Note
1:
Basis of Financial Statement Presentation
The accompanying unaudited condensed consolidated financial statements of Patriot National Bancorp, Inc. (the “Company”) or (“Patriot”) and its wholly-owned subsidiaries including Patriot Bank, N.A. (the “Bank”) (collectively, “Patriot”), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been omitted. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included on the Form
10
-K for the year ended
December 31, 2017.
The Consolidated Balance Sheet at
December 31, 2017
presented herein has been derived from the audited consolidated financial statements of the Company at that date, but does
not
include all of the information and footnotes required by US GAAP for complete financial statements.
On
May 10, 2018
the Bank completed its acquisition of Prime Bank, a Connecticut bank headquartered in Orange, CT (“Prime Bank”). The closing of the transaction added a new Patriot branch located in the Town of Orange, New Haven County, Connecticut. The results of Prime Bank’s operations were included in the Company’s Consolidated Financial Statements from the date of acquisition.
The preparation of consolidated financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and to disclose contingent assets and liabilities. Actual results could differ from those estimates. Management has identified accounting for the allowance for loan losses, the analysis and valuation of its investment securities, the valuation of deferred tax assets, and business combination as certain of Patriot’s more significant accounting policies and estimates, in that they are critical to the presentation of Patriot’s financial condition and results of operations. As they concern matters that are inherently uncertain, these estimates require management to make subjective and complex judgments in the preparation of Patriot’s Consolidated Financial Statements.
The information furnished reflects, in the opinion of management, all normal recurring adjustments necessary for a fair presentation of the results for the interim periods presented. The results of operations for the
three
months ended
June
30,
2018
are
not
necessarily indicative of the results of operations that
may
be expected for the remainder of
2018.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
Note
2
:
Accounting Policies
New Accounting Policy
Please refer to the summary of Significant Accounting Policies included in the Company’s
2017
Annual Report on Form
10
-K for a list of all policies in effect as of
December 31, 2017.
The below summary is intended to provide updates or new policies required as a result of a new accounting standard or a change to the Company’s operations or assets that require a new or amended policy.
Acquired Loans
Acquired loans are initially recorded at their acquisition date fair values. The carryover of allowance for loan losses is prohibited as any credit losses in the acquired loans are included in the determination of the fair value of the loans at the acquisition date. Fair values for acquired loans are based on a discounted cash flow methodology that involves assumptions and judgments as to credit risk, prepayment risk, liquidity risk, default rates, loss severity, payment speeds, collateral values and discount rate.
Acquired Impaired Loans- Purchase Credit Impaired “PCI” Loans
Acquired loans that exhibit evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments are accounted for as PCI loans under Accounting Standards Codification (“ASC”)
310
-
30.
The excess of undiscounted cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is accreted into interest income over the remaining life of the loans using the interest method. The difference between contractually required payments at acquisition and the undiscounted cash flows expected to be collected at acquisition is referred to as the non-accretable discount. The non-accretable discount represents estimated future credit losses and other contractually required payments that the Company does
not
expect to collect. Subsequent decreases in expected cash flows are recognized as impairments through a charge to the provision for loan losses resulting in an increase in the allowance for loan losses. Subsequent improvements in expected cash flows result in a recovery of previously recorded allowance for loan losses or a reversal of a corresponding amount of the nonaccretable discount, which the Company then reclassifies as an accretable discount that is accreted into interest income over the remaining life of the loans using the interest method.
PCI loans are initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, the associated allowance for credit losses related to these loans is
not
carried over at the acquisition date.
Acquired loans that met the criteria for non-accrual of interest prior to acquisition were
not
considered performing upon acquisition. When the customers resume payments, to make the nonaccrual loans current, the loans
may
return to accrual status, including the impact of any accretable discounts, if the Company can reasonably estimate the timing and amount of the expected cash flows on such loans and if the Company expects to fully collect the new carrying value of the loans.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
Acquired Non-impaired Loans
Acquired loans that do
not
meet the requirements under ASC
310
-
30
are considered acquired non-impaired loans. The difference between the acquisition date fair value and the outstanding balance represents the fair value adjustment for a loan and includes both credit and interest rate considerations. Fair value adjustments
may
be discounts (or premiums) to a loan’s cost basis and are accreted (or amortized) to net interest income (or expense) over the loan’s remaining life in accordance with ASC
310
-
20.
