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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2023
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Connecticut | 06-1559137 | |||||||
(State or other jurisdiction of
| (I.R.S. Employer
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900 Bedford Street, Stamford, Connecticut | 06901 | |||||||
(Address of principal executive offices) | (Zip Code) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Common Stock | PNBK | NASDAQ Global Market |
Large accelerated filer |
| Accelerated filer |
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Non-accelerated filer |
| Smaller reporting company |
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Emerging growth company |
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Legal Proceedings | ||||||||
Other Information | ||||||||
PART I- FINANCIAL INFORMATION
September 30, 2022 December 31, 2021 (In thousands, except share data) Unaudited Assets Cash and due from banks: Noninterest bearing deposits and cash Interest bearing deposits Total cash and cash equivalents Investment securities: Available-for-sale securities, at fair value Other investments, at cost Total investment securities Federal Reserve Bank stock, at cost Federal Home Loan Bank stock, at cost Loans receivable (net of allowance for loan losses: 2022: $9,952 and 2021: $9,905) Loans held for sale Accrued interest and dividends receivable Premises and equipment, net Deferred tax asset Goodwill Core deposit intangible, net Other assets Total assets Liabilities Deposits: Noninterest bearing deposits Interest bearing deposits Total deposits Federal Home Loan Bank and correspondent bank borrowings Senior notes, net Subordinated debt, net Junior subordinated debt owed to unconsolidated trust, net Note payable Advances from borrowers for taxes and insurance Accrued expenses and other liabilities Total liabilities Commitments and Contingencies Shareholders' equity Preferred stock, no par value; 1,000,000 shares authorized, no shares issued and outstanding Common stock, $.01 par value, 100,000,000 shares authorized; As of September 30, 2022: 4,031,010 shares issued; 3,957,269 shares outstanding; As of December 31, 2021: 4,030,233 shares issued; 3,956,492 shares outstanding. Accumulated deficit Accumulated other comprehensive loss Total shareholders' equity Total liabilities and shareholders' equity Three Months Ended September 30, Nine Months Ended September 30, (In thousands, except per share amounts) 2022 2021 2022 2021 Interest and Dividend Income Interest and fees on loans Interest on investment securities Dividends on investment securities Other interest income Total interest and dividend income Interest Expense Interest on deposits Interest on Federal Home Loan Bank borrowings Interest on senior debt Interest on subordinated debt Interest on note payable and other Total interest expense Net interest income Provision (credit) for loan losses Net interest income after provision for loan losses Non-interest Income Loan application, inspection and processing fees Deposit fees and service charges Gains on sales of loans Rental income Gain on sale of investment securities Other income Total non-interest income Non-interest Expense Salaries and benefits Occupancy and equipment expense Data processing expense Professional and other outside services Project expenses, net Advertising and promotional expense Loan administration and processing expense Regulatory assessments Insurance expense, net Communications, stationery and supplies Other operating expense Total non-interest expense Income before income taxes Provision for income taxes Net income Basic earnings per share Diluted earnings per share (In thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net income Other comprehensive (loss) income Securities available-for-sale: Unrealized holding (loss) gain on securities Income tax effect Reclassification for realized gain on sale of investment securities Income tax effect Total securities available-for-sale Derivative instruments: Unrealized holding (loss) gain on cash flow hedge Income tax effect Reclassification adjustment for net gain included in net income Income tax effect Total derivative instruments Total other comprehensive (loss) income Comprehensive (loss) income Three Months Ended September 30, 2022 (In thousands, except shares) Number of Shares Common Accumulated Accumulated Other Comprehensive (Loss) Total Balance at June 30, 2022 Comprehensive income (loss): Net income Unrealized holding loss on available-for-sale securities, net of tax Total comprehensive income (loss) Share-based compensation expense Balance at September 30, 2022 Nine Months Ended September 30, 2022 (In thousands, except shares) Number of Shares Common Accumulated Accumulated Other Comprehensive (Loss) Total Balance at December 31, 2021 Comprehensive income: Net income Unrealized holding loss on available-for-sale securities, net of tax Total comprehensive income (loss) Share-based compensation expense Vesting of restricted stock Balance at September 30, 2022 See Accompanying Notes to Consolidated Financial Statements. Three Months Ended September 30, 2021 (In thousands, except shares) Number of Shares Common Accumulated Accumulated Other Total Balance at June 30, 2021 Comprehensive income (loss): Net income Unrealized holding gain on available-for-sale securities, net of tax Unrealized holding gain on cash flow hedge, net of tax Total comprehensive income Share-based compensation expense Vesting of restricted stock Balance at September 30, 2021 $ 4,319 $ 3,264 26,865 43,781 31,184 47,045 85,917 94,341 4,450 4,450 90,367 98,791 2,671 2,843 5,474 4,184 852,918 729,583 8,748 3,129 6,504 5,822 30,861 31,500 16,057 12,146 1,107 1,107 261 296 12,839 12,035 $ 1,058,991 $ 948,481 $ 247,704 $ 226,713 586,691 521,849 834,395 748,562 125,000 90,000 12,000 12,000 9,832 9,811 8,125 8,119 637 791 2,262 1,101 8,736 10,753 1,000,987 881,137 - - 106,542 106,479 (33,107 ) (37,498 ) (15,431 ) (1,637 ) 58,004 67,344 $ 1,058,991 $ 948,481 See Accompanying Notes to Consolidated Financial Statements.June 30, 2023 December 31, 2022 (In thousands, except share data) Unaudited Assets Cash and due from banks: Noninterest bearing deposits and cash $ 2,320 $ 5,182 Interest bearing deposits 68,489 33,311 Total cash and cash equivalents 70,809 38,493 Investment securities: Available-for-sale securities, at fair value 90,547 84,520 Other investments, at cost 4,450 4,450 Total investment securities 94,997 88,970 Federal Reserve Bank stock, at cost 2,523 2,627 Federal Home Loan Bank stock, at cost 8,072 3,874 Loans receivable (net of allowance for credit losses: 2023: $24,098 and 2022: $10,310) 906,636 838,006 Loans held for sale 5,860 5,211 Accrued interest and dividends receivable 7,628 7,267 Premises and equipment, net 30,262 30,641 Deferred tax asset 20,386 15,527 Goodwill 1,107 1,107 Core deposit intangible, net 226 249 Other assets 9,202 11,387 Total assets $ 1,157,708 $ 1,043,359 Liabilities Deposits: Noninterest bearing deposits $ 127,817 $ 269,636 Interest bearing deposits 735,562 590,810 Total deposits 863,379 860,446 Federal Home Loan Bank and correspondent bank borrowings 207,000 85,000 Senior notes, net 11,653 11,640 Subordinated debt, net 9,854 9,840 Junior subordinated debt owed to unconsolidated trust, net 8,132 8,128 Note payable 481 585 Advances from borrowers for taxes and insurance 3,094 886 Accrued expenses and other liabilities 7,704 7,251 Total liabilities 1,111,297 983,776 Commitments and Contingencies Shareholders' equity Preferred stock, no par value; 1,000,000 shares authorized, no shares issued and outstanding — — Common stock, $.01 par value, 100,000,000 shares authorized; As of June 30, 2023: 4,038,927 shares issued; 3,965,186 shares outstanding; As of December 31, 2022: 4,038,927 shares issued; 3,965,186 shares outstanding. 106,611 106,565 Accumulated deficit (44,161) (31,337) Accumulated other comprehensive loss (16,039) (15,645) Total shareholders' equity 46,411 59,583 Total liabilities and shareholders' equity $ 1,157,708 $ 1,043,359 PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) $ 11,250 $ 7,189 $ 27,958 $ 22,199 555 692 1,635 1,422 99 59 229 150 135 20 224 67 12,039 7,960 30,046 23,838 1,493 448 2,659 1,856 806 756 2,290 2,230 218 229 638 686 276 233 761 700 3 4 9 12 2,796 1,670 6,357 5,484 9,243 6,290 23,689 18,354 200 (300 ) 475 (300 ) 9,043 6,590 23,214 18,654 102 79 278 203 67 61 191 190 182 - 691 352 124 130 448 400 - 26 - 119 179 627 658 854 654 923 2,266 2,118 4,330 2,843 11,439 7,506 862 832 2,579 2,530 297 376 910 1,088 541 633 1,889 2,199 50 4 131 15 50 57 191 196 37 23 184 61 245 213 598 649 54 79 207 214 208 161 482 450 540 490 1,535 1,484 7,214 5,711 20,145 16,392 2,483 1,802 5,335 4,380 157 479 944 1,181 $ 2,326 $ 1,323 $ 4,391 $ 3,199 $ 0.59 $ 0.34 $ 1.11 $ 0.81 $ 0.59 $ 0.34 $ 1.11 $ 0.81 See Accompanying Notes to Consolidated Financial Statements.PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) $ 2,326 $ 1,323 $ 4,391 $ 3,199 (5,587 ) (500 ) (18,590 ) 352 1,441 128 4,796 (92 ) - (26 ) - (119 ) - 7 - 31 (4,146 ) (391 ) (13,794 ) 172 - (104 ) - 149 - 27 - (39 ) - (64 ) - (149 ) - 17 - 39 - (124 ) - - (4,146 ) (515 ) (13,794 ) 172 $ (1,820 ) $ 808 $ (9,403 ) $ 3,371 See Accompanying Notes to Consolidated Financial Statements.PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)
Stock
Deficit 3,957,269 $ 106,520 $ (35,433 ) $ (11,285 ) $ 59,802 - - 2,326 - 2,326 - - - (4,146 ) (4,146 ) - - 2,326 (4,146 ) (1,820 ) - 22 - - 22 3,957,269 $ 106,542 $ (33,107 ) $ (15,431 ) $ 58,004
Stock
Deficit 3,956,492 $ 106,479 $ (37,498 ) $ (1,637 ) $ 67,344 - - 4,391 - 4,391 - - - (13,794 ) (13,794 ) - - 4,391 (13,794 ) (9,403 ) - 63 - - 63 777 - - - - 3,957,269 $ 106,542 $ (33,107 ) $ (15,431 ) $ 58,004
Stock
Deficit
Comprehensive
Income (Loss) 3,947,276 $ 106,409 $ (40,716 ) $ 169 $ 65,862 - - 1,323 - 1,323 - - - (391 ) (391 ) - - - (124 ) (124 ) - - 1,323 (515 ) 808 - 30 - - 30 700 - - - - 3,947,976 $ 106,439 $ (39,393 ) $ (346 ) $ 66,700
Nine Months Ended September 30, 2021 | ||||||||||||||||||||
(In thousands, except shares) | Number of Shares | Common | Accumulated | Accumulated Other | Total | |||||||||||||||
Balance at December 31, 2020 | 3,943,572 | $ | 106,329 | $ | (42,592 | ) | $ | (518 | ) | $ | 63,219 | |||||||||
Comprehensive income: | ||||||||||||||||||||
Net income | - | - | 3,199 | - | 3,199 | |||||||||||||||
Unrealized holding gain on available-for-sale securities, net of tax | - | - | - | 172 | 172 | |||||||||||||||
Total comprehensive income | - | - | 3,199 | 172 | 3,371 | |||||||||||||||
Share-based compensation expense | - | 110 | - | - | 110 | |||||||||||||||
Vesting of restricted stock | 4,404 | - | - | - | - | |||||||||||||||
Balance at September 30, 2021 | 3,947,976 | $ | 106,439 | $ | (39,393 | ) | $ | (346 | ) | $ | 66,700 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
(In thousands, except per share amounts) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
Interest and Dividend Income | |||||||||||||||||||||||
Interest and fees on loans | $ | 14,052 | $ | 9,044 | $ | 26,602 | $ | 16,708 | |||||||||||||||
Interest on investment securities | 687 | 510 | 1,367 | 1,080 | |||||||||||||||||||
Dividends on investment securities | 171 | 65 | 306 | 130 | |||||||||||||||||||
Other interest income | 399 | 68 | 680 | 89 | |||||||||||||||||||
Total interest and dividend income | 15,309 | 9,687 | 28,955 | 18,007 | |||||||||||||||||||
Interest Expense | |||||||||||||||||||||||
Interest on deposits | 5,248 | 757 | 8,827 | 1,166 | |||||||||||||||||||
Interest on Federal Home Loan Bank and correspondent bank borrowings | 1,723 | 747 | 3,159 | 1,484 | |||||||||||||||||||
Interest on senior debt | 289 | 210 | 579 | 420 | |||||||||||||||||||
Interest on subordinated debt | 333 | 251 | 659 | 485 | |||||||||||||||||||
Interest on note payable | 3 | 2 | 5 | 6 | |||||||||||||||||||
Total interest expense | 7,596 | 1,967 | 13,229 | 3,561 | |||||||||||||||||||
Net interest income | 7,713 | 7,720 | 15,726 | 14,446 | |||||||||||||||||||
Provision for credit losses | 1,325 | 275 | 3,545 | 275 | |||||||||||||||||||
Net interest income after provision for credit losses | 6,388 | 7,445 | 12,181 | 14,171 | |||||||||||||||||||
Non-interest Income | |||||||||||||||||||||||
Loan application, inspection and processing fees | 121 | 89 | 244 | 176 | |||||||||||||||||||
Deposit fees and service charges | 74 | 60 | 142 | 124 | |||||||||||||||||||
Gains on sales of loans | 85 | 301 | 166 | 509 | |||||||||||||||||||
Rental income | 105 | 132 | 224 | 324 | |||||||||||||||||||
Gain on sale of investment securities | — | — | 24 | — | |||||||||||||||||||
Other income | 444 | 216 | 864 | 479 | |||||||||||||||||||
Total non-interest income | 829 | 798 | 1,664 | 1,612 | |||||||||||||||||||
Non-interest Expense | |||||||||||||||||||||||
Salaries and benefits | 4,661 | 3,763 | 8,928 | 7,109 | |||||||||||||||||||
Occupancy and equipment expense | 839 | 881 | 1,723 | 1,717 | |||||||||||||||||||
Data processing expense | 316 | 283 | 610 | 613 | |||||||||||||||||||
Professional and other outside services | 727 | 559 | 1,641 | 1,348 | |||||||||||||||||||
Project expenses, net | 66 | 29 | 93 | 81 | |||||||||||||||||||
Advertising and promotional expense | 77 | 73 | 162 | 141 | |||||||||||||||||||
Loan administration and processing expense | 103 | 42 | 154 | 147 | |||||||||||||||||||
Regulatory assessments | 317 | 179 | 499 | 353 | |||||||||||||||||||
Insurance expense, net | 68 | 76 | 145 | 153 | |||||||||||||||||||
Communications, stationary and supplies | 241 | 139 | 432 | 274 | |||||||||||||||||||
Other operating expense | 648 | 478 | 1,260 | 995 | |||||||||||||||||||
Total non-interest expense | 8,063 | 6,502 | 15,647 | 12,931 | |||||||||||||||||||
(Loss) income before income taxes | (846) | 1,741 | (1,802) | 2,852 | |||||||||||||||||||
(Benefit) provision for income taxes | (231) | 476 | (488) | 787 | |||||||||||||||||||
Net (loss) income | $ | (615) | $ | 1,265 | $ | (1,314) | $ | 2,065 | |||||||||||||||
Basic (loss) earnings per share | $ | (0.16) | $ | 0.32 | $ | (0.33) | $ | 0.52 | |||||||||||||||
Diluted (loss) earnings per share | $ | (0.16) | $ | 0.32 | $ | (0.33) | $ | 0.52 |
(In thousands) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Net (loss) income | $ | (615) | $ | 1,265 | $ | (1,314) | $ | 2,065 | |||||||||||||||
Other comprehensive (loss) income | |||||||||||||||||||||||
Unrealized holding loss on securities | (2,211) | (5,614) | (507) | (13,003) | |||||||||||||||||||
Income tax effect | 570 | 1,448 | 131 | 3,355 | |||||||||||||||||||
Reclassification for realized gain on sale of investment securities | — | — | (24) | — | |||||||||||||||||||
Income tax effect | — | — | 6 | — | |||||||||||||||||||
Total securities available-for-sale | (1,641) | (4,166) | (394) | (9,648) | |||||||||||||||||||
Comprehensive loss | $ | (2,256) | $ | (2,901) | $ | (1,708) | $ | (7,583) |
Three Months Ended June 30, 2023 | |||||||||||||||||||||||||||||
(In thousands, except shares) | Number of Shares | Common Stock | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total | ||||||||||||||||||||||||
Balance at March 31, 2023 | 3,965,186 | $ | 106,588 | $ | (43,546) | $ | (14,398) | $ | 48,644 | ||||||||||||||||||||
Comprehensive loss: | |||||||||||||||||||||||||||||
Net loss | — | — | (615) | — | (615) | ||||||||||||||||||||||||
Unrealized holding loss on available-for-sale securities, net of tax | — | — | — | (1,641) | (1,641) | ||||||||||||||||||||||||
Total comprehensive loss | — | — | (615) | (1,641) | (2,256) | ||||||||||||||||||||||||
Share-based compensation expense | — | 23 | — | — | 23 | ||||||||||||||||||||||||
Balance at June 30, 2023 | 3,965,186 | $ | 106,611 | $ | (44,161) | $ | (16,039) | $ | 46,411 |
Three Months Ended June 30, 2022 | |||||||||||||||||||||||||||||
(In thousands, except shares) | Number of Shares | Common Stock | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total | ||||||||||||||||||||||||
Balance at March 31, 2022 | 3,956,492 | $ | 106,500 | $ | (36,698) | $ | (7,119) | $ | 62,683 | ||||||||||||||||||||
Comprehensive income (loss): | |||||||||||||||||||||||||||||
Net income | — | — | 1,265 | — | 1,265 | ||||||||||||||||||||||||
Unrealized holding loss on available-for-sale securities, net of tax | — | — | — | (4,166) | (4,166) | ||||||||||||||||||||||||
Total comprehensive income (loss) | — | — | 1,265 | (4,166) | (2,901) | ||||||||||||||||||||||||
Share-based compensation expense | — | 20 | — | — | 20 | ||||||||||||||||||||||||
Vesting of restricted stock | 777 | — | — | — | — | ||||||||||||||||||||||||
Balance at June 30, 2022 | 3,957,269 | $ | 106,520 | $ | (35,433) | $ | (11,285) | $ | 59,802 |
Six Months Ended June 30, 2023 | |||||||||||||||||||||||||||||
(In thousands, except shares) | Number of Shares | Common Stock | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total | ||||||||||||||||||||||||
Balance at January 1, 2023 | 3,965,186 | $ | 106,565 | $ | (31,337) | $ | (15,645) | $ | 59,583 | ||||||||||||||||||||
Transition adjustment related to adoption of ASC 326, net of tax | — | — | (11,510) | — | (11,510) | ||||||||||||||||||||||||
Comprehensive loss: | |||||||||||||||||||||||||||||
Net loss | — | — | (1,314) | — | (1,314) | ||||||||||||||||||||||||
Unrealized holding loss on available-for-sale securities, net of tax | — | — | — | (394) | (394) | ||||||||||||||||||||||||
Total comprehensive loss | — | — | (1,314) | (394) | (1,708) | ||||||||||||||||||||||||
Share-based compensation expense | — | 46 | — | — | 46 | ||||||||||||||||||||||||
Balance at June 30, 2023 | 3,965,186 | $ | 106,611 | $ | (44,161) | $ | (16,039) | $ | 46,411 |
Six Months Ended June 30, 2022 | |||||||||||||||||||||||||||||
(In thousands, except shares) | Number of Shares | Common Stock | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total | ||||||||||||||||||||||||
Balance at January 1, 2022 | 3,956,492 | $ | 106,479 | $ | (37,498) | $ | (1,637) | $ | 67,344 | ||||||||||||||||||||
Comprehensive income (loss): | |||||||||||||||||||||||||||||
Net income | — | — | 2,065 | — | 2,065 | ||||||||||||||||||||||||
Unrealized holding loss on available-for-sale securities, net of tax | — | — | — | (9,648) | (9,648) | ||||||||||||||||||||||||
Total comprehensive income (loss) | — | — | 2,065 | (9,648) | (7,583) | ||||||||||||||||||||||||
Share-based compensation expense | — | 41 | — | — | 41 | ||||||||||||||||||||||||
Vesting of restricted stock | 777 | — | — | — | — | ||||||||||||||||||||||||
Balance at June 30, 2022 | 3,957,269 | $ | 106,520 | $ | (35,433) | $ | (11,285) | $ | 59,802 |
(In thousands) | Nine Months Ended September 30, | (In thousands) | Six Months Ended June 30, | ||||||||||||||||
2022 | 2021 | 2023 | 2022 | ||||||||||||||||
Cash Flows from Operating Activities: | Cash Flows from Operating Activities: | ||||||||||||||||||
Net income | $ | 4,391 | $ | 3,199 | |||||||||||||||
Net (loss) income | Net (loss) income | $ | (1,314) | $ | 2,065 | ||||||||||||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | |||||||||||||||||||
(Accretion) amortization of investment (discounts) premiums, net | (12 | ) | 253 | ||||||||||||||||
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: | Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: | ||||||||||||||||||
Amortization and accretion of investment premiums and discounts, net | Amortization and accretion of investment premiums and discounts, net | (52) | (13) | ||||||||||||||||
Amortization and accretion of purchase loan premiums and discounts, net | 2,002 | 1,388 | Amortization and accretion of purchase loan premiums and discounts, net | 1,227 | 1,245 | ||||||||||||||
Amortization of debt issuance costs | 27 | 83 | Amortization of debt issuance costs | 87 | 18 | ||||||||||||||
Amortization of core deposit intangible | 35 | 35 | Amortization of core deposit intangible | 23 | 23 | ||||||||||||||
Amortization of servicing assets of sold SBA loans | 66 | 15 | Amortization of servicing assets of sold SBA loans | 62 | 30 | ||||||||||||||
Provision (credit) for loan losses | 475 | (300 | ) | ||||||||||||||||
Provision for credit losses | Provision for credit losses | 3,545 | 275 | ||||||||||||||||
Depreciation and amortization | 981 | 1,135 | Depreciation and amortization | 615 | 653 | ||||||||||||||
Gain on sales of available-for-sale securities | - | (119 | ) | Gain on sales of available-for-sale securities | (24) | — | |||||||||||||
Share-based compensation | 63 | 110 | Share-based compensation | 46 | 41 | ||||||||||||||
Decrease in deferred income taxes | 885 | 1,083 | |||||||||||||||||
(Increase) decrease in deferred income taxes, net | (Increase) decrease in deferred income taxes, net | (494) | 591 | ||||||||||||||||
