Patriot National Bancorp, Inc. — Q3 2021 Form 10-Q
Business context and period. The regional bank reported for the quarter and nine months ended September 30, 2021. Its lending is concentrated in Connecticut, Westchester County, and New York City. Figures below are consolidated and in millions of dollars unless stated otherwise.
Financial performance and condition
| Metric | Q3 2021 / Sep. 30, 2021 | Comparable period / prior year-end |
|---|---|---|
| Net income (loss) | $1.323 million; $0.34 diluted EPS | Q3 2020: loss of $0.087 million; $(0.02) EPS |
| Nine-month net income (loss) | $3.199 million; $0.81 diluted EPS | Nine months 2020: loss of $2.437 million; $(0.62) EPS |
| Net interest income | Q3: $6.290 million; nine months: $18.354 million | Q3 2020: $5.906 million; nine months 2020: $17.916 million |
| Net interest margin | Q3: 2.81%; nine months: 2.87% | Q3 2020: 2.61%; nine months 2020: 2.60% |
| Total assets | $952.3 million | $880.7 million at Dec. 31, 2020 |
| Net loans / gross loans | $704.5 million / $714.5 million | Net loans: $719.6 million at Dec. 31, 2020 |
| Deposits | $734.7 million | $685.7 million at Dec. 31, 2020 |
| Cash and cash equivalents | $46.3 million | $34.6 million at Dec. 31, 2020 |
| Borrowings | $140.7 million, including $110.0 million of FHLB advances | $120.8 million total at Dec. 31, 2020 |
| Shareholders’ equity | $66.7 million | $63.2 million at Dec. 31, 2020 |
- Income and costs: Q3 interest and dividend income fell 11.9% year over year to $8.0 million, while interest expense fell 46.6% to $1.7 million. Nine-month interest income fell 18.8% to $23.8 million, while interest expense fell 52.1% to $5.5 million. Noninterest income was $0.9 million for Q3 and $2.1 million year to date; noninterest expense was $5.7 million and $16.4 million, respectively.
- Cash flow: For the nine months, operating activities provided $3.8 million, investing activities used $59.5 million, and financing activities provided $67.3 million. Cash increased $11.6 million to $46.3 million.
- Liquidity and capital: Balance-sheet liquidity was 12.0% of assets, versus 9.0% at year-end; including available off-balance-sheet funding sources it was 21.5%, versus 21.7%. The Bank’s Community Bank Leverage Ratio was 9.9%, above the stated 9.0% well-capitalized threshold.
Material changes and notable items
- Assets grew mainly because available-for-sale securities increased $74.8 million to $124.1 million. Total deposits increased $49.0 million, while net loans declined $15.1 million.
- Management attributed improved funding costs partly to growth in prepaid debit card deposits. The prepaid program totaled $142.4 million at September 30, 2021, compared with $50.0 million acquired in July 2020.
- The allowance for loan losses declined to $10.1 million, or 1.41% of gross loans, from $10.6 million at year-end. The company recorded a $0.3 million provision credit in the first nine months, versus a $1.8 million provision in the same 2020 period.
- Nonaccrual loans increased to $28.0 million from $20.0 million at year-end; nonperforming assets rose to 2.94% of assets from 2.49%. The filing reports $1.8 million of specific reserves against nonaccrual loans.
- The Company recognized Employee Retention Credits of $0.9 million in Q3 and $2.9 million in the first nine months, recorded as reductions to compensation expense. A $0.512 million gain from terminating a cash-flow hedge swap was included in Q3 other income.
- The OCC terminated the Bank’s formal written agreement on September 1, 2021. The Bank reported a 9.9% leverage ratio under the CBLR framework.
Outlook, risks, and contingencies
- No quantified earnings or financial guidance is provided. Management said it expects loan balances to grow and net interest income to improve as economic activity expands and funding costs decline.
- Management cautioned that COVID-19 effects remain uncertain and could increase credit losses, reduce demand, impair goodwill, or affect deferred tax asset valuations. Regional economic conditions and real estate values, borrower performance, interest rates, competition, and funding access are also identified risks.
- Three COVID-related loan deferrals totaling $7.3 million remained at September 30, 2021; the filing states these were not classified as TDRs under applicable guidance. Approximately 14 loans totaling $6.8 million were delinquent after no further deferrals.
- The Company had $141.1 million of commitments to extend credit and standby letters of credit. The filing says no legal proceeding was expected to have a material adverse effect.
- The $12 million senior notes mature December 22, 2021. Dividends have been temporarily suspended pending resolution of economic uncertainty associated with the pandemic.
Most important facts for investors to verify
- Reconcile the MD&A statement that nine-month net interest income “decreased 2.4%” with the financial statement amounts, which indicate an increase from $17.916 million to $18.354 million.
- Assess the increase in nonaccrual loans and nonperforming assets, particularly the commercial real estate exposure, and the adequacy of the $10.1 million loan-loss allowance.
- Review the maturity, repayment or refinancing plan for the senior notes due in December 2021, along with the Bank’s FHLB borrowing capacity and collateral requirements.
- Evaluate the sustainability of earnings excluding the Employee Retention Credits and the one-time swap termination gain.
- Monitor the Bank’s leverage ratio against the CBLR requirements and its liquidity, deposit mix, prepaid program concentration, and interest-rate sensitivity.