Fair value adjustments for revolving loans are accreted (or amortized) using a straight line method. Term loans are accreted (or amortized) using the constant effective yield method.
Subsequent to the purchase date, the methods used to estimate the allowance for loan losses for the acquired non-impaired loans are consistent with the policy for allowance for loan losses described in Note
5.
Intangible Assets
Intangible assets include core deposit intangibles and goodwill arising from acquisitions. The initial and ongoing carrying value of intangible assets is based upon modeling techniques that require management to make estimates regarding the amount and timing of expected future cash flows. It also requires use of a discount rate that reflects the current return requirements of the market in relation to present risk-free interest rates, required equity market premiums, peer volatility indicators, and company-specific risk indicators.
Core deposit intangibles are amortized on straight-line basis over a
10
-year period because that is managements’ conservative estimate of the period Patriot will benefit from Prime Bank’s stable deposit base comprised of funds associated with long term customer relationships.
The Company will evaluate goodwill for impairment on an annual basis, or more often if events or circumstances indicate there
may
be impairment. The annual impairment test will be conducted as of
November
annually. The implied fair value of a reporting unit’s goodwill is compared to its carrying amount and the impairment loss is measured by the excess of the carrying value over fair value. The fair value of each reporting unit is compared to the carrying amount of such reporting unit in order to determine if impairment is indicated.
C
ontingent Consideration
Contingent consideration represents an estimate of the additional amount of purchase price consideration and is measured based on the probability that certain loans are restructured in accordance with the agreement. Resolution of the contingent consideration will result in a cash payment and will be reflected in the financial statements as a measurement period adjustment as they are finalized. Changes will be recognized as an increase or decrease to goodwill, the valuation of the related loans and the contingent consideration/purchase price.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
New Accounting Standards
Accounting Standards Adopted During
2018
Effective
January 1, 2018,
the following new Accounting Standards Updates (ASUs) were adopted by the Company:
ASU
2014
-
09
ASU
No.
2014
-
09,
Revenue from Contracts with Customers (Topic
606
) including subsequent ASUs issued to clarify this Topic. The ASU, and subsequent related updates, establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most previous revenue recognition guidance, including industry-specific guidance. The ASUs are intended to increase comparability across industries. The core principle of the revenue model is that a company will recognize revenue when it transfers control of goods or services to customers, at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services.
The Company adopted the ASU on
January 1, 2018
on a modified retrospective transition approach. The adoption of this guidance did
not
have a material impact on the Company’s Consolidated Financial Statements, and there was
no
cumulative effect adjustment to opening retained earnings as
no
material changes were identified in the timing of revenue recognition.
ASU
2016
-
01
and ASU
2018
-
03
ASU
No.
2016
-
01,
Financial Instruments - Overall (Subtopic
825
-
10
) - Recognition and Measurement of Financial Assets and Financial Liabilities, and ASU
No.
2018
-
03,
Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic
825
-
10
). The ASUs included targeted amendments in connection with the recognition, measurement, presentation, and disclosure of financial instruments. The main provisions require investments in equity securities to be measured at fair value through net income, unless they qualify for a practical expedient, and require fair value changes arising from changes in instrument-specific credit risk for financial liabilities that are measured under the fair value option to be recognized in other comprehensive income. The provisions also emphasized the existing requirement to use exit prices to measure fair value for disclosure purposes. The Company adopted the ASUs on
January 1, 2018
on a modified retrospective basis. In connection with the adoption of ASU
2016
-
01
on
January 1, 2018,
we refined our methodology to estimate the fair value of our loan portfolio using an exit price notion resulting in prior-periods
no
longer being comparable.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
ASU
2016
-
15
In
August 2016,
the FASB issued ASU
2016
-
15,
Statement of Cash Flows
:
Classification of Certain Cash Receipts and Cash Payments
.
ASU
2016
-
15
addresses the classification of certain specific transactions presented on the Statement of Cash Flows, in order to improve consistency across entities. Debt prepayment or extinguishment, debt-instrument settlement, contingent consideration payments post-business combination, and beneficial interests in securitization transactions are specific items addressed by this ASU that
may
affect the Bank. Additionally, the ASU codifies the predominance principle for classifying separately identifiable cash flows. ASU
2016
-
15
is effective for fiscal years beginning after
December 15, 2017,
including interim periods within those fiscal years, with early adoption permitted. As of
June
30,
2018,
Patriot did
not
have any debt prepayment or extinguishment, debt-instrument settlement, contingent consideration payments post-business combination, and beneficial interests in securitization transactions. In the future, if Patriot’s such transactions warrant present, management does
not
envision any difficulties implementing the requirements of ASU
2016
-
15,
as applicable.