Originations of SBA loans held for sale | (15,718 | ) | (6,505 | ) | Originations of SBA loans held for sale | (3,578) | (11,305) | ||||||||||||
Proceeds from sale of SBA loans held for sale | 10,516 | 3,665 | Proceeds from sale of SBA loans held for sale | 3,095 | 7,315 | ||||||||||||||
Gains on sale of SBA loans held for sale, net | (691 | ) | (352 | ) | Gains on sale of SBA loans held for sale, net | (166) | (509) | ||||||||||||
Net gain on sale and write-down of other real estate owned | - | (2 | ) | ||||||||||||||||
Changes in assets and liabilities: | Changes in assets and liabilities: | ||||||||||||||||||
(Increase) decrease in accrued interest and dividends receivable | (682 | ) | 434 | (Increase) decrease in accrued interest and dividends receivable | (361) | 95 | |||||||||||||
Increase in other assets | (325 | ) | (1,833 | ) | |||||||||||||||
(Decrease) increase in accrued expenses and other liabilities | (2,394 | ) | 1,516 | ||||||||||||||||
Net cash (used in) provided by operating activities | (381 | ) | 3,805 | ||||||||||||||||
Decrease (increase) in other assets | Decrease (increase) in other assets | 1,984 | (712) | ||||||||||||||||
Decrease in accrued expenses and other liabilities | Decrease in accrued expenses and other liabilities | (899) | (2,053) | ||||||||||||||||
Net cash provided by (used in) operating activities | Net cash provided by (used in) operating activities | 3,796 | (2,241) | ||||||||||||||||
Cash Flows from Investing Activities: | Cash Flows from Investing Activities: | ||||||||||||||||||
Proceeds from maturity or sales on available-for-sale securities | 3,600 | 53,706 | Proceeds from maturity or sales on available-for-sale securities | 1,780 | 3,600 | ||||||||||||||
Principal repayments on available-for-sale securities | 5,575 | 7,686 | Principal repayments on available-for-sale securities | 2,153 | 3,819 | ||||||||||||||
Purchases of available-for-sale securities | (19,329 | ) | (136,134 | ) | Purchases of available-for-sale securities | (10,415) | (3,039) | ||||||||||||
Redemptions (purchases) of Federal Reserve Bank stock | 172 | (60 | ) | ||||||||||||||||
Redemptions of Federal Reserve Bank stock | Redemptions of Federal Reserve Bank stock | 104 | 81 | ||||||||||||||||
Purchases of Federal Home Loan Bank stock | (1,290 | ) | (506 | ) | Purchases of Federal Home Loan Bank stock | (4,198) | (290) | ||||||||||||
Origination of loans receivable | (159,125 | ) | (117,233 | ) | Origination of loans receivable | (132,611) | (138,414) | ||||||||||||
Purchases of loans receivable | (125,765 | ) | (80,201 | ) | Purchases of loans receivable | (16,443) | (98,720) | ||||||||||||
Payments received on loans receivable | 159,164 | 211,690 | Payments received on loans receivable | 61,343 | 115,960 | ||||||||||||||
Purchases of premises and equipment | (322 | ) | (364 | ) | Purchases of premises and equipment | (230) | (270) | ||||||||||||
Proceeds from sale of other real estate owned | - | 1,908 | |||||||||||||||||
Net cash used in investing activities | (137,320 | ) | (59,508 | ) | Net cash used in investing activities | (98,517) | (117,273) | ||||||||||||
Cash Flows from Financing Activities: | Cash Flows from Financing Activities: | ||||||||||||||||||
Increase in deposits | 85,833 | 49,017 | |||||||||||||||||
Increase in FHLB borrowings | 35,000 | 20,000 | |||||||||||||||||
Increase in deposits, net | Increase in deposits, net | 2,933 | 98,221 | ||||||||||||||||
Increase in FHLB and correspondent bank borrowings | Increase in FHLB and correspondent bank borrowings | 122,000 | 10,000 | ||||||||||||||||
Principal repayments of note payable | (154 | ) | (152 | ) | Principal repayments of note payable | (104) | (102) | ||||||||||||
Increase (decrease) in advances from borrowers for taxes and insurance | 1,161 | (1,533 | ) | ||||||||||||||||
Decrease in advances from borrowers for taxes and insurance | Decrease in advances from borrowers for taxes and insurance | 2,208 | 1,866 | ||||||||||||||||
Net cash provided by financing activities | 121,840 | 67,332 | Net cash provided by financing activities | 127,037 | 109,985 | ||||||||||||||
Net (decrease) increase in cash and cash equivalents | (15,861 | ) | 11,629 | ||||||||||||||||
Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents | 32,316 | (9,529) | ||||||||||||||||
Cash and cash equivalents at beginning of period | 47,045 | 34,636 | Cash and cash equivalents at beginning of period | 38,493 | 47,045 | ||||||||||||||
Cash and cash equivalents at end of period | $ | 31,184 | $ | 46,265 | Cash and cash equivalents at end of period | $ | 70,809 | $ | 37,516 |
(In thousands) | Nine Months Ended September 30, | (In thousands) | Six Months Ended June 30, | ||||||||||||||||
2022 | 2021 | 2023 | 2022 | ||||||||||||||||
Supplemental Disclosures of Cash Flow Information: | Supplemental Disclosures of Cash Flow Information: | ||||||||||||||||||
Cash paid for interest | $ | 5,950 | $ | 5,306 | Cash paid for interest | $ | 12,609 | $ | 3,482 | ||||||||||
Cash paid for income taxes | $ | 103 | $ | 47 | Cash paid for income taxes | 44 | 102 | ||||||||||||
Non-cash transactions: | Non-cash transactions: | ||||||||||||||||||
Capitalized servicing assets | $ | 188 | $ | 74 | Capitalized servicing assets | $ | 58 | $ | 131 | ||||||||||
Transfers of loans held for sale to loans receivable | $ | 274 | $ | 281 | Transfers of loans held for sale to loans receivable | $ | — | $ | 72 | ||||||||||
Operating lease right-of-use assets | $ | 80 | $ | - | Operating lease right-of-use assets | 16 | 80 | ||||||||||||
Decrease in interest rate swaps | $ | (509 | ) | $ | (370 | ) | Decrease in interest rate swaps | 41 | (637) | ||||||||||
Capital raise deferred costs | $ | 1,177 | $ | - | Capital raise deferred costs | — | 1,094 | ||||||||||||
Decrease in premises and equipment | $ | - | $ | (119 | ) | ||||||||||||||
Reclass of premises and equipment to implementation cost | $ | - | $ | 52 | |||||||||||||||
Decrease in accrued expense and other liabilities | $ | - | $ | 67 | |||||||||||||||
Expected credit loss for loans - ASC 326 adoption | Expected credit loss for loans - ASC 326 adoption | 13,001 | — | ||||||||||||||||
Expected credit loss for unfunded loan commitments - ASC 326 adoption | Expected credit loss for unfunded loan commitments - ASC 326 adoption | 2,737 | — | ||||||||||||||||
Deferred tax assets - ASC 326 adoption | Deferred tax assets - ASC 326 adoption | (4,228) | — |
|
|
|
2022.
Consolidated Financial Statements.
2023.
|
|
(In thousands) | As of January 1, 2023 | ||||||||||||||||
Adoption of CECL effective January 1, 2023: | Previously Reported | Adjustment | Restated | ||||||||||||||
CECL adoption transition_ ACL on loans | $ | (7,371) | $ | (5,630) | $ | (13,001) | |||||||||||
CECL adoption transition_ ACL on Off-BS exposure | (1,094) | (1,643) | (2,737) | ||||||||||||||
CECL adoption transition_ DTA Adjustment | 2,274 | 1,954 | 4,228 | ||||||||||||||
Cumulative change in accounting principle Balance at January 1, 2023 - Adoption of CECL | (6,191) | (5,319) | (11,510) |
As of June 30, 2023 | |||||||||||||||||
(In thousands) | Previously Reported | Adjustment | Restated | ||||||||||||||
Loans receivable, net of allowance for credit losses | $ | 913,876 | $ | (7,240) | $ | 906,636 | |||||||||||
Deferred tax asset | 18,169 | 2,217 | 20,386 | ||||||||||||||
Total assets | 1,162,731 | (5,023) | 1,157,708 | ||||||||||||||
Accrued expenses and other liabilities | 6,693 | 1,011 | 7,704 | ||||||||||||||
Accumulated deficit | (38,127) | (6,034) | (44,161) | ||||||||||||||
Total shareholders' equity | 52,445 | (6,034) | 46,411 | ||||||||||||||
Tier 1 Leverage ratio | 8.70 | % | (0.16) | % | 8.54 | % |
Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | ||||||||||||||||||||||||||||||||||
(In thousands, except shares and per share amounts) | Previously Reported | Adjustment | Restated | Previously Reported | Adjustment | Restated | |||||||||||||||||||||||||||||
Provision for credit losses | $ | 1,231 | $ | 94 | $ | 1,325 | $ | 2,567 | $ | 978 | $ | 3,545 | |||||||||||||||||||||||
Net interest income after provision for credit losses | 6,482 | (94) | 6,388 | 13,159 | (978) | 12,181 | |||||||||||||||||||||||||||||
Loss before income taxes | (752) | (94) | (846) | (824) | (978) | (1,802) | |||||||||||||||||||||||||||||
Benefit for income taxes | (206) | (25) | (231) | (225) | (263) | (488) | |||||||||||||||||||||||||||||
Net loss | (546) | (69) | (615) | (599) | (715) | (1,314) | |||||||||||||||||||||||||||||
Total comprehensive loss | (2,187) | (69) | (2,256) | (993) | (715) | (1,708) | |||||||||||||||||||||||||||||
Basic and diluted income per share | $ | (0.14) | $ | (0.02) | $ | (0.16) | $ | (0.15) | $ | (0.18) | $ | (0.33) | |||||||||||||||||||||||
Consolidated Statement of Cash Flows: | |||||||||||||||||||||||||||||||||||
Net loss | N/A | N/A | N/A | $ | (599) | $ | (715) | $ | (1,314) | ||||||||||||||||||||||||||
Provision for credit losses | N/A | N/A | N/A | 2,567 | 978 | 3,545 | |||||||||||||||||||||||||||||
Deferred income taxes | N/A | N/A | N/A | (231) | (263) | (494) |
2022.
Update (“ASU”) 2016-13,
There were noan unrealized loss position, the Company will first assess whether i) it intends to sell or ii) it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis. If either case is applicable, material accounting pronouncements adoptedany previously recognized allowances are charged off and the debt security’s amortized cost is written down to fair value through income. If neither case is applicable, the debt security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of the debt security by a rating agency and any adverse conditions specifically related to the debt security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the debt security are compared to the amortized cost basis of the debt security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss, limited by the amount by which the fair value is less than the amortized cost basis. Any impairment that has not been recorded through allowance for credit losses is recognized in other comprehensive income, net of tax.
in 2023 2016-13 opening balance of accumulated deficit of $11.5 million, net of $4.2 million tax at the date of adoption. 2020-02 2020-03 In March 2020, the FASB issued ASU No. 2022-02 The amortized cost, gross unrealized gains, gross unrealized losses and fair values of available-for-sale securities at (In thousands) Amortized Gross Gross Fair September 30, 2022: U. S. Government agency and mortgage-backed securities Corporate bonds Subordinated notes SBA loan pools Municipal bonds December 31, 2021: U. S. Government agency and mortgage-backed securities Corporate bonds Subordinated notes SBA loan pools Municipal bondsIssued But Not Yet Adopted2016-13current expected loss (“CECL”)CECL model. Under the CECL model, entities willare required to estimate credit losses over the entire contractual term of a financial instrument from the date of initial recognition of the instrument. The ASU also changes the existing impairment model for available-for-sale debt securities. In cases where there is neither the intent nor a more-likely-than-notmore-likely-than-not requirement to sell the debt security, an entity willshould record credit losses as an allowance rather than a direct write-down of the amortized cost basis. Additionally, ASU 2016-132016-13 notes that credit losses related to available-for-sale debt securities and purchased credit impaired loans should be recorded through an allowance for credit losses. ASU 2016-132016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2018. In November 2019, the FASB issued ASU 2019-10,2019-10, which amendsamended the effective date of ASC 326ASU 2016-13 for smaller reporting companies, as defined by the SEC, and other non-SEC reporting entities, and delaysdelayed the effective date to fiscal years beginning after December 31, 2022, including interim periods within those fiscal periods. As the Company is a small reporting company, the delay will bewas applicable to the Company. ManagementThe Company adopted ASU 2016-13 effective January 1, 2023. This resulted in the Company recording an increase to the allowance for credit losses of $13.0 million and an increase to reserve for unfunded loan commitments of $2.7 million (which is currently evaluatingincluded in other liabilities on the impact thatCompany’s Consolidated Balance Sheets), and a cumulative-effect adjustment to increase the standard will have on its consolidated financial statements.Update 2020-022020-02, “ 2020-02,Financial Instruments - Credit Losses (Topic 326)326) and Leases (Topic 842)842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No.2016-02, 2016-02, Leases (Topic 842)842).” This ASU adds and amends SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Staff Accounting Bulletin No.119, related to the new credit losses standard, and comments by the SEC staff related to the revised effective date of the new leases standard. This ASU is effective upon issuance. See the discussion regarding the adoptionThe Company adopted ASU 2016-13 and ASU 2020-02 effective January 1, 2023.2016-13 above.ASU Update 2020-032020-03, “ 2020-03, Codification Improvements to Financial Instruments.” This ASU clarifies various financial instruments topics, including the CECL standard issued in 2016.2016. Amendments related to ASU 2016-132016-13 for entities that have not yet adopted that guidance are effective upon adoption of the amendments in ASU 2016-13.2016-13. Early adoption is not permitted before an entity’s adoption of ASU 2016-13.2016-13. Other amendments are effective upon issuance of this ASU. See the discussion regarding the adoption of ASU 2016-132016-13 above.2022-022022-02," 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings ("TDR") and Vintage Disclosures".Disclosures. ASU 2022-022022-02 updates guidance in Topic 326, to eliminate the accounting guidance for TDRs by creditors in Subtopic 310-40,310-40, Receivables—Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty and to require entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20,326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost.Cost. ASU 2022-022022-02 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted.permitted if an entity has adopted the amendments in Update 2016-03,ASU 2016-03, including adoption in an interim period. Management is currently evaluating the impact that the standard will have on its consolidated financial statements. See the discussion regarding theThe Company adopted ASU 2016-13 effective January 1, 2023. The adoption of this guidance did not have any material impact on the Company's Consolidated Financial Statements.2016-13 above.2022-0611consolidated financial statementsConsolidated Financial Statements (Unaudited)Note 3.Available-for-Sale SecuritiesSeptemberJune 30, 2022 2023 and December 31, 2021 2022 are as follows:
Cost
Unrealized
Gains
Unrealized
(Losses)
Value $ 74,534 $ 2 $ (14,305 ) $ 60,231 19,781 25 (5,189 ) 14,617 5,000 - (265 ) 4,735 6,837 - (980 ) 5,857 561 - (84 ) 477 $ 106,713 $ 27 $ (20,823 ) $ 85,917 $ 67,850 $ 24 $ (1,245 ) $ 66,629 17,754 118 (951 ) 16,921 4,608 35 (17 ) 4,626 5,772 - (169 ) 5,603 563 1 (2 ) 562 $ 96,547 $ 178 $ (2,384 ) $ 94,341
(In thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized (Losses) | Fair Value | |||||||||||||||||||
June 30, 2023: | |||||||||||||||||||||||
U. S. Government agency and mortgage-backed securities | $ | 82,192 | $ | 63 | $ | (15,007) | $ | 67,248 | |||||||||||||||
Corporate bonds | 18,002 | — | (4,747) | 13,255 | |||||||||||||||||||
Subordinated notes | 5,000 | — | (764) | 4,236 | |||||||||||||||||||
SBA loan pools | 6,409 | — | (1,083) | 5,326 | |||||||||||||||||||
Municipal bonds | 560 | — | (78) | 482 | |||||||||||||||||||
Total available-for-sale securities | $ | 112,163 | $ | 63 | $ | (21,679) | $ | 90,547 | |||||||||||||||
December 31, 2022: | |||||||||||||||||||||||
U. S. Government agency and mortgage-backed securities | $ | 73,480 | $ | — | $ | (14,434) | $ | 59,046 | |||||||||||||||
Corporate bonds | 19,773 | 7 | (5,125) | 14,655 | |||||||||||||||||||
Subordinated notes | 5,000 | — | (398) | 4,602 | |||||||||||||||||||
SBA loan pools | 6,791 | — | (1,073) | 5,718 | |||||||||||||||||||
Municipal bonds | 561 | — | (62) | 499 | |||||||||||||||||||
Total available-for-sale securities | $ | 105,605 | $ | 7 | $ | (21,092) | $ | 84,520 |
(In thousands) | Less than 12 Months | 12 Months or More | Total | |||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
September 30, 2022: | ||||||||||||||||||||||||
U. S. Government agency and mortgage-backed securities | $ | 14,059 | $ | (1,942 | ) | $ | 44,521 | $ | (12,363 | ) | $ | 58,580 | $ | (14,305 | ) | |||||||||
Corporate bonds | 11,341 | (4,688 | ) | 1,494 | (501 | ) | 12,835 | (5,189 | ) | |||||||||||||||
Subordinated notes | 4,735 | (265 | ) | - | - | 4,735 | (265 | ) | ||||||||||||||||
SBA loan pools | 1,485 | (10 | ) | 4,372 | (970 | ) | 5,857 | (980 | ) | |||||||||||||||
Municipal bonds | 135 | (19 | ) | 342 | (65 | ) | 477 | (84 | ) | |||||||||||||||
$ | 31,755 | $ | (6,924 | ) | $ | 50,729 | $ | (13,899 | ) | $ | 82,484 | $ | (20,823 | ) | ||||||||||
December 31, 2021: | ||||||||||||||||||||||||
U. S. Government agency and mortgage-backed securities | $ | 60,606 | $ | (1,196 | ) | $ | 1,610 | $ | (49 | ) | $ | 62,216 | $ | (1,245 | ) | |||||||||
Corporate bonds | 15,042 | (951 | ) | - | - | 15,042 | (951 | ) | ||||||||||||||||
Subordinated notes | - | - | 1,092 | (17 | ) | 1,092 | (17 | ) | ||||||||||||||||
SBA loan pools | 5,603 | (169 | ) | - | - | 5,603 | (169 | ) | ||||||||||||||||
Municipal bonds | 406 | (2 | ) | - | - | 406 | (2 | ) | ||||||||||||||||
$ | 81,657 | $ | (2,318 | ) | $ | 2,702 | $ | (66 | ) | $ | 84,359 | $ | (2,384 | ) |
2022:
(In thousands) | Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||||||||||
Fair Value | Unrealized (Loss) | Fair Value | Unrealized (Loss) | Fair Value | Unrealized (Loss) | ||||||||||||||||||||||||||||||
June 30, 2023: | |||||||||||||||||||||||||||||||||||
U. S. Government agency and mortgage-backed securities | $ | 18,306 | $ | (1,077) | $ | 46,807 | $ | (13,930) | $ | 65,113 | $ | (15,007) | |||||||||||||||||||||||
Corporate bonds | — | — | 13,255 | (4,747) | 13,255 | (4,747) | |||||||||||||||||||||||||||||
Subordinated notes | 2,543 | (457) | 1,693 | (307) | 4,236 | (764) | |||||||||||||||||||||||||||||
SBA loan pools | 1,276 | (13) | 4,050 | (1,070) | 5,326 | (1,083) | |||||||||||||||||||||||||||||
Municipal bonds | — | — | 482 | (78) | 482 | (78) | |||||||||||||||||||||||||||||
Total available-for-sale securities | $ | 22,125 | $ | (1,547) | $ | 66,287 | $ | (20,132) | $ | 88,412 | $ | (21,679) | |||||||||||||||||||||||
December 31, 2022: | |||||||||||||||||||||||||||||||||||
U. S. Government agency and mortgage-backed securities | $ | 11,126 | $ | (633) | $ | 47,920 | $ | (13,801) | $ | 59,046 | $ | (14,434) | |||||||||||||||||||||||
Corporate bonds | 1,959 | (64) | 10,934 | (5,061) | 12,893 | (5,125) | |||||||||||||||||||||||||||||
Subordinated notes | 4,602 | (398) | — | — | 4,602 | (398) | |||||||||||||||||||||||||||||
SBA loan pools | 1,437 | (12) | 4,280 | (1,061) | 5,717 | (1,073) | |||||||||||||||||||||||||||||
Municipal bonds | — | — | 498 | (62) | 498 | (62) | |||||||||||||||||||||||||||||
Total available-for-sale securities | $ | 19,124 | $ | (1,107) | $ | 63,632 | $ | (19,985) | $ | 82,756 | $ | (21,092) |
BasedAt June 30, 2023, no allowance for credit losses has been recognized on its quarterly reviews, management believes that noneavailable for sale debt securities in an unrealized loss position as the Company does not believe any of the lossesdebt securities are credit impaired. This is based on available-for-sale securities noted above constitute other-than-temporary impairment (“OTTI”).the Company’s analysis of the risk characteristics, including credit ratings, and other qualitative factors related to available for sale debt securities. The noted losses are considered temporary due to market fluctuations in available interest rates on U.S. Government agency debt, mortgage-backed securities issued by U.S. Government agencies, subordinated notes, corporate debt, and municipal bonds. Management considers the issuers of thethese debt securities continue to be financially sound, the corporate bonds are investment grade, and the collectability of all contractualmake timely principal and interest payments under the contractual terms of the securities. The Company does not intend to sell these debt securities and it is reasonably expected.more likely than not that the Company will not be required to sell the debt securities before recovery of their amortized cost, which may be at maturity. The unrealized losses are due to increases in market interest rates over the yields available at the time the debt securities were purchased.
