Patriot National Bancorp, Inc. — Q1 2022 Form 10-Q
Business context and reporting period. Patriot National Bancorp is the parent of Patriot Bank, N.A., a community bank serving markets in Connecticut, Westchester County, and New York City. This unaudited report covers the three months ended March 31, 2022; balance-sheet comparisons are with December 31, 2021. Amounts below are in U.S. dollars unless noted.
Financial performance and condition
| Metric | Q1 2022 / March 31, 2022 | Comparable period / prior year-end |
|---|---|---|
| Net interest income | $6.726 million | $6.126 million in Q1 2021; up 9.8% |
| Net interest margin | 3.06% | 2.99% in Q1 2021 |
| Noninterest income | $814,000 | $442,000 in Q1 2021 |
| Noninterest expense | $6.429 million | $5.395 million in Q1 2021 |
| Net income / diluted EPS | $800,000 / $0.20 | $854,000 / $0.22 in Q1 2021 |
| Total assets | $975.5 million | $948.5 million at December 31, 2021 |
| Loans, net of allowance | $763.6 million | $729.6 million at December 31, 2021 |
| Total deposits | $779.8 million | $748.6 million at December 31, 2021 |
| Cash and cash equivalents | $44.3 million | $47.0 million at December 31, 2021 |
| Shareholders’ equity | $62.7 million | $67.3 million at December 31, 2021 |
| Total borrowings | $120.7 million | Unchanged from December 31, 2021 |
- Earnings and margins: Interest and dividend income was $8.320 million, while interest expense fell to $1.594 million from $1.985 million in Q1 2021. Average cost of interest-bearing deposits declined to 0.31% from 0.60%. The net interest margin improvement reflected lower deposit costs and higher average loan balances.
- Cash flow: Operating activities used $4.320 million; investing activities used $31.118 million; financing activities provided $32.709 million. Cash declined by $2.729 million during the quarter. Loan purchases were a significant investing cash use.
- Liquidity and capital: Management reported balance-sheet liquidity of 10.4% of assets and liquidity including available off-balance-sheet sources of 19.4%, down from 11.4% and 21.0%, respectively, at year-end. The Bank’s Tier 1 leverage ratio was 9.94%, above the 9.0% Community Bank Leverage Ratio threshold cited for well-capitalized status.
- Credit quality: The allowance for loan and lease losses was $9.737 million, or 1.26% of gross loans; no loan-loss provision was recorded. Net charge-offs were $168,000. Nonaccrual loans were $23.466 million, or 3.07% of net loans, compared with $23.095 million at year-end. The allowance included $2.7 million of specific reserves for impaired loans.
Material changes versus comparable periods
- Gross loans rose $33.9 million from year-end, with commercial real estate loans increasing to $413.1 million. The loan portfolio grew through originations and purchases, partly offset by repayments.
- Deposits increased $31.3 million, or 4.2%. Brokered deposits rose to $34.9 million from $17.0 million; prepaid debit card deposits were $146.8 million, which management described as a low-cost funding source.
- Available-for-sale securities fell to $83.3 million from $94.3 million at year-end. The portfolio had $9.647 million of gross unrealized losses at March 31, compared with $2.384 million at year-end. The resulting after-tax other comprehensive loss was $5.482 million and was the primary reason equity declined.
- Q1 2022 net income was below Q1 2021 despite higher net interest income. The 2021 quarter included an $843,000 employee retention tax credit; none was recognized in Q1 2022. Noninterest expense increased by $1.034 million year over year.
Outlook, risks, contingencies, and unusual items
- Management said it expected loan balances to grow and anticipated further improvement in net interest income as economic activity expanded; the filing provides no quantified earnings or balance-sheet guidance. It cautioned that interim results are not necessarily indicative of full-year results.
- The proposed merger with American Challenger Development Corp. was described as nearing the final stages of its process, but remained subject to regulatory and shareholder approvals and other closing conditions. The filing reports $1.9 million of merger-related project expenses to date and identifies possible transaction costs and share dilution as risks. The specific capital-raise amount is not clear in the filing text provided.
- The $12 million senior notes had been extended to mature June 30, 2022. The Bank also had $90 million of FHLB advances outstanding, with maturities of 1.3 to 2.5 years and a weighted-average rate of 3.26%.
- Management considered securities losses temporary, citing market interest-rate movements and its expectation of collecting contractual principal and interest; it stated it did not intend, and was not more likely than not required, to sell the securities before recovery of amortized cost. Rising rates and loan-market conditions remain relevant valuation and earnings risks.
- Other stated risks include regional economic and real-estate conditions, borrower performance, funding access, interest-rate changes, regulatory requirements, and merger approvals or termination. Routine legal proceedings were reported, with management not expecting a material adverse effect. Disclosure controls were assessed as effective at the reasonable-assurance level.
- Dividends had not been paid since 2020 and were temporarily suspended. Management said they may resume in future periods, without giving a timetable.
Important facts for investors to verify
- Confirm the status and terms of the American Challenger merger, required approvals, capital raise, expected costs, and potential share dilution.
- Check how the $12 million senior notes due June 30, 2022 were repaid, refinanced, or otherwise addressed after the reporting date.
- Track unrealized securities losses, their effect on tangible capital and equity, and whether management’s assumptions about recovery remain valid.
- Monitor nonaccrual loans, impaired-loan reserves, charge-offs, and the concentration and performance of commercial real estate loans.
- Assess liquidity and funding composition, particularly brokered deposits, prepaid debit card deposits, and the Bank’s high net-loan-to-deposit ratio of 98%.
- Reconcile the MD&A summary’s stated Q1 2021 net income of $845,000 with the financial statements, which report $854,000, and confirm the prior-year EPS comparison.