ASU
2016
-
18
In
November 2016,
the FASB issued ASU
2016
-
18,
Statement of Cash Flows:
Restricted Cash.
The purpose of the standard is to improve consistency and comparability among companies with respect to the reporting of changes in restricted cash and cash equivalents on the Statement of Cash Flows. The ASU requires the Statement of Cash Flows to include all changes in total cash and cash equivalents, including restricted amounts, and to the extent restricted cash and cash equivalents are presented in separate line items on the Balance Sheet, disclosure reconciling the change in total cash and cash equivalents to the amounts shown on the Balance Sheet are required. ASU
2016
-
18
is effective for fiscal years beginning after
December 15, 2017,
including interim periods within those fiscal years, with early adoption permitted. As of
June
30,
2018
and
December 31, 2017,
Patriot did
not
have restricted cash and cash equivalents separately disclosed on its Balance Sheet. In the future, if Patriot’s activities warrant presenting separate line items on its Balance Sheet for restricted cash and cash equivalents, management does
not
envision any difficulties implementing the requirements of ASU
2016
-
18,
as applicable.
ASU
2017
-
09
In
May 2017,
the FASB issued ASU
2017
-
09,
Scope of Modification Accounting
, which provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic
718
Stock compensation. The ASU is effective to all entities for annual periods, including interim periods within those annual periods, beginning after
December 15, 2017.
Early adoption is permitted, including adoption in any interim period. The Company does
not
anticipate this ASU will have a material impact on its Consolidated Financial Statements.
ASU
2018
-
04
ASU
2018
-
04
- Investments - Debt Securities (Topic
320
) and Regulated Operations (Topic
980
): The amendment in this ASU adds, amends and supersedes various paragraphs that contain SEC guidance in ASC
320,
Investments-Debt Securities and ASC
980,
Regulated Operations. The amendments in this ASU are effective when a registrant adopts ASU
2016
-
01,
which for Patriot, was
January 1, 2018.
This amendment did
not
have an impact on the Company’s Consolidated Financial Statements.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
Accounting Standards Issued But
Not
Yet Adopted
ASU
2016
-
02
In
February 2016,
the FASB issued ASU
No.
2016
-
02,
Leases.
This ASU was issued to improve the financial reporting of leasing activities and provide a faithful representation of leasing transactions and improve understanding and comparability of a lessee's financial statements. Under the new accounting guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than
12
months. This ASU will require both finance and operating leases to be recognized on the balance sheet. This ASU will affect all companies and organizations that lease real estate. The FASB issued an update in
January 2018 (
ASU
2018
-
01
) providing an optional transition practical expedient to
not
evaluate under Topic
842
land easements that exist or expired before the entity's adoption of Topic
842.
This ASU will become effective for interim and annual reporting periods beginning after
December 15, 2018.
The Company will adopt this new accounting guidance as required. Management is currently evaluating the impact of the new standard on its Consolidated Financial Statements.
ASU
2016
-
13
In
June 2016,
the FASB issued ASU
2016
-
13,
Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments.
The ASU changes the methodology for measuring credit losses on financial instruments measured at amortized cost to a current expected loss (“CECL”) model. Under the CECL model, entities will 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-
not
requirement to sell the debt security, an entity will record credit losses as an allowance rather than a direct write-down of the amortized cost basis. Additionally, ASU
2016
-
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
-
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.
Management is currently evaluating the impact that the standard will have on its Consolidated Financial Statements.
ASU
2017
-
04
In
January 2017,
the FASB issued ASU
2017
-
04,
Intangibles-Goodwill and Other (Topic
350
): Simplifying the Test for Goodwill Impairment:
The objective of this guidance is to simplify an entity’s required test for impairment of goodwill by eliminating Step
2
from the goodwill impairment test. In Step
2
an entity measured a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. In computing the implied fair value of goodwill, an entity had to determine the fair value at the impairment date of its assets and liabilities, including any unrecognized assets and liabilities, following a procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Under this Update, an entity should perform its annual or quarterly goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount and record an impairment charge for the excess of the carrying amount over the reporting unit’s fair value. The loss recognized should
not
exceed the total amount of goodwill allocated to the reporting unit and the entity must consider the income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. This guidance is effective for a public business entity that is an SEC filer for its annual or any interim goodwill impairment tests in fiscal years beginning after
December 15, 2019.