2023 continue to perform as scheduled and the Company does not believe there is a possible credit loss or that an allowance for credit loss on these debt securities is necessary.
(In thousands) | Amortized Cost | Fair Value | ||||||||||||||||||||||||||||||
Due | Due After | Due | Total | Due | Due After | Due | Total | |||||||||||||||||||||||||
September 30, 2022: | ||||||||||||||||||||||||||||||||
Corporate bonds | $ | 3,787 | $ | 15,994 | $ | - | $ | 19,781 | $ | 3,742 | $ | 10,875 | $ | - | $ | 14,617 | ||||||||||||||||
Subordinated notes | - | 5,000 | - | 5,000 | - | 4,735 | - | 4,735 | ||||||||||||||||||||||||
SBA loan pools | - | 1,495 | 5,342 | 6,837 | - | 1,485 | 4,372 | 5,857 | ||||||||||||||||||||||||
Municipal bonds | - | 561 | - | 561 | - | 477 | - | 477 | ||||||||||||||||||||||||
Available-for-sale securities with stated maturity dates | 3,787 | 23,050 | 5,342 | 32,179 | 3,742 | 17,572 | 4,372 | 25,686 | ||||||||||||||||||||||||
U. S. Government agency and mortgage-backed securities | - | 5,312 | 69,222 | 74,534 | - | 4,132 | 56,099 | 60,231 | ||||||||||||||||||||||||
$ | 3,787 | $ | 28,362 | $ | 74,564 | $ | 106,713 | $ | 3,742 | $ | 21,704 | $ | 60,471 | $ | 85,917 | |||||||||||||||||
December 31, 2021: | ||||||||||||||||||||||||||||||||
Corporate bonds | $ | 17,754 | $ | - | $ | - | $ | 17,754 | $ | 16,921 | $ | - | $ | - | $ | 16,921 | ||||||||||||||||
Subordinated notes | - | 4,608 | - | 4,608 | - | 4,626 | - | 4,626 | ||||||||||||||||||||||||
SBA loan pools | - | - | 5,772 | 5,772 | - | - | 5,603 | 5,603 | ||||||||||||||||||||||||
Municipal bonds | - | 563 | - | 563 | - | 562 | - | 562 | ||||||||||||||||||||||||
Available-for-sale securities with stated maturity dates | 17,754 | 5,171 | 5,772 | 28,697 | 16,921 | 5,188 | 5,603 | 27,712 | ||||||||||||||||||||||||
U. S. Government agency and mortgage-backed securities | 13,876 | - | 53,974 | 67,850 | 13,835 | - | 52,794 | 66,629 | ||||||||||||||||||||||||
$ | 31,630 | $ | 5,171 | $ | 59,746 | $ | 96,547 | $ | 30,756 | $ | 5,188 | $ | 58,397 | $ | 94,341 |
(In thousands) | Amortized Cost | Fair Value | |||||||||||||||||||||||||||||||||||||||||||||
Due Within 5 years | Due After 5 years through 10 years | Due After 10 years | Total | Due Within 5 years | Due After 5 years through 10 years | Due After 10 years | Total | ||||||||||||||||||||||||||||||||||||||||
June 30, 2023: | |||||||||||||||||||||||||||||||||||||||||||||||
Corporate bonds | $ | 2,007 | $ | 15,995 | $ | — | $ | 18,002 | $ | 1,855 | $ | 11,400 | $ | — | $ | 13,255 | |||||||||||||||||||||||||||||||
Subordinated notes | 3,000 | 2,000 | — | 5,000 | 2,543 | 1,693 | — | 4,236 | |||||||||||||||||||||||||||||||||||||||
SBA loan pools | — | 1,289 | 5,120 | 6,409 | — | 1,276 | 4,050 | 5,326 | |||||||||||||||||||||||||||||||||||||||
Municipal bonds | 154 | 406 | — | 560 | 139 | 343 | — | 482 | |||||||||||||||||||||||||||||||||||||||
Available-for-sale securities with stated maturity dates | 5,161 | 19,690 | 5,120 | 29,971 | 4,537 | 14,712 | 4,050 | 23,299 | |||||||||||||||||||||||||||||||||||||||
U. S. Government agency and mortgage-backed securities | — | 5,237 | 76,955 | 82,192 | — | 4,134 | 63,114 | 67,248 | |||||||||||||||||||||||||||||||||||||||
Total available-for-sale securities | $ | 5,161 | $ | 24,927 | $ | 82,075 | $ | 112,163 | $ | 4,537 | $ | 18,846 | $ | 67,164 | $ | 90,547 | |||||||||||||||||||||||||||||||
December 31, 2022: | |||||||||||||||||||||||||||||||||||||||||||||||
Corporate bonds | $ | 3,778 | $ | 15,995 | $ | — | $ | 19,773 | $ | 3,721 | $ | 10,934 | $ | — | $ | 14,655 | |||||||||||||||||||||||||||||||
Subordinated notes | 3,000 | 2,000 | — | 5,000 | 2,830 | 1,772 | — | 4,602 | |||||||||||||||||||||||||||||||||||||||
SBA loan pools | — | 1,449 | 5,342 | 6,791 | — | 1,438 | 4,280 | 5,718 | |||||||||||||||||||||||||||||||||||||||
Municipal bonds | 154 | 407 | — | 561 | 139 | 360 | — | 499 | |||||||||||||||||||||||||||||||||||||||
Available-for-sale securities with stated maturity dates | 6,932 | 19,851 | 5,342 | 32,125 | 6,690 | 14,504 | 4,280 | 25,474 | |||||||||||||||||||||||||||||||||||||||
U. S. Government agency and mortgage-backed securities | — | 5,276 | 68,204 | 73,480 | — | 4,129 | 54,917 | 59,046 | |||||||||||||||||||||||||||||||||||||||
Total available-for-sale securities | $ | 6,932 | $ | 25,127 | $ | 73,546 | $ | 105,605 | $ | 6,690 | $ | 18,633 | $ | 59,197 | $ | 84,520 |
During the ninesix months ended SeptemberJune 30, 2022, 2023, the BankCompany purchased $11.8$10.4 million U.S. Government agency mortgage-backed securities $2.0and sold $1.8 million corporate bonds, $4.0 million subordinated notes, and $1.5 million SBA government guaranteed loan pools securities. During the nine months ended September 30, 2021, the Bank purchased $112.0 million U.S. Government agency debt and mortgage-backed securities, $18.2 million Corporate bonds, and $5.9 million SBA government guaranteed loan pools securities. There was no sale of available-for-sale securities in the three and nine months ended September 30, 2022. In 2021, the Bank sold $32.4 million U.S. Government agency mortgage-backed securities, $16.3 million corporate bonds, $4.5 million subordinated notes, and $535,000 SBA loan pools securities and recognized a net gain on sale of securities of $26,000 and $119,000 during$24,000. During the three and ninesix months ended SeptemberJune 30, 2021, respectively.
|
|
(In thousands) | September 30, 2022 | December 31, 2021 | ||||||
Loan portfolio segment: | ||||||||
Commercial Real Estate | $ | 438,822 | $ | 365,247 | ||||
Residential Real Estate | 131,182 | 158,591 | ||||||
Commercial and Industrial | 140,364 | 122,810 | ||||||
Consumer and Other | 138,135 | 59,364 | ||||||
Construction | 12,634 | 21,781 | ||||||
Construction to Permanent - CRE | 1,733 | 11,695 | ||||||
Loans receivable, gross | 862,870 | 739,488 | ||||||
Allowance for loan and lease losses | (9,952 | ) | (9,905 | ) | ||||
Loans receivable, net | $ | 852,918 | $ | 729,583 |
(In thousands) | June 30, 2023 | December 31, 2022 | ||||||||||||
Loan portfolio segment: | ||||||||||||||
Commercial Real Estate | $ | 511,655 | $ | 437,443 | ||||||||||
Residential Real Estate | 116,454 | 124,140 | ||||||||||||
Commercial and Industrial | 171,574 | 138,787 | ||||||||||||
Consumer and Other | 123,063 | 141,091 | ||||||||||||
Construction | 5,525 | 4,922 | ||||||||||||
Construction to Permanent - CRE | 2,463 | 1,933 | ||||||||||||
Loans receivable, gross | 930,734 | 848,316 | ||||||||||||
Allowance for credit losses | (24,098) | (10,310) | ||||||||||||
Loans receivable, net | $ | 906,636 | $ | 838,006 |
Risk characteristics of the Company’s portfolio classes include the following:
2022, respectively.
During the three and ninesix months ended SeptemberJune 30, 2022, Patriot purchased unsecured consumer loans of $25.5 million and $75.8 million, respectively. In addition,2023, Patriot purchased home equity line of credit loans (“HELOC”) of $1.6 million and $29.3 million, respectively.$1.5 million. During the three and ninesix months ended SeptemberJune 30, 2021, Patriot2022, the Bank purchased $5.8 million and $7.9 million unsecured consumerHELOC loans respectively.
of $27.7 million.
The construction loans outstanding at June 30, 2023 and December 31, 2022 totaled $5.5 million and $4.9 million, respectively.
Paycheck Protection Program loans totaled $156,000$135,000 and $919,000$157,000 as of SeptemberJune 30, 2022 2023 and December 31, 2021, 2022, respectively, which are included in the commercial and industrial loan classifications.
(In thousands) Commercial Residential Commercial Consumer Construction Construction Unallocated Total Three months ended September 30, 2022 Allowance for loan and lease losses: June 30, 2022 Charge-offs Recoveries Provisions (credits) September 30, 2022 Three months ended September 30, 2021 Allowance for loan and lease losses: June 30, 2021 Charge-offs Recoveries Provisions (credits) September 30, 2021 (In thousands) Commercial Residential Commercial Consumer Construction Construction Unallocated Total Nine Months ended September 30, 2022 Allowance for loan and lease losses: December 31, 2021 Charge-offs Recoveries Provisions (credits) September 30, 2022 Nine Months ended September 30, 2021 Allowance for loan and lease losses: December 31, 2020 Charge-offs Recoveries Provisions (credits) September 30, 2021 (In thousands) Commercial Residential Commercial Consumer Construction Construction to Unallocated Total September 30, 2022 Allowance for loan and lease losses: Individually evaluated for impairment Collectively evaluated for impairment Total allowance for loan and lease losses Loans receivable, gross: Individually evaluated for impairment Collectively evaluated for impairment Total loans receivable, gross (In thousands) Commercial Residential Commercial Consumer Construction Construction to Unallocated Total December 31, 2021 Allowance for loan and lease losses: Individually evaluated for impairment Collectively evaluated for impairment Total allowance for loan losses Loans receivable, gross: Individually evaluated for impairment Collectively evaluated for impairment Total loans receivable, gross 2022: exposure and other credit metrics. If either type of loan is classified as (In thousands) Performing (Accruing) Loans September 30, 2022 30 - 59 Days 60 - 89 Days 90 Days Past Due Total Current Total Non- accruing Loans Loan portfolio segment: Commercial Real Estate: Pass Special mention Substandard Residential Real Estate: Pass Substandard Commercial and Industrial: Pass Special mention Substandard Consumer and Other: Pass Substandard Construction: Pass Special mention Construction to Permanent - CRE: Pass Total Loans receivable, gross: Pass Special mention Substandard Loans receivable, gross (In thousands) Performing (Accruing) Loans December 31, 2021: 30 - 59 Days 60 - 89 Days 90 Days Past Due Total Current Total Non- accruing Loans Loan portfolio segment: Commercial Real Estate: Pass Special mention Substandard Residential Real Estate: Pass Special mention Substandard Commercial and Industrial: Pass Special mention Substandard Consumer and Other: Pass Substandard Construction: Pass Construction to Permanent - CRE: Pass Total Loans receivable, gross: Pass Special mention Substandard Loans receivable, gross (In thousands) Non-accruing Loans 30 - 59 60 - 89 90 Days or Past Due Total Current Total September 30, 2022 Loan portfolio segment: Commercial Real Estate: Substandard Residential Real Estate: Substandard Commercial and Industrial: Substandard Consumer and Other: Substandard Total non-accruing loans December 31, 2021: Loan portfolio segment: Commercial Real Estate: Substandard Residential Real Estate: Substandard Commercial and Industrial: Substandard Consumer and Other: Substandard Total non-accruing loans 2022: properties, and were further reduced by 8% in selling costs, in order to estimate the potential loss, if any, that may eventually be realized. Performing loans are monitored to determine when, if at all, additional loan loss reserves may be required for a loss of underlying collateral value. For cash flow dependent loans, the Bank determined the reserve based on the present value of expected future cash flows discounted at the loan's effective interest rate. Substantially all Outstanding Recorded Investment (In thousands) Number of Loans Pre-Modification Post-Modification Loan portfolio segment: Commercial and Industrial Total TDR Loans (In thousands) Three Months ended September 30, 2022 Nine Months ended September 30, 2022 Payment deferral Total made to borrowers experiencing financial difficulty. There were no (In thousands) September 30, 2022 December 31, 2021 Recorded Principal Related Recorded Principal Related With no related allowance recorded: Commercial Real Estate Residential Real Estate Commercial and Industrial Consumer and Other With a related allowance recorded: Commercial Real Estate Residential Real Estate Commercial and Industrial Consumer and Other Impaired Loans, Total: Commercial Real Estate Residential Real Estate Commercial and Industrial Consumer and Other Impaired Loans, Total Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2022 2021 2022 2021 Average Interest Average Interest Average Interest Average Interest With no related allowance recorded: Commercial Real Estate Residential Real Estate Commercial and Industrial Consumer and Other With a related allowance recorded: Commercial Real Estate Residential Real Estate Commercial and Industrial Consumer and Other Impaired Loans, Total: Commercial Real Estate Residential Real Estate Commercial and Industrial Consumer and Other Impaired Loans, Total Loans held for sale represent the guaranteed portion of SBA loans originated and are reflected at the lower of aggregate cost or market value. As of investment. Consolidated Balance Sheets. (In thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Beginning balance Servicing rights capitalized Servicing rights amortized Servicing rights disposed Ending balance The Company completed its acquisition of Prime Bank in May 2018, and recorded goodwill balance was $1.1 million as of 2022. The following table presents the balance of deposits held, by category as of (In thousands) September 30, 2022 December 31, 2021 Non-interest bearing Interest bearing: Negotiable order of withdrawal accounts Savings Money market Certificates of deposit, less than $250,000 Certificates of deposit, $250,000 or greater Brokered deposits Interest bearing, Total Total Deposits (In thousands) CDs CDs Brokered Total 1 year or less More than 1 year through 2 years More than 2 years through 3 years More than 3 years through 4 years More than 4 years through 5 years Derivatives Not Designated in Hedge RelationshipsLoanCredit LossesLease Lossessupportable, and at the end of the reasonable and supportable forecast period losses are reverted to long-term historical averages. The estimated loan losses for all loan segments are adjusted for changes in qualitative factors not inherently considered in the quantitative analyses.loan and leasecredit losses, allocated to segments of the loan portfolio, for the three and ninesix months ended SeptemberJune 30, 2022 2023 and 2021:
Real Estate
Real Estate
and
Industrial
and
Other
to
Permanent
- CRE $ 4,980 $ 1,395 $ 2,316 $ 1,063 $ 58 $ 15 $ 102 $ 9,929 - - - (366 ) - - - (366 ) 154 3 12 20 - - - 189 1,653 (930 ) (490 ) 22 (20 ) (10 ) (25 ) 200 $ 6,787 $ 468 $ 1,838 $ 739 $ 38 $ 5 $ 77 $ 9,952 $ 4,079 $ 2,003 $ 3,212 $ 390 $ 369 $ 144 $ 165 $ 10,362 - - (3 ) (3 ) - - - (6 ) - 2 20 1 - - - 23 607 130 (861 ) (53 ) (138 ) (82 ) 97 (300 ) $ 4,686 $ 2,135 $ 2,368 $ 335 $ 231 $ 62 $ 262 $ 10,079 allowance for loan and lease losses for three and six months ended June 30, 2022:
Real Estate
Real Estate
and
Industrial
and
Other
to
Permanent
- CRE $ 5,063 $ 1,700 $ 2,532 $ 253 $ 78 $ 41 $ 238 $ 9,905 - - (70 ) (513 ) (68 ) - - (651 ) 154 4 38 27 - - - 223 1,570 (1,236 ) (662 ) 972 28 (36 ) (161 ) 475 $ 6,787 $ 468 $ 1,838 $ 739 $ 38 $ 5 $ 77 $ 9,952 $ 4,485 $ 1,379 $ 3,284 $ 295 $ 739 $ 162 $ 240 $ 10,584 (51 ) (3 ) (212 ) (23 ) (69 ) - - (358 ) - 2 44 107 - - - 153 252 757 (748 ) (44 ) (439 ) (100 ) 22 (300 ) $ 4,686 $ 2,135 $ 2,368 $ 335 $ 231 $ 62 $ 262 $ 10,079 17(In thousands) Commercial
Real EstateResidential
Real EstateCommercial
and
IndustrialConsumer
and
OtherConstruction Construction to
Permanent
- CREUnallocated Total Three Months Ended June 30, 2023 Allowance for credit losses: March 31, 2023 $ 9,809 $ 853 $ 1,799 $ 12,251 $ 21 $ 47 $ — $ 24,780 Charge-offs — — (4) (2,516) (150) — — (2,670) Recoveries — 11 9 260 — — — 280 Provisions (credits) 230 163 (131) 1,280 162 4 — 1,708 -1 June 30, 2023 $ 10,039 $ 1,027 $ 1,673 $ 11,275 $ 33 $ 51 $ — $ 24,098 Three Months Ended June 30, 2022 Allowance for loan and lease losses: March 31, 2022 $ 4,889 $ 1,512 $ 2,860 $ 319 $ 56 $ 9 $ 92 $ 9,737 Charge-offs — — — (100) — — — (100) Recoveries — — 11 6 — — — 17 Provisions (credits) 91 (117) (555) 838 2 6 10 275 June 30, 2022 $ 4,980 $ 1,395 $ 2,316 $ 1,063 $ 58 $ 15 $ 102 $ 9,929 (In thousands) Commercial
Real EstateResidential Real Estate Commercial
and
IndustrialConsumer
and
OtherConstruction Construction
to
Permanent
- CREUnallocated Total Six Months Ended June 30, 2023 Allowance for credit losses: December 31, 2022 $ 6,966 $ 665 $ 1,403 $ 1,207 $ 24 $ 10 $ 35 $ 10,310 Impact of ASC 326 Adoption 1,626 189 219 10,977 (4) 29 (35) 13,001 Charge-offs — — (6) (4,312) (150) — — (4,468) Recoveries — 11 16 433 — — — 460 Provisions 1,447 162 41 2,970 163 12 — 4,795 (2) June 30, 2023 $ 10,039 $ 1,027 $ 1,673 $ 11,275 $ 33 $ 51 $ — $ 24,098 Six Months Ended June 30, 2022 Allowance for loan and lease losses: December 31, 2021 $ 5,063 $ 1,700 $ 2,532 $ 253 $ 78 $ 41 $ 238 $ 9,905 Charge-offs — — (68) (147) (70) — — (285) Recoveries — 1 26 7 — — — 34 (Credits) provisions (83) (306) (174) 950 50 (26) (136) 275 June 30, 2022 $ 4,980 $ 1,395 $ 2,316 $ 1,063 $ 58 $ 15 $ 102 $ 9,929 consolidated financial statementsConsolidated Financial Statements (Unaudited)SeptemberJune 30, 2022 2023:(In thousands) Commercial
Real EstateResidential
Real EstateCommercial
and
IndustrialConsumer
and
OtherConstruction Construction to
Permanent
- CREUnallocated Total June 30, 2023 Allowance for credit losses: Individually evaluated for impairment $ 6,387 $ 196 $ 719 $ — $ — $ — $ — $ 7,302 Collectively evaluated for impairment 3,652 831 954 11,275 33 51 — 16,796 Total allowance for credit losses $ 10,039 $ 1,027 $ 1,673 $ 11,275 $ 33 $ 51 $ — $ 24,098 Loans receivable, gross: Individually evaluated for impairment $ 11,368 $ 2,355 $ 6,582 $ — $ — $ — $ — $ 20,305 Collectively evaluated for impairment 500,287 114,099 164,992 123,063 5,525 2,463 — 910,429 Total loans receivable, gross $ 511,655 $ 116,454 $ 171,574 $ 123,063 $ 5,525 $ 2,463 $ — $ 930,734 2021:
Real Estate
Real Estate
and
Industrial
and
Other
Permanent
- CRE $ 5,072 $ 5 $ 984 $ - $ - $ - $ - $ 6,061 1,715 463 854 739 38 5 77 3,891 $ 6,787 $ 468 $ 1,838 $ 739 $ 38 $ 5 $ 77 $ 9,952 $ 11,270 $ 2,886 $ 4,682 $ 516 $ - $ - $ - $ 19,354 427,552 128,296 135,682 137,619 12,634 1,733 - 843,516 $ 438,822 $ 131,182 $ 140,364 $ 138,135 $ 12,634 $ 1,733 $ - $ 862,870
Real Estate
Real Estate
and
Industrial
and
Other
Permanent
- CRE $ 1,567 $ 3 $ 722 $ - $ - $ - $ - $ 2,292 3,496 1,697 1,810 253 78 41 238 7,613 $ 5,063 $ 1,700 $ 2,532 $ 253 $ 78 $ 41 $ 238 $ 9,905 $ 15,704 $ 2,954 $ 4,031 $ 523 $ - $ - $ - $ 23,212 349,543 155,637 118,779 58,841 21,781 11,695 - 716,276 $ 365,247 $ 158,591 $ 122,810 $ 59,364 $ 21,781 $ 11,695 $ - $ 739,488 (In thousands) Commercial
