loans, is adequate to cover expected credit losses under current economic conditions. This assessment follows current expected credit loss ("CECL") guidance, which requires estimating expected losses over the life of the loans, considering historical data, current conditions, and future forecasts. 

Pursuant to guidance provided in OCC Bulletin 2020-49 and Interagency Policy Statement on Allowances for Credit Losses (May 8, 2020), the Bank refined the use of qualitative factors (“Q-Factors”) in its ACL methodology and calculations in the third quarter of 2025.

Beginning in the second quarter of 2025, the Bank implemented the use of qualitative factors (“Q Factors”) in its ACL methodology and calculations. The application of the chosen Q-Factors added a net 12 bps to the overall reserves for third quarter of 2025 – unchanged from the second quarter of 2025. The model-only ACL yielded 1.10% of total reserves – and the addition of 12 bps of Q-Factors increased the final ACL to 1.22% of total loans.

The Q-Factors are applied to specific loan pools and are quantified using management’s best estimates. As noted below, a total of 15 bps of Q-Factors was applied, but because the application is on a pool-by-pool basis, the net effect is only