The adoption of this standard is
not
expected to have a material impact on the Company’s Consolidated Financial Statements.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
ASU
2017
-
08
In
March 2017,
the FASB issued ASU
2017
-
08,
Premium Amortization on Purchased Callable Debt Securities
, which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2018.
For all other entities, the ASU is effective for fiscal years beginning after
December 15, 2019,
and interim periods within fiscal years beginning after
December 15, 2020.
Earlier application is permitted for all entities, including adoption in an interim period. If an entity early adopts the ASU in an interim period, any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. Management is currently evaluating the impact the adoption of ASU
2017
-
08
will have on its Consolidated Financial Statements.
ASU
2018
-
02
In
February 2018,
the FASB issued ASU
2018
-
02,
Income
Statement-Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminated the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. The amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is
not
effected. The amendments in this update also require certain disclosures about stranded tax effects. The guidance in this ASU will become effective for reporting periods beginning after
December 15, 2018,
with early adoption permitted, and will be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. Management is currently evaluating the impact that the standard will have on its Consolidated Financial Statements.
ASU
2018
-
05
ASU
2018
-
05
-
Income Taxes (Topic
740
)
: Amendment to clarify situations where a registrant does
not
have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting under ASC
740
for certain income tax effects of the Tax Cuts and Jobs Act for the reporting period. As of
December 31, 2017,
the Company partially completed the accounting for the tax effects of enactment of the Tax Cuts and Jobs Act, and management made reasonable estimates of the effects of a reduced federal corporate income tax rate on its existing deferred tax balances. The Company will continue to make and refine its calculations during the
one
-year re-measurement period as additional analysis is completed. In addition, these estimates
may
be affected as management gains a more thorough understanding of the new tax reform legislation.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
Note
3:
Business Combinations
Generally, acquisitions are accounted for under the acquisition method of accounting in accordance with ASC
805,
Business Combinations. Both the purchased assets and liabilities assumed are recorded at their respective acquisition date fair values. Determining the fair value of assets and liabilities, especially the loan portfolio, is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. Fair values are preliminary and subject to refinement for up to
one
year after the closing date of the acquisition as additional information regarding fair values becomes available.
Acquisition of Prime Bank
On
May 10, 2018
the Company completed its acquisition of Prime Bank, a Connecticut bank headquartered in Orange, CT. The closing of the transaction added a new Patriot branch located in the Town of Orange, New Haven County, Connecticut. On the acquisition date, Prime Bank had assets with a carrying value of approximately
$65
million, including investment securities with a carrying value of
$36
million, loans outstanding with a carrying value of approximately
$23
million, as well as deposits with a carrying value of approximately
$46
million. The results of Prime Bank’s operations were included in the Company’s Consolidated Statement of Income from the date of acquisition.
The acquisition will enable Patriot to expand its consumer and small business relationships, lending operations, and community presence, all of which will improve key operating metrics. The goodwill recognized results from the expected synergies and potential earnings from this combination, including some future cost savings related to the operations of Prime Bank. Patriot incurred
$383,000
acquisition costs, charged to operations in the
first
half of
2018.
The assets acquired and liabilities assumed from Prime Bank were recorded at their fair value as of the closing date of the merger. Goodwill of
$2.1
million was recorded at the time of the acquisition. The goodwill is all deductible for income taxes over
15
years.
Patriot engaged independent consultants recognized as experts in the field of valuations and fair value measurements for acquisition and merger transactions. Fair values were defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”
Loans were evaluated on an individual basis, considering the loan's underlying characteristics, types, remaining terms, annual interest rates, current market rates, loan to value ratios (LTV), loss exposure and remaining balances. The independent consultants utilized a discounted cash flow model to estimate the fair value of the loans using assumptions for probability of defaults, loss given defaults / recovery rates and foreclosure / recovery lags. ASC
310
-
30
Purchase Credit Impaired Loans were separately addressed with specific discount rates adjusted for an illiquidity premium.