Real EstateResidential
Real EstateCommercial
and
IndustrialConsumer
and
OtherConstruction Construction to
Permanent
- CREUnallocated Total December 31, 2022 Allowance for loan and lease losses: Individually evaluated for impairment $ 5,430 $ 5 $ 608 $ — $ — $ — $ — $ 6,043 Collectively evaluated for impairment 1,536 660 795 1,207 24 10 35 4,267 Total allowance for loan losses $ 6,966 $ 665 $ 1,403 $ 1,207 $ 24 $ 10 $ 35 $ 10,310 Loans receivable, gross: Individually evaluated for impairment $ 11,241 $ 2,508 $ 4,653 $ 514 $ — $ — $ — $ 18,916 Collectively evaluated for impairment 426,202 121,632 134,134 140,577 4,922 1,933 — 829,400 Total loans receivable, gross $ 437,443 $ 124,140 $ 138,787 $ 141,091 $ 4,922 $ 1,933 $ — $ 848,316 $250,000$250,000 are reviewed by the Credit Department either annually, biannually, or biannually,every 4 years, depending upon the amount of the bank’s exposure.third-partythird-party loan review expert to perform a semi-annual analysis of the results of its risk rating process. The semi-annual review is based on a randomly selected sample of loans within established parameters (e.g., value, concentration), in order to assess and validate the risk ratings assigned to individual loans. Any changes to the assigned risk ratings, based on the semi-annual review, are required to be reported to the Audit Committee of the Board of Directors.18consolidated financial statementsConsolidated Financial Statements (Unaudited)eleven-pointeleven-point risk rating system. An asset is considered “special mention” when it has a potential weakness based on objective evidence, but does not currently expose the Company to sufficient risk to warrant classification in one of the following categories:●Substandard: An asset is classified “substandard” if it is not adequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Substandard assets have well defined weaknesses based on objective evidence, and are characterized by the distinct possibility that the Company will sustain some loss, if noted deficiencies are not corrected.●Doubtful: Assets classified as “doubtful” have all of the weaknesses inherent in those classified as “substandard”, with the added characteristic that the identified weaknesses make collection or liquidation-in-full improbable, on the basis of currently existing facts, conditions, and values.immediately upon confirmation of the partial loss amount.amount, but may be deferred in certain cases until the credit moves from doubtful to a partial or full loss classification. Loans that are cash flow dependent are modeled to reflect the expected cash flows through expected loan maturity, including any proceeds from refinancing or principal curtailment. A specific reserve is established for the amount by which the net investment in the loan exceeds the present value of discounted cash flows. Charge-offs on cash flow dependent loans also generally occur immediately upon confirmation of the partial loss amount.“Loss”"full loss”, meaning full loss on the loan is expected, the full balance of the loan receivable is charged off, regardless of the potential recovery from a sale of the underlying collateral. Any amount that may be recovered on the sale of collateral underlying a loan is recognized as a “recovery” in the period in which the collateral is sold. In accordance with Federal Financial Institutions Examination Council published policies establishing uniform criteria for the classification of retail credit based on delinquency status, “Open-end” and “Closed-end” credits are charged off when 180 days and 12090 days delinquent, respectively.19consolidated financial statementsConsolidated Financial Statements (Unaudited)Term of Loans by Origination As of June 30, 2023: 2023 2022 2021 2020 2019 Prior Revolving Total Loans
Receivable
GrossLoan portfolio segment: Commercial Real Estate: Pass $ 94,387 $ 157,102 $ 129,284 $ 3,728 $ 30,112 $ 69,815 $ — $ 484,428 Special mention — — — — 550 — — 550 Substandard — — — — 21,296 5,381 — 26,677 94,387 157,102 129,284 3,728 51,958 75,196 — 511,655 Residential Real Estate: Pass 18 1,267 3,297 12,081 15,897 80,192 528 113,280 Special mention — — — — — 609 — 609 Substandard — — — — — 2,565 — 2,565 18 1,267 3,297 12,081 15,897 83,366 528 116,454 Commercial and Industrial: Pass 1,470 15,000 24,677 8,312 8,908 7,810 97,560 163,737 Special mention 11 — — — 513 11 — 535 Substandard — 732 938 — 4,295 1,268 69 7,302 1,481 15,732 25,615 8,312 13,716 9,089 97,629 171,574 Consumer and Other: Pass 7,864 53,517 7,026 — 5,992 15,816 32,779 122,994 Substandard — — — — — 69 — 69 7,864 53,517 7,026 — 5,992 15,885 32,779 123,063 Construction: Pass — — 5,033 — — — — 5,033 Substandard — — — — 492 — — 492 — — 5,033 — 492 — — 5,525 Construction to Permanent -CRE: Pass — — 2,463 — — — — 2,463 — — 2,463 — — — — 2,463 Total $ 103,750 $ 227,618 $ 172,718 $ 24,121 $ 88,055 $ 183,536 $ 130,936 $ 930,734 Loans receivable, gross: Pass $ 103,739 $ 226,886 $ 171,780 $ 24,121 $ 60,909 $ 173,633 $ 130,867 $ 891,935 Special mention 11 — — — 1,063 620 — 1,694 Substandard — 732 938 — 26,083 9,283 69 37,105 Loans receivable, gross $ 103,750 $ 227,618 $ 172,718 $ 24,121 $ 88,055 $ 183,536 $ 130,936 $ 930,734 SeptemberJune 30, 2022.2023.
Past Due
Past Due
or
Greater
Past Due
Performing
Loans
Loans
Receivable
Gross $ 783 $ - $ - $ 783 $ 401,065 $ 401,848 $ - $ 401,848 - - - - 25,112 25,112 - 25,112 - - - - 592 592 11,270 11,862 783 - - 783 426,769 427,552 11,270 438,822 - - - - 128,121 128,121 - 128,121 - - - - - - 3,061 3,061 - - - - 128,121 128,121 3,061 131,182 425 - 230 655 131,942 132,597 - 132,597 - - - - 966 966 - 966 1,948 - - 1,948 146 2,094 4,707 6,801 2,373 - 230 2,603 133,054 135,657 4,707 140,364 - 1 - 1 137,967 137,968 - 137,968 - - - - 23 23 144 167 - 1 - 1 137,990 137,991 144 138,135 - - - - 12,097 12,097 - 12,097 - - - - 537 537 - 537 - - - - 12,634 12,634 - 12,634 - - - - 1,733 1,733 - 1,733 - - - - 1,733 1,733 - 1,733 $ 3,156 $ 1 $ 230 $ 3,387 $ 840,301 $ 843,688 $ 19,182 $ 862,870 $ 1,208 $ 1 $ 230 $ 1,439 $ 812,925 $ 814,364 $ - $ 814,364 - - - - 26,615 26,615 - 26,615 1,948 - - 1,948 761 2,709 19,182 21,891 $ 3,156 $ 1 $ 230 $ 3,387 $ 840,301 $ 843,688 $ 19,182 $ 862,870 20(In thousands) Performing (Accruing) Loans As of June 30, 2023: 30 - 59
Days
Past Due60 - 89
Days
Past Due90 Days
or
Greater
Past DueTotal
Past DueCurrent Total
Performing
LoansNon-
accruing
LoansLoans
Receivable
GrossLoan portfolio segment: Commercial Real Estate: Pass $ 3,284 $ — $ — $ 3,284 $ 481,144 $ 484,428 $ — $ 484,428 Special mention — — — — 550 550 — 550 Substandard 322 — — 322 14,987 15,309 11,368 26,677 3,606 — — 3,606 496,681 500,287 11,368 511,655 Residential Real Estate: Pass 1,054 74 330 1,458 111,822 113,280 — 113,280 Special mention — — — — 609 609 — 609 Substandard — — — — — — 2,565 2,565 1,054 74 330 1,458 112,431 113,889 2,565 116,454 Commercial and Industrial: Pass 1,678 — 230 1,908 161,829 163,737 — 163,737 Special mention — — — — 535 535 — 535 Substandard — 541 — 541 106 647 6,655 7,302 1,678 541 230 2,449 162,470 164,919 6,655 171,574 Consumer and Other: Pass 1,397 1,543 868 3,808 119,186 122,994 — 122,994 Substandard — — — — 23 23 46 69 1,397 1,543 868 3,808 119,209 123,017 46 123,063 Construction: Pass — — — — 5,033 5,033 — 5,033 Substandard — — — — 492 492 — 492 — — — — 5,525 5,525 — 5,525 Construction to Permanent - CRE: Pass — — — — 2,463 2,463 — 2,463 — — — — 2,463 2,463 — 2,463 Total $ 7,735 $ 2,158 $ 1,428 $ 11,321 $ 898,779 $ 910,100 $ 20,634 $ 930,734 Loans receivable, gross: Pass $ 7,413 $ 1,617 $ 1,428 $ 10,458 $ 881,477 $ 891,935 $ — $ 891,935 Special mention — — — — 1,694 1,694 — 1,694 Substandard 322 541 — 863 15,608 16,471 20,634 37,105 Loans receivable, gross $ 7,735 $ 2,158 $ 1,428 $ 11,321 $ 898,779 $ 910,100 $ 20,634 $ 930,734 consolidated financial statementsConsolidated Financial Statements (Unaudited)2021.2022.
Past Due
Past Due
or
Greater
Past Due
Performing
Loans
Loans
Receivable
Gross $ 696 $ - $ - $ 696 $ 324,858 $ 325,554 $ - $ 325,554 - - - - 16,625 16,625 - 16,625 - - - - 7,364 7,364 15,704 23,068 696 - - 696 348,847 349,543 15,704 365,247 - - - - 154,044 154,044 - 154,044 - - - - 1,399 1,399 - 1,399 - - - - - - 3,148 3,148 - - - - 155,443 155,443 3,148 158,591 243 - - 243 114,306 114,549 - 114,549 - - - - 1,951 1,951 - 1,951 - - - - 2,209 2,209 4,101 6,310 243 - - 243 118,466 118,709 4,101 122,810 - 26 2 28 59,171 59,199 - 59,199 - - - - 23 23 142 165 - 26 2 28 59,194 59,222 142 59,364 - - - - 21,781 21,781 - 21,781 - - - - 21,781 21,781 - 21,781 - - - - 11,695 11,695 - 11,695 - - - - 11,695 11,695 - 11,695 $ 939 $ 26 $ 2 $ 967 $ 715,426 $ 716,393 $ 23,095 $ 739,488 $ 939 $ 26 $ 2 $ 967 $ 685,855 $ 686,822 $ - $ 686,822 - - - - 19,975 19,975 - 19,975 - - - - 9,596 9,596 23,095 32,691 $ 939 $ 26 $ 2 $ 967 $ 715,426 $ 716,393 $ 23,095 $ 739,488 21(In thousands) Performing (Accruing) Loans As of December 31, 2022: 30 - 59 Days
Past Due60 - 89 Days
Past Due90 Days
or
Greater Past
DueTotal
Past DueCurrent Total
Performing
LoansNon-accruing
LoansLoans
Receivable
GrossLoan portfolio segment: Commercial Real Estate: Pass $ — $ — $ — $ — $ 401,313 $ 401,313 $ — $ 401,313 Special mention — — — — 24,559 24,559 — 24,559 Substandard 330 — — 330 — 330 11,241 11,571 330 — — 330 425,872 426,202 11,241 437,443 Residential Real Estate: Pass 330 — — 330 120,715 121,045 — 121,045 Special mention — — — — 625 625 — 625 Substandard — — — — — — 2,470 2,470 330 — — 330 121,340 121,670 2,470 124,140 Commercial and Industrial: Pass 2 — 230 232 131,092 131,324 — 131,324 Special mention — — — — 597 597 — 597 Substandard 1,488 412 — 1,900 133 2,033 4,833 6,866 1,490 412 230 2,132 131,822 133,954 4,833 138,787 Consumer and Other: Pass 929 3,175 925 5,029 135,990 141,019 — 141,019 Substandard — — — — 23 23 49 72 929 3,175 925 5,029 136,013 141,042 49 141,091 Construction: Pass 895 — — 895 3,503 4,398 — 4,398 Special mention — — — — 524 524 — 524 895 — — 895 4,027 4,922 — 4,922 Construction to Permanent - CRE: Pass — — — — 1,933 1,933 — 1,933 — — — — 1,933 1,933 — 1,933 Total $ 3,974 $ 3,587 $ 1,155 $ 8,716 $ 821,007 $ 829,723 $ 18,593 $ 848,316 Loans receivable, gross: Pass $ 2,156 $ 3,175 $ 1,155 $ 6,486 $ 794,546 $ 801,032 $ — $ 801,032 Special mention — — — — 26,305 26,305 — 26,305 Substandard 1,818 412 — 2,230 156 2,386 18,593 20,979 Loans receivable, gross $ 3,974 $ 3,587 $ 1,155 $ 8,716 $ 821,007 $ 829,723�� $ 18,593 $ 848,316 consolidated financial statementsConsolidated Financial Statements (Unaudited)SeptemberJune 30, 2022 2023 and December 31, 2021:
Days
Past Due
Days
Past Due
Greater
Past Due
Non-accruing
Loans $ 8,819 $ - $ 2,451 $ 11,270 $ - $ 11,270 672 - 1,795 2,467 594 3,061 - - 4,591 4,591 116 4,707 - - 121 121 23 144 $ 9,491 $ - $ 8,958 $ 18,449 $ 733 $ 19,182 $ - $ - $ 15,704 $ 15,704 $ - $ 15,704 - - 2,419 2,419 729 3,148 - 491 2,458 2,949 1,152 4,101 - 94 28 122 20 142 $ - $ 585 $ 20,609 $ 21,194 $ 1,901 $ 23,095 If non-accrual loans had been performing in accordance with the original contractual terms, additional interest income (net of cash collected) of approximately $159,000 and $262,000 would have been recognized during the three and nine months ended September 30, 2022, respectively. During the three and nine months ended September 30, 2021, additional interest income (net of cash collected) of approximately $230,000 and $689,000 would have been recognized, respectively.Interest income collected and recognized on non-accruing loans for the three and nine months ended September 30, 2022 was $33,000 and $237,000, respectively. During the three and nine months ended September 30,2021, interest income collected and recognized on non-accruing loans was $174,000 and $313,000, respectively.(In thousands) Non-accruing Loans 30 - 59
Days
Past Due60 - 89
Days
Past Due90 Days or
Greater Past
DueTotal
Past DueCurrent Total
Non-accruing
LoansAs of June 30, 2023: Loan portfolio segment: Commercial Real Estate: Substandard $ — $ — $ 11,368 $ 11,368 $ — $ 11,368 Residential Real Estate: Substandard 89 71 1,795 1,955 610 2,565 Commercial and Industrial: Substandard 940 — 5,570 6,510 145 6,655 Consumer and Other: Substandard — — 26 26 20 46 Total non-accruing loans $ 1,029 $ 71 $ 18,759 $ 19,859 $ 775 $ 20,634 As of December 31, 2022: Loan portfolio segment: Commercial Real Estate: Substandard $ — $ — $ 11,241 $ 11,241 $ — $ 11,241 Residential Real Estate: Substandard 657 — 1,796 2,453 17 2,470 Commercial and Industrial: Substandard 46 395 3,196 3,637 1,196 4,833 Consumer and Other: Substandard — — 27 27 22 49 Total non-accruing loans $ 703 $ 395 $ 16,260 $ 17,358 $ 1,235 $ 18,593 Management considers all non-accrual loans and Trouble Debt Restructurings (“TDR”) for impaired loans. In most cases, loan payments that are past due less than 90 days, well-secured, and in the process of collection are not considered impaired. The Bank considers loans under $100,000$100,000 and consumer installment loans to be pools of smaller homogeneous loan balances, and therefore are collectively evaluated for impairment, and not individually measured for impairment.22consolidated financial statementsConsolidated Financial Statements (Unaudited)Troubled Debt Restructurings (“TDR”(In thousands) June 30, 2023 December 31, 2022 Recorded
InvestmentPrincipal
OutstandingRelated
AllowanceRecorded Investment Principal Outstanding Related Allowance With no related allowance recorded: Commercial Real Estate $ 387 $ 430 $ — $ 2,435 $ 2,428 $ — Residential Real Estate 732 872 — 2,402 2,224 — Commercial and Industrial 1,859 2,223 — 1,939 2,424 — Consumer and Other — — — 514 514 — 2,978 3,525 — 7,290 7,590 — With a related allowance recorded: Commercial Real Estate 10,981 10,955 6,387 8,806 8,656 5,430 Residential Real Estate 1,623 1,448 196 106 105 5 Commercial and Industrial 4,723 4,742 719 2,714 2,863 608 17,327 17,145 7,302 11,626 11,624 6,043 Individually evaluated loans, Total: Commercial Real Estate 11,368 11,385 6,387 11,241 11,084 5,430 Residential Real Estate 2,355 2,320 196 2,508 2,329 5 Commercial and Industrial 6,582 6,965 719 4,653 5,287 608 Consumer and Other — — — 514 514 — Total $ 20,305 $ 20,670 $ 7,302 $ 18,916 $ 19,214 $ 6,043 Three Month Ended June 30, Six Months Ended June 30, (In thousands) 2023 2022 2023 2022 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial Real Estate $ 387 $ — $ 6,611 $ 32 $ 680 $ — $ 6,697 $ 64 Residential Real Estate 748 24 2,818 10 992 27 2,829 18 Commercial and Industrial 2,046 68 607 2 2,181 150 614 5 Consumer and Other 128 — 520 4 293 — 521 9 Construction 579 — — — 993 — — — 3,888 92 10,556 48 5,139 177 10,661 96 With a related allowance recorded: Commercial Real Estate 10,405 — 8,843 40 10,651 154 8,858 65 Residential Real Estate 1,352 — 368 1 1,468 — 408 3 Commercial and Industrial 4,052 98 3,961 29 4,341 139 3,762 50 Consumer and Other 18 — 126 — 10 — 143 — 15,827 98 13,298 70 16,470 293 13,171 118 Individually evaluated loans, Total: Commercial Real Estate 10,792 — 15,454 72 11,331 154 15,555 129 Residential Real Estate 2,100 24 3,186 11 2,460 27 3,237 21 Commercial and Industrial 6,098 166 4,568 31 6,522 289 4,376 55 Consumer and Other 146 — 646 4 303 — 664 9 Construction 579 — — — 993 — — — Total $ 19,715 $ 190 $ 23,854 $ 118 $ 21,609 $ 470 $ 23,832 $ 214 If the borrower is experiencing financial difficulties and a concession has been made, the loan is classified as a TDR. TDR loan modifications involve lowering the monthly payments on such loans through either a reduction in interest rate below market rate, an extension of the term of the loan, or a combination of adjusting these two contractual attributes. TDR loanLoan modifications may also result in the forgiveness of principal or accrued interest. In addition, when modifying commercial loans, Patriot frequently obtains additional collateral or guarantor support. If the borrower has performed under the existing contractual terms of the loan and Patriot’s underwriters determine that the borrower has the capacity to continue to perform under the terms of the TDR,loan, the loan continues accruing interest. Non-accruing TDRs modified loans may be returned to accrual status when there has been a sustained period of performance (generally six consecutive months of payments) and both principal and interest are reasonably assured of collection.The following table summarizes the recorded investment in TDRs asSeptemberJune 30, 2023 and 2022, the Company had no modified loans were modified as TDRs. The following loans were modified as TDRs during the nine months ended September 30, 2022: 1 $ 118 $ 116 1 $ 118 $ 116 The following table provides information on how loans were modified as TDRs in 2022: - 116 $ - $ 116 During the three and nine months ended September 30, 2021, no loans were modified as TDRs.The loans modified in a TDR often involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, extending the interest-only payment period, or substituting or adding a co-borrower or guarantor.defaults of TDRsmodified loans that had a payment default during the three and ninesix months ended SeptemberJune 30, 2022 2023 and 2021. At Septemberwere modified in the twelve months prior to that default to borrowers experiencing financial difficulty. As of June 30, 2022 2023 and December 31, 2021, 2022, there were no commitments to advance additional funds under TDRs.23PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARIESNotes to consolidated financial statements (Unaudited)The balances reflected here as TDR’s are also included in the non-accruing loan balance included in the prior table - Loan Portfolio Aging Analysis.Impaired LoansThe following table reflects information about the impaired loans by class as of September 30, 2022 and December 31, 2021:
Investment
Outstanding
Allowance
Investment
Outstanding
Allowance $ 2,780 $ 2,599 $ - $ 6,820 $ 7,776 $ - 2,451 2,444 - 2,847 2,763 - 585 692 - 630 758 - 517 516 - 523 523 - 6,333 6,251 - 10,820 11,820 - $ 8,819 $ 8,670 $ 5,072 8,884 8,811 1,567 438 435 6 461 488 8 4,122 4,276 984 3,471 3,916 723 167 176 1 166 201 1 13,546 13,557 6,063 12,982 13,416 2,299 11,599 11,269 5,072 15,704 16,587 1,567 2,889 2,879 6 3,308 3,251 8 4,707 4,968 984 4,101 4,674 723 684 692 1 689 724 1 $ 19,879 $ 19,808 $ 6,063 $ 23,802 $ 25,236 $ 2,299 24PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARIESNotes to consolidated financial statements (Unaudited)The following table summarizes additional information regarding impaired loans by classNote 5. Loans Held for the three and nine months ended September 30, 2022 and 2021.
