Patriot National Bancorp, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Patriot is a community banking company operating primarily in Connecticut, the New York metropolitan area and northern New Jersey. Figures are unaudited; dollar amounts below are in millions unless stated otherwise.
Financial performance and position
| Metric | Q1 2023 / March 31, 2023 | Comparable period / prior date |
|---|---|---|
| Net interest income | $8.0; net interest margin 3.29% | $6.7; 3.06% in Q1 2022. Margin was 3.77% in Q4 2022. |
| Net income (loss) | $(0.05); $(0.01) per diluted share | $0.8; $0.20 per diluted share in Q1 2022 |
| Interest and dividend income / expense | $13.6 / $5.6 | $8.3 / $1.6 in Q1 2022 |
| Credit-loss provision | $1.3 net; $1.7 for loans, offset by a $0.4 credit for unfunded commitments | No loan-loss provision in Q1 2022 |
| Total assets | $1,100.0 | $1,043.4 at December 31, 2022 |
| Gross loans / net loans | $878.8 / $861.0 | $848.3 / $838.0 at December 31, 2022 |
| Deposits | $856.5 | $860.4 at December 31, 2022 |
| Cash and cash equivalents | $60.3 | $38.5 at December 31, 2022 |
| Borrowings | $180.1 total, including $150.0 of FHLB advances | $115.2 total, including $85.0 of FHLB advances, at December 31, 2022 |
| Shareholders’ equity | $54.6 | $59.6 at December 31, 2022 |
| Bank Tier 1 leverage ratio | 9.25% | 9.27% at December 31, 2022; 9.0% is the stated well-capitalized threshold under CBLR |
Operating cash flow was $(0.2); investing cash flow was $(40.9); financing cash flow was $62.9. Cash increased by $21.8 during the quarter. Balance-sheet liquidity was 7.8% of assets; liquidity including readily available off-balance-sheet funding was 13.2%, above the company’s 10% policy minimum. The net loan-to-deposit ratio was 100.5%.
Material changes and management commentary
- Net loss replaced prior-year net income. Higher loan yields and loan growth lifted interest income, but funding costs rose sharply: deposit interest expense increased to $3.6 from $0.4, while total interest expense rose to $5.6 from $1.6. Management cited recent banking-sector uncertainty and deposit repricing as contributors to the sequential margin decline.
- Loans grew 3.6% from year-end. Commercial real estate was 52.9% of gross loans, commercial and industrial 17.5%, residential real estate 13.5%, and consumer and other 15.1%.
- Deposits declined $4.0 overall, but the mix shifted: noninterest-bearing deposits fell $116.9, while interest-bearing deposits rose $112.9. Brokered deposits increased to $105.1 from $48.7. Prepaid-program deposits totaled $176.2; uninsured deposits were 34.29% of total deposits.
- Nonperforming assets rose to $27.2, or 2.47% of assets, from $19.7, or 1.89%, at year-end. Nonaccrual loans were $23.8 across 33 borrowers, with $7.1 of specific reserves. The allowance for credit losses was $17.8, or 2.03% of gross loans.
- Adoption of CECL on January 1 increased the loan allowance by about $7.4 and the unfunded-commitment reserve by about $1.1, with a $6.2 after-tax reduction to opening accumulated equity. The quarter also included $1.8 of consumer-loan charge-offs, partly offset by $0.2 of recoveries.
- Unrealized losses on available-for-sale securities totaled $19.4, while fair value was $91.7. Management attributed losses to market interest-rate increases, reported no credit-loss allowance on these securities, and said it did not intend, and was not likely required, to sell them before recovery.
Outlook, risks and other matters
The filing gives no numerical earnings or revenue guidance. Management said prepaid-card and deposit programs are expected to contribute increasingly to diversified funding. It described its deposit base as relationship-supported and noted that 66% of deposits were federally insured and 20% tied to the prepaid vertical. Management also highlighted non-owner-occupied CRE weighted-average loan-to-value of 47%, limited office, land and construction exposure within that portfolio, and variable-rate or near-term repricing in a portion of loans. These are management statements, not guarantees of future performance.
Key risks include rising funding costs and deposit withdrawals, reliance on FHLB funding and brokered deposits, interest-rate and repricing exposure, credit deterioration—particularly in real estate and consumer lending—and regional economic and collateral-value changes. The company reported $205.4 of off-balance-sheet lending commitments, up from $154.3 at year-end. Its interest-rate sensitivity analysis estimated that a 200-basis-point rate increase would reduce modeled net interest income by 7.12%; such scenario estimates depend on assumptions. The Bank’s leverage ratio was only modestly above the 9% CBLR threshold. Management reported effective disclosure controls and no material change in internal control; no material litigation was identified. Results for the quarter are not necessarily indicative of the full year.
Important facts for investors to verify
- Whether the 9.25% Bank leverage ratio remains above the 9% CBLR threshold as assets, credit costs and funding needs change.
- Deposit stability and cost, including the evolution of brokered deposits, prepaid deposits, uninsured balances and FHLB advances.
- Credit quality trends, nonperforming loans, consumer charge-offs and the adequacy of the CECL allowance; assess the effect of CECL adoption when comparing periods.
- Whether net interest margin stabilizes after its decline from Q4 2022 and how asset yields compare with deposit and borrowing costs.
- Potential liquidity or valuation pressure from securities losses and pledged collateral; confirm the company’s ability to avoid selling securities before recovery.