To estimate the core deposit customer relationships intangible the consultants
first
identified the core deposits and utilized assumptions regarding the account retention rate, growth rate and float and reserve percentages. Retention rates were based on historical attrition rates based on previous transactions, the growth rate assumed
no
new accounts, and
3%
increase in existing account balances, while the floats and reserve percentage assumed the market participant would most likely be subject to a reserve requirement given the current level of core deposits.
The fair value of time deposits included segmenting into certificate of deposits (“CDs”) and IRA CDs and CDs less than
$100,000
and those
$100,000
and above. The methodology entailed discounting the contractual cash flows of the instruments over their remaining contractual lives at prevailing market rates.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
The following table summarizes the consideration paid by the Company in the merger with Prime Bank and the estimated fair values of the assets acquired and liabilities assumed recognized at the acquisition date:
(In thousands)
|
|
Prime Bank
|
|
Consideration Paid
|
|
|
|
|
Cash consideration
|
|
$
|
5,596
|
|
Contingent consideration
|
|
|
1,761
|
|
|
|
|
|
|
Recognized amounts of identifiable assets acquired and liabilities assumed
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,152
|
|
Securities
|
|
|
35,532
|
|
Loans, net of allowance
|
|
|
21,605
|
|
Premises and equipment, net
|
|
|
6
|
|
Other real estate owned
|
|
|
991
|
|
Core deposit intangibles
|
|
|
552
|
|
Other assets
|
|
|
1,514
|
|
Total assets acquired
|
|
$
|
61,352
|
|
|
|
|
|
|
Deposits
|
|
|
46,184
|
|
Borrowings
|
|
|
9,800
|
|
Other liabilities
|
|
|
111
|
|
Total liabilities assumed
|
|
$
|
56,095
|
|
Identifiable net assets acquired
|
|
$
|
5,257
|
|
|
|
|
|
|
Goodwill resulting from acquisition
|
|
$
|
2,100
|
|
All securities acquired in the transaction with Prime Bank were sold at the fair value at acquisition date with
no
recorded gain or loss. Fair value adjustments to assets acquired and liabilities assumed will be amortized on a straight-line basis over periods consistent with the average life, useful life/ or contractual term of related assets and liabilities. The core deposit intangible will be amortized over a
10
-year period using the straight-line method.
Under the terms of the agreement, the transaction is accounted for as an asset sale. As a result, tax basis to Prime Bank is
not
carried over to Patriot and deferred tax assets on Prime Bank’s books have been written off as part of the purchase accounting adjustments.
The cash consideration is based on the initial calculation of Prime Bank tangible book value in accordance with the agreement. The initial cash payment made totaled
$5.89
million and
$1.0
million of this amount remains with the escrow agent pending resolution of the final closing tangible book value calculation.
Pursuant to a letter agreement, Patriot will make an additional payment (contingent consideration) with the amount to be determined based on the curing of certain loan deficiencies. The maximum amount payable under the letter agreement is
$2.858
million and the liability under the agreement is currently estimated to be
$1.761
million. This estimate has been measured based on Patriot's assessment of the probability that certain loans are cured in accordance with the agreement.
The initial accounting for the business combination includes certain provisional amounts associated with the resolution of the purchase price consideration noted above. In addition, certain other provisional amounts have been included in the determination of the fair value of the acquired assets and liabilities and changes to those underlying estimates will be reflected as measurement period adjustments within the
one
-year measurement period. Those provisional amounts relate to the valuation of loans, other real estate owned, deposits, tax and other accrued liabilities of the acquired company.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
Pending Acquisition
Definitive Purchase Agreement
On
February 6, 2018,
the Company, Hana Small Business Lending, Inc. (“Hana SBL”), a wholly-owned subsidiary of Hana Financial, Inc. (“Hana Financial”), and
three
wholly-owned subsidiaries of Hana SBL entered into a definitive purchase agreement (“Purchase Agreement”) pursuant to which Patriot will acquire Hana SBL's small business administration (“SBA”) lending business.
Hana SBL is a fully integrated national SBA origination and servicing platform. It has originated nearly
$1
billion of SBA
7
(a) loans since its inception in
2006.