Recorded
Investment
Income
Recognized
Recorded
Investment
Income
Recognized
Recorded
Investment
Income
Recognized
Recorded
Investment
Income
Recognized $ 6,704 $ 13 $ 8,671 $ 95 $ 6,716 $ 31 $ 7,538 $ 133 1,580 8 3,752 15 2,332 72 4,088 45 2,354 - 2,657 4 1,311 5 3,122 9 342 6 526 4 449 15 755 10 10,980 27 15,606 118 10,808 123 15,503 197 7,096 7 8,916 - 8,156 72 8,854 - 1,525 6 824 7 885 10 427 14 2,358 - 3,231 55 3,167 50 1,856 113 342 1 169 1 237 3 87 5 11,321 14 13,140 63 12,445 135 11,224 132 13,800 20 17,587 95 14,872 103 16,392 133 3,105 14 4,576 22 3,217 82 4,515 59 4,712 - 5,888 59 4,478 55 4,978 122 684 7 695 5 686 18 842 15 $ 22,301 $ 41 $ 28,746 $ 181 $ 23,253 $ 258 $ 26,727 $ 329 Impaired loans may consist of non-accrual loans and/or performing and non-performing TDRs. Based on the on-going monitoring and analysis of the loan portfolio, thirty-five loans totaling $19.9 million were identified as impaired at September 30, 2022. Twenty-four out of thirty-five impaired loans totaling $19.4 million were individually evaluated for impairment, for which $6.1 million of specific reserves were established. The remaining eleven impaired loans with balances under $100,000, totaling $524,000, with a general reserve of $2,000 were collectively evaluated, and not individually evaluated for impairment.At December 31,2021, exposure to the impaired loans was related to thirty-four borrowers. Twenty-three out of thirty-four impaired loans totaling $23.2 million, were individually evaluated for impairment, for which $2.3 million of specific reserves were established. The remaining eleven impaired loans with balances under $100,000, totaling $590,000, with a general reserve of $7,000 were collectively evaluated, and not individually evaluated for impairment.For collateral dependent loans, appraisal reports of the underlying collateral have been obtained from independent licensed appraisal firms. For non-performing loans, the independently determined appraised values were first reduced by a 5.8% discount to reflect the Bank’s experience selling Other Real Estate Owned (OREO) properties, and were further reduced by 8% in selling costs, in order to estimate the potential loss, if any, that may eventually be realized. Performing loans are monitored to determine when, if at all, additional loan loss reserves may be required for a loss of underlying collateral value. For cash flow dependent loans, the Bank determined the reserve based on the present value of expected future cash flows discounted at the loan's effective interest rate.Loans not requiring specific reserves had fair values exceeding the total recorded investment, supporting the net investment in the loan which includes principal balance, unamortized fees and costs and accrued interest, if any. Once a borrower is in default, Patriot is under no obligation to advance additional funds on unused commitments.25PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARIESNotes to consolidated financial statements (Unaudited)Note 5.Loans Held for SaleSeptemberJune 30, 2022, 2023, SBA loans held for sale was $8.7$5.9 million, consisting of $5.1$2.3 million SBA commercial and industrial loans and $3.6 million SBA commercial real estate loans, and $3.6 million SBA commercial and industrial loans, respectively. There were $3.1$5.2 million of SBA loans held for sale at December 31, 2021, 2022, consisting of $2.6$3.1 million SBA commercial and industrial loans and $562,000$2.1 million SBA commercial real estate loans. During the three and ninesix months ended SeptemberJune 30, 2023 and 2022, $202,000 and $274,000no SBA loans previously classified as held for sale were transferred to held for investment, respectively. During the three and nine months ended September 30, 2021, SBA loans previously classified as held for sale were transferred to held for investment were $0 and $281,000, respectively.consolidated balance sheets.Consolidated Balance Sheets. The total amount of such loans serviced, but owned by third party, amounted to approximately $36.2$47.5 million and $29.6$47.3 million at SeptemberJune 30, 2022 2023 and December 31, 2021, 2022, respectively. As of SeptemberJune 30, 2022 2023 and December 31, 2021, 2022, the servicing asset has a carrying value of $706,000$882,000 and $584,000,$886,000, respectively, and fair value of $773,000$977,000 and $617,000,$1.0 million, respectively. Income and fees collected for loan servicing are credited to noninterest income when earned, net of amortization on the related servicing assets. The servicing asset is included in other assets on the consolidated balance sheets.ninesix months ended SeptemberJune 30, 2022 2023 and 2021:2022: $ 685 $ 380 $ 584 $ 316 57 - 188 74 (36 ) (5 ) (56 ) (15 ) - - (10 ) - $ 706 $ 375 $ 706 $ 375 (In thousands) Three Month Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Beginning balance $ 893 $ 626 $ 886 $ 584 Servicing rights capitalized 24 79 58 131 Servicing rights amortized (11) (12) (22) (20) Servicing rights disposed (24) (8) (40) (10) Ending balance $ 882 $ 685 $ 882 $ 685 26consolidated financial statementsConsolidated Financial Statements (Unaudited)Note 6.Business Combination, Goodwill and Other Intangible AssetsSeptemberJune 30, 2022 2023 and December 31, 2021.nine six months of 20222023 as no events occurred which would trigger an impairment assessment.Merger and acquisition with American ChallengerOn November 15, 2021, the Company and American Challenger Development Corp., a Delaware corporation (“American Challenger”), entered into an Agreement and Plan of Merger (the “Original Merger Agreement”), which was subsequently amended on January 26, 2022 and February 28, 2022 (the Original Merger Agreement, as amended, referred to as the “Merger Agreement”).On July 18, 2022, Patriot and American Challenger entered into a Termination and Release Agreement pursuant to which the parties mutually agreed to terminate the Merger Agreement (the “Termination”). Parties mutually determined that not all closing conditions of the Merger Agreement could be satisfied under the current structure and agreement. In connection with the proposed merger, the Company has previously recognized expenses of $1.9 million for the full year ended December 31, 2021 and $112,000 for the nine months ended September 30, 2022.27PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARIESNotes to consolidated financial statements (Unaudited)Note 7. DepositsNote 7.DepositsSeptemberJune 30, 2022 2023 and December 31, 2021. $ 247,704 $ 226,713 38,435 34,741 87,443 109,744 180,772 164,518 180,253 142,246 65,362 53,584 34,426 17,016 586,691 521,849 $ 834,395 $ 748,562 On July 22, 2020, the Company completed the purchase of prepaid debit card deposits of $50.0 million from a prominent national provider and processor of prepaid debit cards for corporate, consumer and government clients. 2022.(In thousands) June 30, 2023 December 31, 2022 Non-interest bearing $ 127,817 $ 269,636 Interest bearing: Negotiable order of withdrawal accounts 37,970 34,440 Savings deposits 50,981 71,002 Money market deposits 298,717 211,000 Certificates of deposit, less than $250,000 182,680 165,793 Certificates of deposit, $250,000 or greater 56,088 59,877 Brokered deposits 109,126 48,698 Interest bearing, Total 735,562 590,810 Total Deposits $ 863,379 $ 860,446 $169.1$158.1 million and $150.4$197.3 million as of SeptemberJune 30, 2022 2023 and December 31, 2021, 2022, respectively.SeptemberJune 30, 2022, 2023, contractual maturities of Certificates of Deposit (“CDs”), and brokered deposits is summarized as follows:
less than
$250,000
$250,000
or greater
Deposits $ 113,433 $ 51,210 $ 29,069 $ 193,712 28,270 3,255 4,858 36,383 20,257 10,647 499 31,403 2,489 250 - 2,739 15,804 - - 15,804 $ 180,253 $ 65,362 $ 34,426 $ 280,041 (In thousands) CDs
less than
$250,000CDs
$250,000
or greaterBrokered
DepositsTotal 1 year or less $ 136,053 $ 45,467 $ 104,517 $ 286,037 More than 1 year through 2 years 29,447 9,362 4,358 43,167 More than 2 years through 3 years 4,887 1,259 251 6,397 More than 3 years through 4 years 496 — — 496 More than 4 years through 5 years 11,797 — — 11,797 $ 182,680 $ 56,088 $ 109,126 $ 347,894 28consolidated financial statementsConsolidated Financial Statements (Unaudited)Note 8.Derivatives
swaps.
2022.
The Company did not recognize any unrealized and realized gain or loss for the three and nine months ended September 30, 2022. During the three and nine months ended September 30, 2021, the Company recognized $64,000 and $149,000 of accumulated other comprehensive income that was reclassified into interest income, respectively. The swap interest income was included in interest and fees on loans on the consolidated statements of operations. In addition, a gain of $512,000 was recognized from the termination of the interest rate swap cash flow hedge for the three and nine months ended September 30, 2021, which was included in other income on the consolidated statements of operations.
(In thousands) | Notional Amount | Maturity (Years) | Fixed Rate | Variable | Fair Value | |||||||||||||
September 30, 2022 | ||||||||||||||||||
Classified in Other Assets: | ||||||||||||||||||
3rd party interest rate swap | $ | 4,763 | 6.6 | 5.25 | % | 1 Mo. LIBOR + 1.96% | $ | 124 | ||||||||||
3rd party interest rate swap | 1,372 | 6.8 | 4.38 | % | 1 Mo. LIBOR + 2.00% | 105 | ||||||||||||
Classified in Other Liabilities: | ||||||||||||||||||
Customer interest rate swap | $ | 4,763 | 6.6 | 5.25 | % | 1 Mo. LIBOR + 1.96% | $ | (124 | ) | |||||||||
Customer interest rate swap | 1,372 | 6.8 | 4.38 | % | 1 Mo. LIBOR + 2.00% | (105 | ) | |||||||||||
December 31, 2021 | ||||||||||||||||||
Classified in Other Assets: | ||||||||||||||||||
Customer interest rate swap | $ | 4,843 | 7.3 | 5.25 | % | 1 Mo. LIBOR + 1.96% | $ | 638 | ||||||||||
Customer interest rate swap | 1,398 | 7.5 | 4.38 | % | 1 Mo. LIBOR + 2.00% | 100 | ||||||||||||
Classified in Other Liabilities: | ||||||||||||||||||
3rd party interest rate swap | $ | 4,843 | 7.3 | 5.25 | % | 1 Mo. LIBOR + 1.96% | $ | (638 | ) | |||||||||
3rd party interest rate swap | 1,398 | 7.5 | 4.38 | % | 1 Mo. LIBOR + 2.00% | (100 | ) |
Changes in the consolidated statements of comprehensive income related to interest rate derivatives designated as hedges of cash flows were as follows for the three
(In thousands) | Notional Amount | Maturity (Years) | Fixed Rate | Variable Rate | Fair Value | ||||||||||||||||||||||||
June 30, 2023 | |||||||||||||||||||||||||||||
Classified in Other Assets: | |||||||||||||||||||||||||||||
3rd party interest rate swap | $ | 4,680 | 5.84 | 5.25 | % | 1 Mo. LIBOR + 1.96% | $ | 146 | |||||||||||||||||||||
3rd party interest rate swap | 1,346 | 6.00 | 4.38 | % | 1 Mo. LIBOR + 2.00% | 98 | |||||||||||||||||||||||
Classified in Other Liabilities: | |||||||||||||||||||||||||||||
Customer interest rate swap | $ | 4,680 | 5.84 | 5.25 | % | 1 Mo. LIBOR + 1.96% | $ | (146) | |||||||||||||||||||||
Customer interest rate swap | 1,346 | 6.00 | 4.38 | % | 1 Mo. LIBOR + 2.00% | (98) | |||||||||||||||||||||||
December 31, 2022 | |||||||||||||||||||||||||||||
Classified in Other Assets: | |||||||||||||||||||||||||||||
3rd party interest rate swap | $ | 4,736 | 6.30 | 5.25 | % | 1 Mo. LIBOR + 1.96% | $ | 106 | |||||||||||||||||||||
3rd party interest rate swap | 1,363 | 6.50 | 4.38 | % | 1 Mo. LIBOR + 2.00% | 97 | |||||||||||||||||||||||
Classified in Other Liabilities: | |||||||||||||||||||||||||||||
Customer interest rate swap | $ | 4,736 | 6.30 | 5.25 | % | 1 Mo. LIBOR + 1.96% | $ | (106) | |||||||||||||||||||||
Customer interest rate swap | 1,363 | 6.50 | 4.38 | % | 1 Mo. LIBOR + 2.00% | (97) |
Three Months Ended | Nine Months Ended | |||||||
(In thousands) | September 30, 2021 | September 30, 2021 | ||||||
Interest rate swap designated as cash flow hedge: | ||||||||
Unrealized gain recognized in accumulated other comprehensive income before reclassifications | $ | (104 | ) | $ | 149 | |||
Amounts reclassified from accumulated other comprehensive income | (64 | ) | (149 | ) | ||||
Income tax effect on items recognized in accumulated other comprehensive income | 44 | - | ||||||
Other comprehensive income | $ | (124 | ) | $ | - |
The above unrealized gains and losses are reflective of market interest rates as of the respective balance sheet dates. Generally, lower long-term interest rates will result in a positive impact to comprehensive income whereas higher long-term interest rates will result in a negative impact to comprehensive income.
|
|
In 2011, the Company adopted the Patriot National Bancorp, Inc. 2012 Stock Plan (the “2012“2012 Plan”). The 2012 Plan was amended in 2020 and renamed as the Patriot National Bancorp, Inc. 2020 Restricted Stock Award Plan (the “2020“2020 Plan”). A copy of the 2020 Plan was filed as Exhibit 10.1 to the Company’s Amendment No.1 to Annual Report on Form 10-K/10-K/A for the year ended December 31, 2020 filed on April 30, 2021. The 2020 Plan provides an incentive to directors and employees of the Company by the grant of restricted stock awards (“RSA”).
.On November 10, 2022, the Board of Directors approved the Amendment and Restatement of the 2020 Plan (the “Amended and Restated 2020 Plan”), which was approved and ratified by shareholders of the Company on December 14, 2022.
Three months ended September 30, 2022: | Number of | Weighted Average | ||||||
Unvested at June 30, 2022 | 23,187 | $ | 7.24 | |||||
Unvested at September 30, 2022 | 23,187 | $ | 7.24 | |||||
Nine months ended September 30, 2022: | ||||||||
Unvested at December 31, 2021 | 21,468 | $ | 6.48 | |||||
Granted | 2,496 | $ | 17.25 | |||||
Vested | (777 | ) | $ | 18.55 | ||||
Unvested at September 30, 2022 | 23,187 | $ | 7.24 |
Three months ended September 30, 2021: | Number of | Weighted Average Grant Date | ||||||
Unvested at June 30, 2021 | 35,270 | $ | 8.12 | |||||
Vested | (700 | ) | $ | 17.85 | ||||
Forfeited | (4,586 | ) | $ | 9.39 | ||||
Unvested at September 30, 2021 | 29,984 | $ | 7.69 | |||||
Nine months ended September 30, 2021: | ||||||||
Unvested at December 31, 2020 | 18,498 | $ | 7.29 | |||||
Granted | 20,476 | $ | 10.48 | |||||
Vested | (4,404 | ) | $ | 17.21 | ||||
Forfeited | (4,586 | ) | $ | 9.39 | ||||
Unvested at September 30, 2021 | 29,984 | $ | 7.69 |
2022:
Three months ended June 30, 2023: | Number of Shares Awarded | Weighted Average Grant Date Fair Value | ||||||||||||
Unvested at March 31, 2023 | 22,660 | $7.11 | ||||||||||||
Unvested at June 30, 2023 | 22,660 | $7.11 | ||||||||||||
Six months ended June 30, 2023: | ||||||||||||||
Unvested at December 31, 2022 | 22,660 | $7.11 | ||||||||||||
Unvested at June 30, 2023 | 22,660 | $7.11 |
Three months ended June 30, 2022 | Number of Shares Awarded | Weighted Average Grant Date Fair Value | ||||||||||||
Unvested at March 31, 2022 | 21,468 | $6.48 | ||||||||||||
Granted | 2,496 | $17.25 | ||||||||||||
Vested | (777) | $18.55 | ||||||||||||
Unvested at June 30, 2022 | 23,187 | $7.24 | ||||||||||||
Six months ended June 30, 2022: | ||||||||||||||
Unvested at December 31, 2021 | 21,468 | $6.48 | ||||||||||||
Granted | 2,496 | $17.25 | ||||||||||||
Vested | (777) | $18.55 | ||||||||||||
Unvested at June 30, 2022 | 23,187 | $7.24 |
For the three and nine months ended September 30, 2022, the Company recognized total share-based compensation expense of $22,000 and $63,000, respectively. The share-based compensation attributable to employees of Patriot amounted to $8,000 and $14,000, respectively. Included in share-based compensation expense attributable to Patriot’s external directors, were $14,000 and $39,000, respectively. The directors received total compensation of $82,000 and $182,000 respectively, which amounts are included in other operating expenses in the consolidated statements of operations.