The transaction includes the purchase of approximately
$120
million of SBA
7
(a) loans and servicing rights relating to a pool of
$370
million in loans, and the assumption of
two
loan securitization vehicles, currently rated “AA+” (Hana SBL Loan Trust
2014
) and “A-” (Hana SBL Loan Trust
2016
) by Standard and Poor’s. Total cash consideration is approximately
$83
million with the assumption of approximately
$41
million of liabilities. The transaction is subject to the satisfactory completion of certain due diligence requirements, purchase price adjustments at closing and the receipt of required governmental and regulatory approvals.
On
August 2, 2018,
the Company, Hana SBL and
three
wholly-owned subsidiaries of Hana SBL, entered into an amendment (the “Amendment”) to the Purchase Agreement. Pursuant to the Amendment, the closing date of the above referenced transaction has been extended from
August 2, 2018
to
August 1, 2019.
As a result of the proximity of the definitive purchase to the date these consolidated financial statements are being issued, Patriot is still evaluating the estimated fair values of the assets to be acquired and the liabilities to be assumed. Accordingly, the amount of any goodwill and other intangible assets to be recognized in the connection with this transaction, as well as acquisition costs incurred and expected to be incurred, are also yet to be determined. The Company incurred
$313,000
of merger and acquisition expenses related to the Hana SBL acquisition for the
three
months ended
June
30,
2018.
Due to the proximity of the announced amendment the Company is now in process of determining the costs to be incurred under the amended agreement.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
Note
4
:
Available-for Sale
Securities
The amortized cost, gross unrealized gains and losses and approximate fair values of available-for-sale securities at
June
30,
2018
and
December 31, 2017
are as follows:
(In thousands)
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
(Losses)
|
|
|
Fair
Value
|
|
June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Government agency mortgage-backed securities
|
|
$
|
6,446
|
|
|
|
-
|
|
|
|
(217
|
)
|
|
|
6,229
|
|
Corporate bonds
|
|
|
14,000
|
|
|
|
-
|
|
|
|
(799
|
)
|
|
|
13,201
|
|
Subordinated notes
|
|
|
4,500
|
|
|
|
52
|
|
|
|
-
|
|
|
|
4,552
|
|
|
|
$
|
24,946
|
|
|
|
52
|
|
|
|
(1,016
|
)
|
|
|
23,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Government agency mortgage-backed securities
|
|
$
|
7,330
|
|
|
|
-
|
|
|
|
(106
|
)
|
|
|
7,224
|
|
Corporate bonds
|
|
|
14,000
|
|
|
|
-
|
|
|
|
(196
|
)
|
|
|
13,804
|
|
Subordinated notes
|
|
|
4,500
|
|
|
|
48
|
|
|
|
-
|
|
|
|
4,548
|
|
|
|
$
|
25,830
|
|
|
|
48
|
|
|
|
(302
|
)
|
|
|
25,576
|
|
The following table presents the available-for-sale securities’ gross unrealized losses and fair value, aggregated by the length of time the individual securities have been in a continuous loss position as of
June
30,
2018
and
December 31, 2017:
(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, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Government agency mortgage-backed securities
|
|
$
|
3,513
|
|
|
|
(69
|
)
|
|
|
2,716
|
|
|
|
(148
|
)
|
|
|
6,229
|
|
|
|
(217
|
)
|
Corporate bonds
|
|
|
7,489
|
|
|
|
(511
|
)
|
|
|
5,712
|
|
|
|
(288
|
)
|
|
|
13,201
|
|
|
|
(799
|
)
|
|
|
$
|
11,002
|
|
|
|
(580
|
)
|
|
|
8,428
|
|
|
|
(436
|
)
|
|
|
19,430
|
|
|
|
(1,016
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Government agency mortgage-backed securities
|
|
$
|
4,118
|
|
|
|
(13
|
)
|
|
|
3,106
|
|
|
|
(93
|
)
|
|
|
7,224
|
|
|
|
(106
|
)
|
Corporate bonds
|
|
|
13,804
|
|
|
|
(196
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
13,804
|
|
|
|
(196
|
)
|
|
|
$
|
17,922
|
|
|
|
(209
|
)
|
|
|
3,106
|
|
|
|
(93
|
)
|
|
|
21,028
|
|
|
|
(302
|
)
|
At
June
30,
2018
and
December 31, 2017,
ten
out of
twelve
and
nine
out of
eleven
available-for-sale securities had unrealized losses with an aggregate decline of
5.0%
and
1.4%
from the amortized cost of those securities, respectively.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
Based on its quarterly reviews, management believes that
none
of the losses on available-for-sale securities noted above constitute an other-than-temporary impairment (“OTTI”). 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, and corporate debt. Management considers the issuers of the securities to be financially sound, the corporate bonds are investment grade, and the collectability of all contractual principal and interest payments is reasonably expected. Since Patriot is
not
more-likely-than-
not
to be required to sell the investments before recovery of the amortized cost basis and does
not
intend to sell the securities at a loss,
none
of the available-for-sale securities noted are considered to be OTTI as of
June
30,
2018.
At
June
30,
2018
and
December 31, 2017,
available-for-sale securities of
$6.2
million and
$6.7
million, respectively, were pledged to the Federal Reserve Bank of New York (“FRB”), primarily to secure municipal deposits.
The following summarizes, by class and contractual maturity, the amortized cost and estimated fair value of available-for-sale debt securities held at
June
30,
2018
and
December 31, 2017.
The mortgages underlying the mortgage-backed securities are
not
due at a single maturity date. Additionally, these mortgages often are and generally
may
be pre-paid without penalty, creating a degree of uncertainty that such investments can be held until maturity. For convenience, mortgage-backed securities have been included in the summary as a separate line item.
(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, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
-
|
|
|
|
9,000
|
|
|
|
5,000
|
|
|
|
14,000
|
|
|
|
-
|
|
|
|
8,587
|
|
|
|
4,614
|
|
|
|
13,201
|
|
Subordinated notes
|
|
|
-
|
|
|
|
4,500
|
|
|
|
-
|
|
|
|
4,500
|
|
|
|
-
|
|
|
|
4,552
|
|
|
|
-
|
|
|
|
4,552
|
|
Available-for-sale securities
with single maturity dates
|
|
|
-
|
|
|
|
13,500
|
|
|
|
5,000
|
|
|
|
18,500
|
|
|
|
-
|
|
|
|
13,139
|
|
|
|
4,614
|
|
|
|
17,753
|
|
U. S. Government agency mortgage-backed securities
|
|
|
-
|
|
|
|
2,864
|
|
|
|
3,582
|
|
|
|
6,446
|
|
|
|
-
|
|
|
|
2,716
|
|
|
|
3,513
|
|
|
|
6,229
|
|
|
|
$
|
-
|
|
|
|
16,364
|
|
|
|
8,582
|
|
|
|
24,946
|
|
|
|
-
|
|
|
|
15,855
|
|
|
|
8,127
|
|
|
|
23,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
-
|
|
|
|
9,000
|
|
|
|
5,000
|
|
|
|
14,000
|
|
|
|
-
|
|
|
|
8,928
|
|
|
|
4,876
|
|
|
|
13,804
|
|
Subordinated notes
|
|
|
-
|
|
|
|
4,500
|
|
|
|
-
|
|
|
|
4,500
|
|
|
|
-
|
|
|
|
4,548
|
|
|
|
-
|
|
|
|
4,548
|
|
Available-for-sale securities
with single maturity dates
|
|
|
-
|
|
|
|
13,500
|
|
|
|
5,000
|
|
|
|
18,500
|
|
|
|
-
|
|
|
|
13,476
|
|
|
|
4,876
|
|
|
|
18,352
|
|
U. S. Government agency mortgage-backed securities
|
|
|
-
|
|
|
|
3,200
|
|
|
|
4,130
|
|
|
|
7,330
|
|
|
|
-
|
|
|
|
3,107
|
|
|
|
4,117
|
|
|
|
7,224
|
|
|
|
$
|
-
|
|
|
|
16,700
|
|
|
|
9,130
|
|
|
|
25,830
|
|
|
|
-
|
|
|
|
16,583
|
|
|
|
8,993
|
|
|
|
25,576
|
|
During the year to date period ended
June 30,
2018,
the Company sold
$35.5
million securities acquired in the transaction with Prime Bank, which were sold at the fair value at acquisition date with
no
recorded gain or loss. Other than that, there were
no
sales and purchases of the Bank’s available-for-sale securities in the
six
-month period ended
June
30,
2018.