For the three and nine months ended September 30, 2021, the Company recognized total share-based compensation expense of $30,000 and 110,000, respectively. The share-based compensation attributable to employees of Patriot amounted to $25,000 and $65,000, respectively. Included in share-based compensation expense were $5,000 and $45,000 attributable to Patriot’s external directors, who received total compensation of $68,000 and $252,000 for each of those periods, respectively.
Dividends
The Company has not paid any dividends since 2020 and has no present plans to pay dividends.
(Net income in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Basis earnings per share: Net income attributable to Common shareholders Divided by: Weighted average shares outstanding Basic earnings per common share Diluted earnings per share: Net income attributable to Common shareholders Weighted average shares outstanding Effect of potentially dilutive restricted common shares Divided by: Weighted average diluted shares outstanding Diluted earnings per common share In the normal course of business, Patriot is a party to financial instruments with off-balance-sheet risk to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit and involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the balance sheet. The contractual amounts of these instruments reflect the extent of involvement Patriot has in particular classes of financial instruments. (In thousands) September 30, 2022 December 31, 2021 Commitments to extend credit: Unused lines of credit Undisbursed construction loans Home equity lines of credit Future loan commitments Financial standby letters of credit The increase in allowance for credit loss in 2023 is primarily due to the adoption of CECL. Federal and state regulatory authorities have adopted standards requiring financial institutions to maintain increased levels of capital. Effective January 1, 2015, federal banking agencies imposed four minimum capital requirements on a community bank’s risk-based capital ratios consisting of Total Capital, Tier 1 Capital, Common Equity Tier 1 (In thousands) September 30, 2022 December 31, 2021 Patriot Bank, N.A. Amount Ratio Amount Ratio Tier 1 Leverage Capital (to average assets): Actual To be Well Capitalized Patriot measures the carrying value of certain financial assets and liabilities at fair value, as required by its policies as a financial institution and by US GAAP. The carrying values of certain assets and liabilities are measured at fair value on a recurring basis, such as available-for-sale securities; while other assets and liabilities are measured at fair value on a non-recurring basis due to external factors requiring management’s judgment to estimate potential losses of value resulting in asset impairments or the establishment of valuation reserves. Measuring assets and liabilities at fair value may result in fluctuations to carrying value that have a significant impact on the results of operations or other comprehensive income for the period and period over period. Consolidated Financial Statements. The fair value of demand deposits, regular savings and certain money market deposits is the amount payable on demand at the reporting date. junior subordinated debt. (In thousands) September 30, 2022 December 31, 2021 Fair Value Carrying Estimated Carrying Estimated Financial Assets: Cash and noninterest bearing balances due from banks Level 1 Interest-bearing deposits due from banks Level 1 Available-for-sale securities Level 2 Available-for-sale securities Level 3 Other investments Level 2 Federal Reserve Bank stock Level 2 Federal Home Loan Bank stock Level 2 Loans receivable, net Level 3 Loans held for sale Level 2 SBA servicing assets Level 3 Accrued interest receivable Level 2 Interest rate swap receivable Level 2 Financial assets, total Financial Liabilities: Demand deposits Level 2 Savings deposits Level 2 Money market deposits Level 2 NOW accounts Level 2 Time deposits Level 2 Brokered deposits Level 1 FHLB borrowings Level 2 Senior notes Level 2 Subordinated debt Level 2 Junior subordinated debt owed to unconsolidated trust Level 2 Note payable Level 3 Accrued interest payable Level 2 Interest rate swap liability Level 2 Financial liabilities, total 2022: (In thousands) Quoted Prices in Significant Observable Inputs Significant Unobservable Inputs Total September 30, 2022 U. S. Government agency and mortgage-backed securities Corporate bonds Subordinated notes SBA loan pools Municipal bonds Available-for-sale securities Interest rate swap receivable Interest rate swap liability December 31, 2021: U. S. Government agency and mortgage-backed securities Corporate bonds Subordinated notes SBA loan pools Municipal bonds Available-for-sale securities Interest rate swap receivable Interest rate swap liability 2022: (In thousands) Three Months Ended Nine Months Ended Level 3 fair value at beginning of the period Purchases Realized gain (loss) Unrealized loss Transfers in and /or out of Level 3 Level 3 fair value at end of the period (In thousands) Fair Value Valuation Methodology Unobservable Inputs Range of Inputs September 30, 2022: Impaired loans, net Real Estate Appraisals Discount for appraisal type SBA servicing assets Discounted Cash Flows Market discount rates December 31, 2021: Impaired loans, net Real Estate Appraisals Discount for appraisal type SBA servicing assets Discounted Cash Flows Market discount rates 2022: Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations (In thousands) September 30 December 31, Increase / (Decrease) 2022 2021 ($) (%) U. S. Government agency and mortgage-backed securities Corporate bonds Subordinated notes SBA loan pools Municipal bonds Total available-for-sale securities, at fair value Other investments, at cost $24,000. (In thousands) September 30, 2022 December 31, 2021 Amount % Amount % Loan portfolio segment: Commercial Real Estate Residential Real Estate Commercial and Industrial Consumer and Other Construction Construction to permanent - CRE Loans receivable, gross Allowance for loan losses Loans receivable, net The Company’s loan portfolio increased certain off-balance-sheet credit exposures, measured at amortized cost. See Note 2 - Summary of Significant Accounting Policies to the Company's financial statements for a description of the adoption of ASU 2016-13 and the Company's allowance methodology. Three Months Ended September 30, Nine Month Ended September 30, (In thousands) 2022 2021 2022 2021 Balance at beginning of the period Charge-offs: Commercial Real Estate Residential Real Estate Commercial and Industrial Consumer and Other Construction Total charge-offs Recoveries: Commercial Real Estate Residential Real Estate Commercial and Industrial Consumer and Other Total recoveries Net (charge-offs) recoveries Provision (credit) for loan losses Balance at end of the period Ratios: Net (charge-offs) recoveries to average loans Allowance for loan losses to total loans (In thousands) September 30, 2022 December 31, 2021 Allowance for loan and lease losses Allowance for loan losses Percent of loans in each category to total loans Allowance for loan losses Percent of loans in each category to total loans Commercial Real Estate Residential Real Estate Commercial and Industrial Consumer and Other Construction Construction to permanent - CRE Unallocated Total (In thousands) September 30, 2022 December 31, 2021 Non-accruing loans: Commercial Real Estate Residential Real Estate Commercial and Industrial Consumer and Other Total non-accruing loans Loans past due over 90 days and still accruing Total nonperforming assets Nonperforming assets to total assets Nonperforming loans to total loans, net 2022: The Company completed its acquisition of Prime Bank in May 2018 and recorded $1.1 million of goodwill after adjustments as of May 10, 2019. No further adjustment to the goodwill was made as of 2023. (In thousands) Increase/(Decrease) September 30, 2022 December 31, 2021 % Non-interest bearing: Non-interest bearing Prepaid DDA Total non-interest bearing Interest bearing: Negotiable order of withdrawal accounts Savings Money market Money market - prepaid deposits Certificates of deposit, less than $250,000 Certificates of deposit, $250,000 or greater Brokered deposits Total Interest bearing Total Deposits $394,000. In thousands) Three Months ended September 30, 2022 2021 Average Balance Interest Yield Average Balance Interest Yield ASSETS Interest Earning Assets: Loans Investments Cash equivalents and other Total interest earning assets Cash and due from banks Allowance for loan losses OREO Other assets Total Assets Liabilities Interest bearing liabilities: Deposits Borrowings Senior notes Subordinated debt Note Payable and other Total interest bearing liabilities Demand deposits Other liabilities Total Liabilities Shareholders' equity Total Liabilities and Shareholders' Equity Net interest income Interest margin Interest spread (In thousands) Nine Months ended September 30, 2022 2021 Average Balance Interest Yield Average Balance Interest Yield ASSETS Interest Earning Assets: Loans Investments Cash equivalents and other Total interest earning assets Cash and due from banks Allowance for loan losses OREO Other assets Total Assets Liabilities Interest bearing liabilities: Deposits Borrowings Senior notes Subordinated debt Note Payable and other Total interest bearing liabilities Demand deposits Other liabilities Total Liabilities Shareholders' equity Total Liabilities and Shareholders' Equity Net interest income Interest margin Interest spread Three Months ended September 30, Nine Months ended September 30, 2022 compared to 2021 2022 compared to 2021 (In thousands) Increase/(Decrease) Increase/(Decrease) Volume Rate Total Volume Rate Total Interest Earning Assets: Loans Investments Cash equivalents and other Total interest earning assets Interest bearing liabilities: Deposit Borrowings Senior notes Subordinated debt Note payable and other Total interest bearing liabilities Net interest income 2022. 2022. 2022. market interest rates. Non-interest income 2023. salaries and benefits due to staffing increases needed to support continuing business initiatives. 2022. The readily available liquidity ratio remained well above the Company's 10% policy minimum. bank's intention to either meet all qualifying criteria to remain in the CBLR framework, or to comply with the generally applicable BASEL III capital rules and the associated reporting requirements. Management continuously assesses the adequacy of the Bank’s capital with the goal to maintain a “well capitalized” classification. The tables below set forth examples of changes in estimated net interest income and the estimated net portfolio value based on projected scenarios of interest rate increases and decreases. The analyses indicate the rate risk embedded in the Company’s portfolio at the dates indicated should all interest rates instantaneously rise or fall. The results of these changes are added to or subtracted from the base case; however, there are certain limitations to these types of analyses. Rate changes are rarely instantaneous and these analyses may therefore overstate the impact of short-term repricings. (In thousands) Net Portfolio Value - Performance Summary As of September 30, 2022 As of December 31, 2021 Projected Interest Estimated Change from Change from Estimated Change from Change from +200 +100 BASE (In thousands) Net Interest Income - Performance Summary September 30, 2022 December 31, 2021 Projected Interest Estimated Change from Change from Estimated Change from Change from +200 +100 BASE of June 30, 2023. 3(i)(A) 3(i)(B) 3(i) (C) 3(ii) 31(1) 31(2) 32* 101.INS# 101.SCH# 101.CAL# 101.LAB# 101.PRE# 101.DEF# 104 Patriot National Bancorp, Inc. (Registrant) By: /s/ Joseph D. Perillo Joseph D. Perillo Executive Vice President and Chief Financial Officer401(k)401(k) Savings Plan (the "401(k)"401(k) Plan") under Section 401(k)401(k) of the Internal Revenue Code, along with the ROTH feature to the Plan. The 401(k)401(k) Plan covers substantially all employees who have completed one month of service, are 21 years of age and who elect to participate. Under the terms of the 401(k)401(k) Plan, participants can contribute up to the maximum amount allowed, subject to Federal limitations. At its discretion, Patriot may match eligible participating employee contributions at the rate of 50% of the first 6% of the participants’ salary contributed to the 401(k)401(k) Plan. During the three and ninesix months ended SeptemberJune 30, 2022, 2023, Patriot made matching contributions to the 401(k)401(k) Plan of $64,000$82,000 and $205,000,$157,000, respectively. During the three and ninesix months ended SeptemberJune 30, 2021, 2022, compensation expense under the 401(k)401(k) aggregated $46,000$67,000 and $157,000,$141,000, respectively.Note 10.Earnings per sharesharesstock outstanding. Diluted earnings per share reflects additional shares of common sharesstock that would have been outstanding if potentially dilutive shares of common sharesstock had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential shares of common sharesstock that may be issued by the Company relate to outstanding unvested RSAs granted to directors and employees. The dilutive effect resulting from these potential shares is determined using the treasury stock method. The Company is also required to provide a reconciliation of the numerator and denominator used in the computation of both basic and diluted earnings per share.ninesix months ended SeptemberJune 30, 2022 2023 and 2021:2022: $ 2,326 $ 1,323 $ 4,391 $ 3,199 3,957,269 3,947,284 3,957,010 3,945,816 $ 0.59 $ 0.34 $ 1.11 $ 0.81 $ 2,326 $ 1,323 $ 4,391 $ 3,199 3,957,269 3,947,284 3,957,010 3,945,816 6,439 1,141 8,588 9,019 3,963,708 3,948,425 3,965,598 3,954,835 $ 0.59 $ 0.34 $ 1.11 $ 0.81 (Net income in thousands) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Basis (loss) earnings per share: Net (loss) income attributable to Common shareholders $ (615) $ 1,265 $ (1,314) $ 2,065 Divided by: Weighted average shares outstanding 3,965,186 3,957,260 3,965,186 3,956,878 Basic (loss) earnings per share of common stock $ (0.16) $ 0.32 $ (0.33) $ 0.52 Diluted (loss) earnings per share: Net (loss) income attributable to Common shareholders $ (615) $ 1,265 $ (1,314) $ 2,065 Weighted average shares outstanding 3,965,186 3,957,260 3,965,186 3,956,878 Effect of potentially dilutive restricted shares of common stock — (1) 9,819 — (2) 8,395 Divided by: Weighted average diluted shares outstanding 3,965,186 3,967,079 3,965,186 3,965,273 Diluted (loss) earnings per share of common stock $ (0.16) $ 0.32 $ (0.33) $ 0.52 (1) The weighted average diluted shares outstanding does not include 1,528 anti-dilutive restricted shares of common stock for the three months ended June 30, 2023. (2) The weighted average diluted shares outstanding does not include 427 anti-dilutive restricted shares of common stock for the six months ended June 30, 2023. 32consolidated financial statementsConsolidated Financial Statements (Unaudited)Note 11.Financial Instruments with Off-Balance Sheet RiskSeptemberJune 30, 2022 2023 and December 31, 2021 2022 are as follows: $ 110,758 $ 68,341 13,925 18,594 27,633 16,396 34,943 23,486 78 164 $ 187,337 $ 126,981 (In thousands) June 30, 2023 December 31, 2022 Commitments to extend credit: Unused lines of credit $ 97,432 $ 100,986 Undisbursed construction loans 4,849 12,000 Home equity lines of credit 29,134 26,878 Future loan commitments 300 14,365 Financial standby letters of credit — 78 $ 131,715 $ 154,307 a reservean allowance for credit loss of $1.5 million and $8,000 as of SeptemberJune 30, 2022 2023 and December 31, 2021, 2022, respectively, which is included in accrued expenses and other liabilities.consolidated balance sheet.Consolidated Balance Sheet.33consolidated financial statementsConsolidated Financial Statements (Unaudited)Note 12.Regulatory and Operational Matters (“ (“CET1”) Capital, and a Tier 1 Leverage Capital ratio. The risk-based capital ratios measure the adequacy of a bank's capital against the riskiness of its on- and off-balance sheet assets and activities. Failure to maintain adequate capital is a basis for "prompt corrective action" or other regulatory enforcement action. In assessing a bank's capital adequacy, regulators also consider other factors such as interest rate risk exposure, liquidity, funding and market risks, quality and level of earnings, concentrations of credit, quality of loans and investments, nontraditional activity risk, policy effectiveness, and management's overall ability to monitor and control risk.SeptemberJune 30, 2022 2023 and December 31, 2021 2022 was 9.23%8.54% and 9.86%9.27%, respectively, which satisfied the “greater than 9 percent”respectively. The required leverage ratio requirementis 9.00% under the CBLR framework. The Bank continues to be classified as "well capitalized" under the CBLR framework as the leverage ratio remains above 8% and the Bank has elected to use the two-quarter grace period provided under the framework. Per the CBLR framework, at the conclusion of the grace period (December 31, 2023), it is the Bank's intention to either meet all qualifying criteria to remain in the CBLR framework, or to comply with the generally applicable BASEL III capital rules and the associated reporting requirements. Management continuously assesses the adequacy of the Bank’s capital in order to maintain its “well capitalized” status.SeptemberJune 30, 2022 2023 and December 31, 2021 2022 are summarized as follows: $ 98,449 9.23 % $ 93,923 9.86 % 96,001 9.00 %(1) 85,773 9.00 %(1) (1)Leverage Capital Ratio greater than 9% is considered well-capitalized under the CBLR Framework.(In thousands) June 30, 2023 December 31, 2022 Patriot Bank, N.A. Amount Ratio Amount Ratio Tier 1 Leverage Capital (to average assets): Actual $ 94,871 8.54 % $ 100,267 9.27 % - the Company.(the Company). Such categorization of capital adequacy only applies to insured depository institutions - the Bank.(the Bank).34consolidated financial statementsConsolidated Financial Statements (Unaudited)Note 13.Fair Value and Interest Rate Riskconsolidated financial statements.Level 1Unadjusted quoted market prices for identical assets or liabilities in active markets that the entity has the ability to access at the measurement date (such as active exchange-traded equity securities and certain U.S. and government agency debt securities).Level 2Observable inputs other than quoted prices included in Level 1, such as:-Quoted prices for similar assets or liabilities in active markets (such as U.S. agency and government sponsored mortgage-backed securities)-Quoted prices for identical or similar assets or liabilities in less active markets (such as certain U.S. and government agency debt securities, and corporate and municipal debt securities that trade infrequently)-Other inputs that are observable for substantially the full term of the asset or liability (i.e. interest rates, yield curves, prepayment speeds, default rates, etc.).Level 3Valuation techniques that require unobservable inputs that are supported by little or no market activity and are significant to the fair value measurement of the asset or liability (such as pricing and discounted cash flow models that typically reflect management’s estimates of the assumptions a market participant would use in pricing the asset or liability).1)1), or matrix pricing (Level 2)2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities, but rather by relying on the securities' relationship to other benchmark quoted prices, or using unobservable inputs employing various techniques and assumptions (Level 3)3).3539SeptemberJune 30, 2022 2023 and December 31, 2021 2022 due to its short-term nature.Federal Home Loan Bank (“FHLB”)FHLB are purchased and redeemed based upon their $100 par value. The stocks are non-marketable equity securities, and as such, are considered restricted securities that are carried at cost.Other Real Estate OwnedThe fair value of OREO the Bank may obtain is based on current appraised property value less estimated costs to sell. When fair value is based on unadjusted current appraised value, OREO is classified within Level 2 of the fair value hierarchy. Patriot classifies OREO within Level 3 of the fair value hierarchy when unobservable inputs are used to determine adjustments to appraised values. Patriot does not record OREO at fair value on a recurring basis, but rather initially records OREO at fair value on a non-recurring basis and then monitors property and market conditions that may indicate a change in value is warranted.third-partythird-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The Company has determined that the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy. See Note 8 for additional disclosures on derivatives.36PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARIESNotes to consolidated financial statements (Unaudited)Depositsissued in September 2018 at fair value on a recurring basis. The fair value of the subordinated notes was estimated by discounting future cash flows at rates at which similar notes would be made. The carrying value is considered comparable to fair value.Senior Notes, Subordinated Notes, Notes Payablesenior notes, subordinated notes, notes payable and Junior Subordinated Debt.ThePatriot does not record the off-balance-sheet financial instruments (i.e., commitments to extend credit) are insignificant and are not recordedat fair value on a recurring basis.37consolidated financial statementsConsolidated Financial Statements (Unaudited)SeptemberJune 30, 2022 2023 and December 31, 2021:
Hierarchy
Amount
Fair Value
Amount
Fair Value $ 4,319 $ 4,319 $ 3,264 $ 3,264 26,865 26,865 43,781 43,781 76,535 76,535 81,161 81,161 9,382 9,382 13,180 13,180 4,450 4,450 4,450 4,450 2,671 2,671 2,843 2,843 5,474 5,474 4,184 4,184 852,918 831,092 729,583 727,733 8,748 9,415 3,129 3,506 706 773 584 617 6,504 6,504 5,822 5,822 229 229 738 738 $ 998,801 $ 977,709 $ 892,719 $ 891,279 $ 247,704 $ 247,704 $ 226,713 $ 226,713 87,443 87,443 109,744 109,744 180,772 180,772 164,518 164,518 38,435 38,435 34,741 34,741 245,615 239,716 195,830 195,048 34,426 33,275 17,016 17,003 125,000 123,885 90,000 93,643 12,000 11,936 12,000 12,045 9,832 9,630 9,811 9,947 8,125 8,125 8,119 8,119 637 588 791 775 721 721 343 343 229 229 738 738 $ 990,939 $ 982,459 $ 870,364 $ 873,377 (In thousands) June 30, 2023 December 31, 2022 Fair Value
HierarchyCarrying
AmountEstimated
Fair ValueCarrying
AmountEstimated
Fair ValueFinancial Assets: Cash and noninterest bearing balances due from banks Level 1 $ 2,320 $ 2,320 $ 5,182 $ 5,182 Interest-bearing deposits due from banks Level 1 68,489 68,489 33,311 33,311 Available-for-sale securities Level 2 80,665 80,665 75,093 75,093 Available-for-sale securities Level 3 9,882 9,882 9,427 9,427 Other investments Level 2 4,450 4,450 4,450 4,450 Federal Reserve Bank stock Level 2 2,523 2,523 2,627 2,627 Federal Home Loan Bank stock Level 2 8,072 8,072 3,874 3,874 Loans receivable, net Level 3 906,636 893,639 838,006 818,960 Loans held for sale Level 2 5,860 6,320 5,211 5,534 SBA servicing assets Level 3 882 977 886 1,013 Accrued interest receivable Level 2 7,628 7,628 7,267 7,267 Interest rate swap receivable Level 2 244 244 203 203 Financial assets, total $ 1,097,651 $ 1,085,209 $ 985,537 $ 966,941 Financial Liabilities: Demand deposits Level 2 $ 127,817 $ 127,817 $ 269,636 $ 269,636 Savings deposits Level 2 50,981 50,981 71,002 71,002 Money market deposits Level 2 298,717 298,717 211,000 211,000 Negotiable order of withdrawal accounts Level 2 37,970 37,970 34,440 34,440 Time deposits Level 2 238,768 235,475 225,670 221,353 Brokered deposits Level 1 109,126 108,641 48,698 47,684 FHLB and other borrowings Level 2 207,000 205,964 85,000 83,853 Senior notes Level 2 11,653 11,127 11,640 11,103 Subordinated debt Level 2 9,854 9,826 9,840 9,680 Junior subordinated debt owed to unconsolidated trust Level 2 8,132 8,132 8,128 8,128 Note payable Level 3 481 455 585 544 Accrued interest payable Level 2 1,117 1,117 585 585 Interest rate swap liability Level 2 244 244 203 203 Financial liabilities, total $ 1,101,860 $ 1,096,466 $ 976,427 $ 969,211 38consolidated financial statementsConsolidated Financial Statements (Unaudited)the Patriot’s financial assets and liabilities are affected when interest market rates change, which change may be either favorable or unfavorable. Management attempts to mitigate interest rate risk by matching the maturities of its financial assets and liabilities. However, borrowers with fixed rate obligations are less likely to prepay their obligations in a rising interest rate environment and more likely to prepay their obligations in a falling interest rate environment. Conversely, depositors receiving fixed rates are more likely to withdraw funds before maturity in a rising interest rate environment and less likely to do so in a falling interest rate environment. Management monitors market rates of interest and the maturities of its financial assets and financial liabilities, adjusting the terms of new loans and deposits in an attempt to minimize interest rate risk. Additionally, management mitigates its overall interest rate risk through its available funds investment strategy.SeptemberJune 30, 2022 2023 and December 31, 2021:
Active Markets for
Identical Assets
(Level 1)
(Level 2)
(Level 3) $ - $ 60,231 $ - $ 60,231 - 5,235 9,382 14,617 - 4,735 - 4,735 - 5,857 - 5,857 - 477 - 477 $ - $ 76,535 $ 9,382 $ 85,917 $ - $ 229 $ - $ 229 $ - $ 229 $ - $ 229 $ - $ 66,629 $ - $ 66,629 - 3,741 13,180 16,921 - 4,626 - 4,626 - 5,603 - 5,603 - 562 - 562 $ - $ 81,161 $ 13,180 $ 94,341 $ - $ 738 $ - $ 738 $ - $ 738 $ - $ 738 (In thousands) Quoted Prices in
Active Markets for
Identical Assets
(Level 1)Significant
Observable Inputs
(Level 2)Significant
Unobservable Inputs
(Level 3)Total June 30, 2023: U. S. Government agency and mortgage-backed securities $ — $ 67,248 $ — $ 67,248 Corporate bonds — 3,373 9,882 13,255 Subordinated notes — 4,236 — 4,236 SBA loan pools — 5,326 — 5,326 Municipal bonds — 482 — 482 Available-for-sale securities $ — $ 80,665 $ 9,882 $ 90,547 Interest rate swap receivable $ — $ 244 $ — $ 244 Interest rate swap liability $ — $ 244 $ — $ 244 December 31, 2022: U. S. Government agency and mortgage-backed securities $ — $ 59,046 $ — $ 59,046 Corporate bonds — 5,228 9,427 14,655 Subordinated notes — 4,602 — 4,602 SBA loan pools — 5,718 — 5,718 Municipal bonds — 499 — 499 Available-for-sale securities $ — $ 75,093 $ 9,427 $ 84,520 Interest rate swap receivable $ — $ 203 $ — $ 203 Interest rate swap liability $ — $ 203 $ — $ 203 SeptemberJune 30, 2022 2023 and December 31, 2021, 2022, four corporate bonds were classified as Level 3 instruments. The fair values of these securities were determined using a present value approach. The discount rate assumed was determined based on unobservable inputs in a pricing model. During the three and ninesix months ended SeptemberJune 30, 2022 2023 and 2021,2022, the Company had no transfers into or out of Levels 1,2 or 3.3943consolidated financial statementsConsolidated Financial Statements (Unaudited)20222023 for Level 3 available-for-sale securities is as follows:
September 30, 2022
September 30, 2022 $ 10,342 $ 13,180 - - - - (960 ) (3,798 ) - - $ 9,382 $ 9,382 Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2023 2022 2023 2022 Level 3 fair value, beginning of year $ 10,205 $ 11,237 $ 9,427 $ 13,180 Purchases — — — — Realized gain (loss) — — — — Unrealized gain (loss) (323) (895) 455 (2,838) Transfers in and /or out of Level 3 — — — — Level 3 fair value, end of year $ 9,882 $ 10,342 $ 9,882 $ 10,342 SeptemberJune 30, 2022 2023 and December 31, 2021: $ 13,293 5.8% - 20% 773 14.73% - 14.90% $ 20,920 5.8% - 20% 617 14.73% - 14.90% (In thousands) Fair Value Valuation
MethodologyUnobservable Inputs Range of Inputs June 30, 2023: Impaired loans, net $ 13,003 Real Estate Appraisals Discount for appraisal type 5.8 % - 20% SBA servicing assets 977 Discounted Cash Flows Market discount rates 14.73 % - 14.90% December 31, 2022: Impaired loans, net $ 12,873 Real Estate Appraisals Discount for appraisal type 5.8 % - 20% SBA servicing assets 1,013 Discounted Cash Flows Market discount rates 14.73 % - 14.90% SeptemberJune 30, 2022 2023 and December 31, 2021, 2022, and have not been reevaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of the financial instruments measured may be different than if they had been subsequently valued.SAFE HARBOR" STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OFSafe Harbor" Statement Under Private Securities Litigation Reform Act of 1995 widespreadpossible future outbreaks of infectious diseases, including the ongoing novel coronavirus (COVID-19) outbreak; andemployees.employees; and20212022 (the “2021“2022 Form 10-K”). Further, it is not possible to assess the effect of all risk factors on our businessesbusiness or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. In addition, we disclaim any obligation to update any forward-looking statements to reflect events or circumstances that occur after the date of this report.CRITICAL ACCOUNTING POLICIES20212022 Form 10-K for additional information.$2.3$1.3 million ($0.590.32 basic and diluted earnings per share) for the quarter ended SeptemberJune 30, 2022,2022.$1.3$2.1 million, ($0.340.52 basic and diluted earnings per share) for the thirdsix months ended June 30, 2022.2021. For the nine months ended September 30, 2022, net income was $4.4 million ($1.11 basic and diluted earnings per share),2023, compared to a net incomethe loan growth of $3.2 million ($0.81 basic and diluted earnings per share) for3.6% in the nine months ended September 30, 2021. The prior year results included the recognitionfirst quarter of a non-recurring employee retention tax credit (“ERC”) of $906,000 and $2.9 million for the three and nine months ended September 30, 2021, respectively,2023 while no ERC was recognized in 2022.Along with reporting a substantial improvement in net interest income was unchanged from the second quarter of 2022 and strong earnings,4% below the Bank reported loan growthfirst quarter of 16.7% and deposit growth2023.11.5%June 30, 2023, compared to $1.0 billion at December 31, 2021. Net interest margin improved2022, primarily due to 3.68% for the quarterincreases in cash of $32.3 million and 3.35% for the first three quartersloans receivable of 2022, up from 2.87% for the first three quarters of 2021. The Bank’s prepaid debit card program continues to be an increasing, low-cost funding source and has tripled in size to $169.1$82.4 million as of SeptemberJune 30, 2022,2023.$50.0 million in July 2020. The prepaid portfolio growth contributes to a substantial improvement in the Bank’s net interest margin and overall funding costs.Financial ConditionTotal assets increased $110.5 million to $1.1 billion as of September 30, 2022, compared to $948.5$38.5 million at December 31, 2021, primarily due2022 to the$70.8 million at June 30, 2023. The increase in net loans which increased from $729.6 million at December 31, 2021,2023 reflects the intention to $852.9 million at September 30, 2022. Total deposits increased from $748.6 million at December 31, 2021, to $834.4 million at September 30, 2022.Cash and Cash EquivalentsCash and cash equivalents decreased $15.8 million, from $47.0 million at December 31, 2021 to $31.2 million at September 30, 2022. The decreaseboost balance sheet liquidity in 2022 was primarily due to cash used for loan originationconnection with recent uncertainty in the banking sector.available-for-saleinvestment securities portfolio, at fair value, at the dates shown: $ 60,231 $ 66,629 $ (6,398 ) -9.60 % 14,617 16,921 (2,304 ) -13.62 % 4,735 4,626 109 2.36 % 5,857 5,603 254 4.53 % 477 562 (85 ) -15.12 % 85,917 94,341 (8,424 ) -8.93 % 4,450 4,450 - 0.00 % $ 90,367 $ 98,791 $ (8,424 ) -8.53 % June 30, December 31, Increase /(Decrease) (In thousands, except per share amounts) 2023 2022 ($) (%) U. S. Government agency and mortgage-backed securities $ 67,248 $ 59,046 $ 8,202 13.89 % Corporate bonds 13,255 14,655 (1,400) -9.55 % Subordinated notes 4,236 4,602 (366) -7.95 % SBA loan pools 5,326 5,718 (392) -6.86 % Municipal bonds 482 499 (17) -3.41 % Total available-for-sale securities, at fair value 90,547 84,520 6,027 7.13 % Other investments, at cost 4,450 4,450 — — % Total investment securities $ 94,997 $ 88,970 $ 6,027 6.77 % decreasedincreased by $8.4$6.0 million, from $98.8$89.0 million at December 31, 20212022 to $90.4$95.0 million at SeptemberJune 30, 2022.2023. The decreaseincrease in 2022the six months ended June 30, 2023 was primarily attributable to the net unrealized loss of $18.6 million for the available-for-sale securities, associated with rising market interest rates, which was partially offset by an increase in purchase of available-for-sale securities of $19.3 million. There were no sales$10.4 million, which was partially offset by repayment of available-for-sale securities intotaling $2.2 million. During the three and ninesix months ended SeptemberJune 30, 2022. During the three and nine months ended September 30, 2021,2023, the Bank sold available-for-sale securities of $14.8$1.8 million and $34.8 million, respectively, and recognized a net gain of $26,000 and $119,000, respectively.SeptemberJune 30, 20222023, and December 31, 2021:2022: $ 438,822 50.86 % $ 365,247 49.38 % 131,182 15.20 % 158,591 21.45 % 140,364 16.27 % 122,810 16.61 % 138,135 16.01 % 59,364 8.03 % 12,634 1.46 % 21,781 2.95 % 1,733 0.20 % 11,695 1.58 % 862,870 100.00 % 739,488 100.00 % (9,952 ) (9,905 ) $ 852,918 $ 729,583 (In thousands) June 30, 2023 December 31, 2022 Amount % Amount % Loan portfolio segment: Commercial Real Estate $ 511,655 54.99 % $ 437,443 51.57 % Residential Real Estate 116,454 12.51 % 124,140 14.63 % Commercial and Industrial 171,574 18.43 % 138,787 16.36 % Consumer and Other 123,063 13.22 % 141,091 16.63 % Construction 5,525 0.59 % 4,922 0.58 % Construction to permanent - CRE 2,463 0.26 % 1,933 0.23 % Loans receivable, gross 930,734 100.00 % 848,316 100.00 % Allowance for credit losses (24,098) (10,310) Loans receivable, net $ 906,636 $ 838,006 43$123.4$82.4 million, from $739.5$848.3 million at December 31, 20212022 to $862.9$930.7 million at SeptemberJune 30, 2022.2023. The increase in loans was attributable to $159.1$132.6 million of new loan origination and $125.8$16.4 million in purchases of loans receivable which was partially offset by $159.2$61.3 million paydownpay-down of the loans.SeptemberJune 30, 20222023 and December 31, 2021,2022, SBA loans included in the commercial and industrial loan were $19.6$20.4 million and $17.4$20.3 million, respectively. SBA loans included in the commercial real estate loans were $11.3$12.3 million and $9.7$12.2 million, respectively.SeptemberJune 30, 2022,2023, the net loan to deposit ratio was 102%105.0% and the net loan to total assets ratio was 81%78.3%. At December 31, 2021,2022, these ratios were 97%97.4% and 77%80.3%, respectively.LoanCredit LossesLease Lossesloancredit losses on loans was $24.1 million as of June 30, 2023, compared to allowance for loans and lease losses was $10.0 million as of September 30, 2022, compared to $9.9$10.3 million as of December 31, 2021.2022. The increase in allowance was mainly due to the adoption of CECL as the Company recorded a transition adjustment of $13.0 million effective January 1, 2023. Based upon the overall assessment and evaluation of the loan portfolio at SeptemberJune 30, 2022,2023, management believes $10.0$24.1 million in the allowance for loan and leasecredit losses, which represented 1.15%2.59% of gross loans outstanding, is adequate under prevailing economic conditions to absorb existing losses in the loan portfolio, and aportfolio. A provision for loan losses of $200,000$1.7 million and $475,000$4.8 million was recorded for the three and ninesix months ended SeptemberJune 30, 2022,2023, respectively.loancredit losses. During the three and lease losses:six months ended June 30, 2023, the Company used the CECL methodology while the incurred loss methodology was used in prior years: $ 9,929 $ 10,362 $ 9,905 $ 10,584 - - - (51 ) - - - (3 ) - (3 ) (70 ) (212 ) (366 ) (3 ) (513 ) (23 ) - - (68 ) (69 ) (366 ) (6 ) (651 ) (358 ) 154 - 154 - 3 2 4 2 12 20 38 44 20 1 27 107 189 23 223 153 (177 ) 17 (428 ) (205 ) 200 (300 ) 475 (300 ) $ 9,952 $ 10,079 $ 9,952 $ 10,079 (0.020 )% 0.002 % (0.052 )% (0.029 )% 1.15 % 100.00 % 1.15 % 100.00 % Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2023 2022 2023 2022 Balance at beginning of the period $ 24,780 $ 9,737 $ 10,310 $ 9,905 Charge-offs: Commercial and Industrial (4) — (6) (68) Consumer and Other (2,516) (100) (4,312) (147) Construction (150) — (150) (70) Total charge-offs (2,670) (100) (4,468) (285) Recoveries: Residential Real Estate 11 — 11 1 Commercial and Industrial 9 11 16 26 Consumer and Other 260 6 433 7 Total recoveries 280 17 460 34 Net charge-offs (2,390) (83) (4,008) (251) Impact of CECL adoption — — 13,001 — Provision for credit losses 1,708 275 4,795 275 Balance at end of the period $ 24,098 $ 9,929 $ 24,098 $ 9,929 Ratios: Net charge-offs to average loans 0.26 % 0.01 % (0.451) % (0.032) % Allowance for credit losses to total loans 2.59 % 1.16 % 2.59 % 1.16 % loan and leasecredit losses by portfolio segment: $ 6,787 50.86 % $ 5,063 49.38 % 468 15.20 % 1,700 21.45 % 1,838 16.27 % 2,532 16.61 % 739 16.01 % 253 8.03 % 38 1.46 % 78 2.95 % 5 0.20 % 41 1.58 % 77 N/A 238 N/A $ 9,952 100.00 % $ 9,905 100.00 % (In thousands) June 30, 2023 December 31, 2022 Allowance for credit losses Percent of loans in each category to total loans Allowance for loan losses Percent of loans in each category to total loans Commercial Real Estate $ 10,039 54.99 % $ 6,966 51.57 % Residential Real Estate 1,027 12.51 % 665 14.63 % Commercial and Industrial 1,673 18.43 % 1,403 16.36 % Consumer and Other 11,275 13.22 % 1,207 16.63 % Construction 33 0.59 % 24 0.58 % Construction to permanent - CRE 51 0.26 % 10 0.23 % Unallocated — N/A 35 N/A Total Allowance for credit losses $ 24,098 100.00 % $ 10,310 100.00 % SeptemberJune 30, 20222023 and December 31, 2021: $ 11,270 $ 15,704 3,061 3,148 4,707 4,101 144 142 19,182 23,095 230 2 $ 19,412 $ 23,097 1.83 % 2.44 % 2.28 % 3.17 % June 30, 2023 December 31, 2022 Non-accruing loans: Commercial Real Estate $ 11,368 $ 11,241 Residential Real Estate 2,565 2,470 Commercial and Industrial 6,655 4,833 Consumer and Other 46 49 Total non-accruing loans 20,634 18,593 Loans past due over 90 days and still accruing 1,428 1,155 Total nonperforming assets $ 22,062 $ 19,748 Nonperforming assets to total assets 1.91 % 1.89 % Nonperforming loans to total loans, net 2.43 % 2.36 % SeptemberJune 30, 2022,2023, the $19.2$20.6 million of non-accrual loans was comprised of 31 borrowers, for which a specific reserve of $6.1$7.3 million was established. Four TDR loans of total $9.7 million were included in the non-accrual loans. For collateral dependent loans, the Bank has obtained appraisal reports from independent licensed appraisal firms and discounted those values based on the Bank’s experience selling OREO properties and for estimated selling costs to determine estimated impairment. For cash flow dependent loans, the Bank determined the reserve based on the present value of expected future cash flows discounted at the loan's effective interest rate. Non-accrual loans are included in the impaired loans.As of December 31, 2021, the $23.1 million of non-accrual loans was comprised of 30 borrowers, for which a specific reserve of $2.3 million was established. Three TDR loans of total $9.7 million were included in the non-accrual loans as of December 31, 2021.$8.7$5.9 million and $3.1$5.2 million as of SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively. SBA loans held for sale represent the guaranteed portion of SBA loans and are reflected at the lower of aggregate cost or market value. SBA loans held for sale at SeptemberJune 30, 2022,2023, consisted of $5.1$3.6 million SBA commercial real estate and $3.6$2.3 million SBA commercial and industrial loans, respectively. SBA loans held for sale at December 31, 2021,2022, consisted of $2.6$3.1 million SBA commercial and industrial loans and $562,000$2.1 million SBA commercial real estate, respectively.GoodwillSeptemberJune 30, 2022.ninethree and six months ended SeptemberJune 30, 20212023 as no events occurred which would trigger an impairment assessment.$16.1$20.4 million and $12.1$15.5 million at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively. Deferred tax assets consist predominately of state net operating losses, capitalized costs and allowances for loan losses.ninesix months ended SeptemberJune 30, 20222023 was 6.3%,27.30% and 17.7%27.08%, respectively, compared to the effective tax provision rate of 26.6%27.34% and 27.0%27.59% for the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively. The lower effective tax rates in 2022 were due to the tax treatment of merger-related expenses incurred in 2021 deemed deductible in the third quarter of 2022 due to the previously announced termination of the merger agreement. The Company’s effective rates for both periods was also affected by statesstate taxes and non-deductible expenses.current and future years taxable income.As of December 31, 2021, after weighing both positive and negative evidence, Patriot fully reversed the valuation allowance of $1.9 million recorded in 2020. No valuation allowance was recorded as of SeptemberJune 30, 2023 and December 31, 2022. The Company will continue to evaluate its ability to realize its net deferred tax assets. If future evidence suggests that it is more likely than not that additional deferred tax assets will not be realized, the valuation allowance will be adjusted. $ $ 125,396 $ 127,420 $ (2,024 ) (1.59 )% 122,308 99,293 23,015 23.18 % 247,704 226,713 20,991 9.26 % 38,435 34,741 3,694 10.63 % 87,443 109,744 (22,301 ) (20.32 )% 133,947 113,428 20,519 18.09 % 46,825 51,090 (4,265 ) (8.35 )% 180,253 142,246 38,007 26.72 % 65,362 53,584 11,778 21.98 % 34,426 17,016 17,410 102.32 % 586,691 521,849 64,842 12.43 % $ 834,395 $ 748,562 $ 85,833 11.47 % The Bank has expanded its deposit and funding mix over the past year, while reducing its aggregate cost(In thousands) June 30, December 31, Increase/(Decrease) 2023 2022 $ % Non-interest bearing: Non-interest bearing $ 104,413 $ 118,541 $ (14,128) -11.92 % Prepaid DDA 23,404 151,095 (127,691) -84.51 % Total non-interest bearing 127,817 269,636 (141,819) -52.60 % Interest bearing: Negotiable order of withdrawal accounts 37,970 34,440 3,530 10.25 % Savings 50,981 71,002 (20,021) -28.20 % Money market 163,982 164,827 (845) -0.51 % Money market - prepaid deposits 134,735 46,173 88,562 191.80 % Certificates of deposit, less than $250,000 182,680 165,793 16,887 10.19 % Certificates of deposit, $250,000 or greater 56,088 59,877 (3,789) -6.33 % Brokered deposits 109,126 48,698 60,428 124.09 % Total Interest bearing 735,562 590,810 144,752 24.50 % Total Deposits $ 863,379 $ 860,446 $ 2,933 0.34 % Total Prepaid deposits $ 158,139 $ 197,268 $ (39,129) -19.84 % Total deposits excluding Prepaid deposits $ 705,240 $ 663,178 $ 42,062 6.34 % Total uninsured deposits $ 285,752 $ 343,980 $ (58,228) -16.93 % Uninsured deposits to total deposits 33.10 % 39.98 % Uninsured deposits to total deposits excluding prepaid deposits 17.71 % 22.35 % ninesix months ended SeptemberJune 30, 2022,2023, the Company recognized interest expense of $113,000$169,000 and $270,000,332,000, respectively. ForInterest expense incurred for the three and ninesix months ended SeptemberJune 30, 2021, the Company recognized interest expense of $69,0002022 was $86,000 and $209,000,$157,000, respectively.SeptemberJune 30, 20222023 and December 31, 2021,2022, the note had a balance outstanding of $637,000$481,000 and $791,000,$585,000, respectively. The note matures in August 2024 and requires a balloon payment of approximately $234,000 at that time. The note is secured by a first Mortgage Deed and Security Agreement on the purchased property.ninesix months ended SeptemberJune 30, 2022,2023, the Company recognized interest expense of $3,000 and $9,000,$5,000, respectively. ForInterest expense incurred for the three and ninesix months ended SeptemberJune 30, 2021, the Company recognized interest expense2022 was $2,000 and $6,000, respectively.SeptemberJune 30, 2022,2023, Patriot had entered into four interest rate swaps (“swaps”). Two swaps are with a loan customer to provide a facility to mitigate the fluctuations in the variable rate on the respective loan. The other two swaps are with an outside third party. The customer interest rate swaps are matched in offsetting terms to the third party interest rate swaps. The swaps are reported at fair value in other assets or other liabilities on the consolidated balance sheets. Patriot’s swaps are derivatives, but are not designated as hedging instruments, thus any net gain or loss resulting from changes in the fair value is recognized in other noninterest income. The Company recognized no gain on the swaps for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021, respectively.In April 2021, Patriot entered into a receive fixed/pay variable interest rate swap, which was designated as a cash flow hedge. The cash flow hedge interest rate swap contract was terminated in August 2021. No interest income was recognized during the three and nine months ended September 30, 2022. During the three and nine months ended September 30, 2021, the Company recognized $64,000 and $149,000 of accumulated other comprehensive income that was reclassified into interest income, respectively. The swaps interest income was included in interest and fees on loans on the consolidated statements of operations. A gain of $512,000 was recognized from the termination of the interest rate swap cash flow hedge for the three and nine months ended September 30, 2021, which was included in other income on the consolidated statements of operations.$9.3$13.2 million, from $67.3$59.6 million at December 31, 20212022 to $58.0$46.4 million at SeptemberJune 30, 2022,2023, primarily due to $13.8a cumulative adjustment to the opening balance of accumulated deficit of $11.5 million upon adoption of CECL effective January 1, 2023, a net loss of $1,314,000 for the six months ended June 30, 2023, and a net unrealized holding loss for investment portfolio which was partially offset by $4.4 million of net income for the nine months ended September 30, 2022. which primarily consist of commitments to lend increased $53.1of $131.7 million from $127.0and $154.3 million atas of June 30, 2023 and December 31, 2021 to $187.3 million at September 30, 2022.2022, respectively.ninesix months ended SeptemberJune 30, 20222023 and 2021:2022: $ 877,759 $ 11,250 5.08 % $ 707,630 $ 7,189 4.03 % 94,187 654 2.78 % 133,723 751 2.25 % 25,364 135 2.11 % 45,202 20 0.18 % 997,310 12,039 4.79 % 886,555 7,960 3.56 % 6,891 5,464 (9,862 ) (10,369 ) - 807 65,963 60,448 $ 1,060,302 $ 942,905 $ 601,039 $ 1,493 0.99 % $ 529,127 $ 448 0.34 % 99,565 806 3.21 % 98,380 756 3.05 % 12,000 218 7.27 % 11,972 229 7.65 % 17,952 276 6.10 % 17,914 233 5.16 % 652 3 1.83 % 857 4 1.85 % 731,208 2,796 1.52 % 658,250 1,670 1.01 % 258,508 209,259 9,056 8,595 998,772 876,104 61,530 66,801 $ 1,060,302 $ 942,905 $ 9,243 $ 6,290 3.68 % 2.81 % 3.27 % 2.55 % (In thousands) Three Months Ended June 30, June 30, 2023 June 30, 2022 Average Balance Interest Yield Average Balance Interest Yield ASSETS Interest Earning Assets: Loans $ 916,321 $ 14,052 6.15 % $ 819,532 $ 9,044 4.43 % Investments 104,551 858 3.28 % 91,622 575 2.51 % Cash equivalents and other 25,435 399 6.29 % 34,862 68 0.78 % Total interest earning assets 1,046,307 15,309 5.87 % 946,016 9,687 4.11 % Cash and due from banks 2,348 6,904 Allowance for loan losses (23,587) (9,695) Other assets 67,711 67,246 Total Assets $ 1,092,779 $ 1,010,471 Liabilities Interest bearing liabilities: Deposits $ 721,917 $ 5,248 2.92 % $ 576,310 $ 757 0.53 % Borrowings 147,374 1,723 4.69 % 91,868 747 3.26 % Senior notes 11,631 289 9.94 % 12,000 210 7.00 % Subordinated debt 17,980 333 7.43 % 17,942 251 5.61 % Note Payable and other 496 3 2.43 % 703 2 1.14 % Total interest bearing liabilities 899,398 7,596 3.39 % 698,823 1,967 1.13 % Demand deposits 136,975 239,082 Other liabilities 6,644 10,707 Total Liabilities 1,043,017 948,612 Shareholders' equity 49,762 61,859 Total Liabilities and Shareholders' Equity $ 1,092,779 $ 1,010,471 Net interest income $ 7,713 $ 7,720 Interest margin 2.96 % 3.27 % Interest spread 2.48 % 2.98 % 5055(In thousands) Six Months Ended June 30, 2023 2022 Average Balance Interest Yield Average Balance Interest Yield ASSETS Interest Earning Assets: Loans $ 888,461 $ 26,602 6.04 % $ 784,091 $ 16,708 4.30 % Investments 102,139 1,673 3.28 % 97,441 1,210 2.48 % Cash equivalents and other 26,518 680 5.17 % 37,282 89 0.48 % Total interest earning assets 1,017,118 28,955 5.74 % 918,814 18,007 3.95 % Cash and due from banks 3,856 7,584 Allowance for loan losses (23,135) (9,788) Other assets 69,102 67,880 Total Assets $ 1,066,941 $ 984,490 Liabilities Interest bearing liabilities: Deposits $ 673,440 8,827 2.64 % $ 552,734 1,166 0.43 % Borrowings 142,215 3,159 4.48 % 93,542 1,484 3.20 % Senior notes 11,625 579 9.96 % 12,000 420 7.00 % Subordinated debt 17,976 659 7.39 % 17,938 485 5.45 % Note Payable and other 522 5 1.93 % 730 6 1.66 % Total interest bearing liabilities 845,778 13,229 3.15 % 676,944 3,561 1.06 % Demand deposits 163,844 233,111 Other liabilities 7,546 10,305 Total Liabilities 1,017,168 920,360 Shareholders' equity 49,773 64,130 Total Liabilities and Shareholders' Equity $ 1,066,941 $ 984,490 Net interest income $ 15,726 $ 14,446 Interest margin 3.12 % 3.17 % Interest spread 2.59 % 2.89 % $ 815,657 $ 27,958 4.58 % $ 696,978 $ 22,199 4.26 % 96,345 1,864 2.58 % 96,957 1,572 2.16 % 33,265 224 0.90 % 60,234 67 0.15 % 945,267 30,046 4.25 % 854,169 23,838 3.73 % 6,371 3,771 (9,813 ) (10,483 ) - 1,195 68,213 60,678 $ 1,010,038 $ 909,330 $ 569,013 $ 2,659 0.62 % $ 526,969 $ 1,856 0.47 % 95,572 2,290 3.20 % 93,101 2,230 3.20 % 12,000 638 7.09 % 11,954 686 7.65 % 17,942 761 5.67 % 17,905 700 5.23 % 703 9 1.71 % 906 12 1.77 % 695,230 6,357 1.22 % 650,835 5,484 1.13 % 241,670 185,167 9,885 8,081 946,785 844,083 63,253 65,247 $ 1,010,038 $ 909,330 $ 23,689 $ 18,354 3.35 % 2.87 % 3.03 % 2.60 % ninesix months ended SeptemberJune 30, 20222023 and 2021. $ 1,773 $ 2,288 $ 4,061 $ 3,404 $ 2,355 $ 5,759 (221 ) 124 (97 ) (11 ) 303 292 (8 ) 123 115 (30 ) 187 157 1,544 2,535 4,079 3,363 2,845 6,208 159 886 1,045 342 461 803 9 41 50 59 1 60 1 (12 ) (11 ) 3 (51 ) (48 ) - 43 43 - 61 61 (1 ) - (1 ) (3 ) - (3 ) 168 958 1,126 401 472 873 $ 1,376 $ 1,577 $ 2,953 $ 2,962 $ 2,373 $ 5,335 RESULTS OF OPERATIONSThree Months Ended June 30, Six Months Ended June 30, 2023 compared to 2022 2023 compared to 2022 (In thousands) Increase/(Decrease) Increase/(Decrease) Volume Rate Total Volume Rate Total Interest Earning Assets: Loans $ 1,282 $ 3,726 $ 5,008 $ 2,738 $ 7,156 $ 9,894 Investments 86 197 283 67 396 463 Cash equivalents and other (18) 349 331 (26) 617 591 Total interest earning assets 1,350 4,272 5,622 2,779 8,169 10,948 Interest bearing liabilities: Deposit 379 4,112 4,491 542 7,119 7,661 Borrowings 432 544 976 704 971 1,675 Senior notes (7) 86 79 (13) 172 159 Subordinated debt — 82 82 — 174 174 Note payable and other 1 — 1 (1) — (1) Total interest bearing liabilities 805 4,824 5,629 1,232 8,436 9,668 Net interest income $ 545 $ (552) $ (7) $ 1,547 $ (267) $ 1,280 SeptemberJune 30, 2022,2023, interest income and dividend income was $12.0$15.3 million, which increased $4.1$5.6 million or 51.2% as compared to $8.0$9.7 million for the quarter ended SeptemberJune 30, 2021.2022. Total interest expense was $2.8$7.6 million for the three months ended June 30, 2023, which increased $1.1$5.6 million or 67.4% as compared to $1.7$2.0 million for the quarter ended SeptemberJune 30, 2021.2022. Net interest income was $9.2$7.7 million for the quarter ended SeptemberJune 30, 2022,2023, which increased $2.9 million or 46.9%was unchanged from $6.3net interest income of $7.7 million for the quarter ended SeptemberJune 30, 2021.ninesix months ended SeptemberJune 30, 2022,2023, interest income and dividend income was $30.0$29.0 million, which increased $6.2$10.9 million or 26.0% as compared to $23.8$18.0 million for the ninesix months ended SeptemberJune 30, 2021.2022. Total interest expense was $6.4$13.2 million, which increased $873,000 or 15.9%$9.7 million as compared to $5.5$3.6 million for the ninesix months ended SeptemberJune 30, 2021.2022. Net interest income was $23.7$15.7 million for the ninesix months ended SeptemberJune 30, 2022,2023, which increased $5.3$1.3 million or 29.1% from $18.4$14.4 million for the ninesix months ended SeptemberJune 30, 2021.showed continued improvement, with an increase to 3.68%was 2.96% for the quarter ended SeptemberJune 30, 2022,2023, compared with 2.81%3.27% for the third quarter of 2021.June 30, 2022. For the ninesix months ended SeptemberJune 30, 2023 and 2022, the net interest margin increased to 3.35%was 3.12% and 3.17%, respectively. The decline in interest margins for the three and six months ended June 30, 2023 compared to 2.87% for the nine months ended September 30, 2021.Thesame periods in 2022, increase in net interest income was primarily due to increase in average loan balances accompanied byassociated with an increase in net interest margin as rates earned on interest bearing assets increased at a faster pace than the ratees paid on interest bearing liabilities. The improvement in net interest income and margin was alsocost of deposits due to the growthsignificant rise in the Bank’s prepaid card business, which resulted in a significant growth in average demand deposits.LoanCredit Lossesninesix months ended SeptemberJune 30, 2022, a loan loss provision for loan losses of $200,000 and $475,000$275,000 was recorded, respectively, compared to a credit for loan losses of $300,000with no recorded reserve for the three and nine months ended September 30, 2021.off-balance-sheet exposure.and nine months ended SeptemberJune 30, 20222023 was $654,000 and $2.2 million, respectively, as$829,000, compared to $923,000 and $2.1 million$798,000 for the three and nine months ended SeptemberJune 30, 2021,2022. For the six months ended June 30, 2023 and 2022, non-interest income was $1.7 million and $1.6 million, respectively. The increases wereincrease was primarily attributable to increased gains on sales of SBA loans along with higher non-interest income from the prepaid card program in the nine months of 2022.and nine months ended SeptemberJune 30, 20222023 increased to $7.2$8.1 million, and $20.1 million, respectively, as compared to $5.7 million and $16.4$6.5 million for the three and nine months ended SeptemberJune 30, 2021. The non-interest2022. Non-interest expense for the ninesix months ended September 30,2021 included an ERCJune 30, 2023 was $15.6 million, compared to $12.9 million for the six months ended June 30, 2022. The increase in the first half of $2.9 million, while no ERC2023 was recognizedprimarily due to increase in 2022.provisiona benefit for income taxes of $157,000$231,000 and $944,000$488,000 for the three and ninesix months ended SeptemberJune 30, 2022,2023, respectively, as compared to a provision for income taxes of $479,000$476,000 and $1.2 million$787,000 for the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively.9.2%8.4% of total assets at SeptemberJune 30, 2022,2023, compared to 11.4%9.3% at December 31, 2021.2022. Liquidity including readily available off-balance sheet funding sources was 16.2%13.2% of total assets at SeptemberJune 30, 2022,2023, compared to 21.7%18.0% at December 31, 2021.SeptemberJune 30, 20222023 and December 31, 20212022 was 9.23%8.54% and 9.86%9.27%, respectively, whichrespectively. The bank continues to be classified as "well capitalized" under the CBLR framework as the leverage ratio remains above 8% and the Bank has elected to use the two-quarter grace period provided under the framework. Per the CBLR framework, at the conclusion of the grace period (December 31, 2023), it is above the well-capitalized required level of 9.0%.IMPACT OF INFLATION AND CHANGING PRICESconsolidated financial statementsConsolidated Financial Statements have been prepared in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than the effect of general levels of inflation. Interest rates do not necessarily move in the same direction or with the same magnitude as the prices of goods and services. Notwithstanding this, inflation can directly affect the value of loan collateral, in particular, real estate. Inflation, deflation or disinflation could significantly affect the Company’s earnings in future periods.As a result of the historicallyIn certain low interest rate environment,environments, the calculated effects of the 100 and 200 basis point downward shocks cannot absolutely reflect the risk to earnings and equity, since the interest rates on certain balance sheet items have approached their minimums. Therefore, it is not possible for the analyses to fully measure the true impact of these downward shocks.
Rate Scenario
Value
Base ($)
Base (%)
Value
Base ($)
Base (%) $ 160,041 $ (20,080 ) -11.1 % $ 116,941 $ (15,137 ) -11.5 % 172,516 (7,605 ) -4.2 % 126,152 (5,926 ) -4.5 % 180,121 - - 132,078 - - -100 183,824 3,703 2.1 % 135,803 3,725 2.8 % -200 178,114 (2,007 ) -1.1 % 134,277 2,199 1.7 %
Rate Scenario
Value
Base ($)
Base (%)
Value
Base ($)
Base (%) $ 44,066 $ (2 ) 0.0 % $ 31,521 $ 45 0.1 % 44,224 156 0.4 % 31,575 99 0.3 % 44,068 - - 31,476 - - -100 43,389 (679 ) -1.5 % 31,587 111 0.4 % -200 41,484 (2,584 ) -5.9 % 31,548 72 0.2 % Net Portfolio Value - Performance Summary (In thousands) June 30, 2023 As of December 31, 2022 Projected Interest Rate Scenario Estimated Value Change from Base ($) Change from Base (%) Estimated Value Change from Base ($) Change from Base (%) +200 $ 113,674 $ (16,044) (12.37) % $ 146,888 $ (15,357) (9.47) % +100 123,876 (5,842) (4.50) % 157,368 (4,877) (3.01) % BASE 129,718 — — 162,245 — — -100 133,459 3,741 2.88 % 163,472 1,227 0.76 % -200 128,069 (1,649) (1.27) % 155,386 (6,859) (4.23) % Net Interest Income - Performance Summary (In thousands) June 30, 2023 December 31, 2022 Projected Interest Rate Scenario Estimated Value Change from Base Change from Base (%) Estimated Value Change from Base ($) Change from Base (%) +200 $ 41,089 $ (1,869) (4.35) % $ 46,131 $ (1,177) (2.49) % +100 42,150 (808) (1.88) % 46,938 (370) (0.78) % BASE 42,958 — — 47,308 — — -100 43,957 999 2.33 % 47,657 349 0.74 % -200 45,082 2,124 4.94 % 46,747 (561) (1.19) % Based onIn connection with our self-evaluation an accounting error was identified as explained in the explanatory note contained in this evaluation, Patriot’sfiling, Patriot's Chief Executive Officer and Chief Financial Officer have concludeddetermined that as of the end ofCompany’s financial reporting controls and procedures with respect to the period covered by this report, Patriot’sallowance for credit losses were not operating effectively for the quarter ended June 30, 2023. Accordingly, management has determined that the Company's disclosure controls and procedures were not effective as defined in Rule 13a-15(e), were effective at the reasonable assurance level.ThereSeptemberJune 30, 20222023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.None.ITEM 6:ExhibitsNo.DescriptionNo. Description 2.13(i)3(i) 4.110.1 Inline XBRL Instance Document Inline XBRL Schema Document Inline XBRL Calculation Linkbase Document Inline XBRL Labels Linkbase Document Inline XBRL Presentation Linkbase Document Inline XBRL Definition Linkbase Document Cover Page Interactive Data File (embedded with the Inline XBRL and contained in Exhibit 101) Date: November 14, 20222023By: /s/ David Lowery David Lowery President and Chief Executive Officer 5864