During the year to date period ended
June
30,
2017,
there were
$13.8
million sales and
$15.6
million purchases of available-for-sale securities. A loss on the sale of available-for-sale securities of
$78,000
was recorded during the
six
months ended
June
30,
2017.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
Note
5
:
Loans Receivable and Allowance for Loan Losses
Loans acquired in connection with the Prime Bank merger in
May 2018
are referred to as “acquired” loans as a result of the manner in which they are accounted for. All other loans are referred to as “business activities” loans. Accordingly, selected credit quality disclosures that follow are presented separately for the originated loan portfolio and the acquired loan portfolio.
As of
June
30,
2018
and
December 31, 2017,
loans receivable, net, consists of the following:
(In thousands)
|
|
June 30, 2018
|
|
|
December 31,
2017
|
|
Loan portfolio segment:
|
|
Business
Activities
Loans
|
|
|
Acquired
Loans
|
|
|
Total
|
|
|
Business
Activities
Loans
|
|
Commercial Real Estate
|
|
$
|
292,508
|
|
|
|
12,918
|
|
|
|
305,426
|
|
|
|
299,925
|
|
Residential Real Estate
|
|
|
146,754
|
|
|
|
-
|
|
|
|
146,754
|
|
|
|
146,377
|
|
Commercial and Industrial
|
|
|
162,568
|
|
|
|
8,108
|
|
|
|
170,676
|
|
|
|
131,161
|
|
Consumer and Other
|
|
|
78,382
|
|
|
|
882
|
|
|
|
79,264
|
|
|
|
87,707
|
|
Construction
|
|
|
46,593
|
|
|
|
-
|
|
|
|
46,593
|
|
|
|
47,619
|
|
Construction to Permanent - CRE
|
|
|
8,616
|
|
|
|
-
|
|
|
|
8,616
|
|
|
|
6,858
|
|
Loans receivable, gross
|
|
|
735,421
|
|
|
|
21,908
|
|
|
|
757,329
|
|
|
|
719,647
|
|
Allowance for loan losses
|
|
|
(6,525
|
)
|
|
|
-
|
|
|
|
(6,525
|
)
|
|
|
(6,297
|
)
|
Loans receivable, net
|
|
$
|
728,896
|
|
|
|
21,908
|
|
|
|
750,804
|
|
|
|
713,350
|
|
Patriot's lending activities are conducted principally in Fairfield and New Haven Counties in Connecticut and Westchester County in New York, and the
five
Boroughs of New York City. Patriot originates commercial real estate loans, commercial business loans, a variety of consumer loans, and construction loans, and has purchased residential loans since
2016.
All commercial and residential real estate loans are collateralized primarily by
first
or
second
mortgages on real estate. The ability and willingness of borrowers to satisfy their loan obligations is dependent to some degree on the status of the regional economy as well as upon the regional real estate market. Accordingly, the ultimate collectability of a substantial portion of the loan portfolio and the recovery of a substantial portion of any resulting real estate acquired is susceptible to changes in market conditions.
Patriot has established credit policies applicable to each type of lending activity in which it engages and evaluates the creditworthiness of each borrower. Unless extenuating circumstances exist, Patriot limits the extension of credit on commercial real estate loans to
75%
of the market value of the underlying collateral. Patriot’s loan origination policy for multi–family residential real estate is limited to
80%
of the market value of the underlying collateral. In the case of construction loans, the maximum loan-to-value is
75%
of the “as completed” appraised value of the real estate project. Management monitors the appraised value of collateral on an on-going basis and additional collateral is requested when warranted. Real estate is the primary form of collateral, although other forms of collateral do exist and
may
include such assets as accounts receivable, inventory, marketable securities, time deposits, and other business assets.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
The carrying amount of the acquired loans at
May 10, 2018
total
$21.6
million. A subset of these loans was determined to have evidence of credit deterioration at the acquisition date, which was accounted for in accordance with ASC
310
-
30.
The purchased credit impaired loans presently maintain a carrying value of
$2.4
million. The loans were evaluated for impairment through the periodic reforecasting of expected cash flows. Loans considered
not
impaired at acquisition date had a carrying amount of
$19.2
million.
Information about the acquired loan portfolio subject to purchased credit impaired accounting guidance (ASC
310
-
30
):
(In thousands)
|
|
May 10, 2018
|
|
|
|
|
|
|
Contractually required principal and interest at acquisition
|
|
$
|
5,816
|
|
Contractual cash flows not expected to be collected (nonaccretable discount)
|
|
|
(2,951
|
)
|
Expected cash flows at acquisition
|
|
|
2,865
|
|
Interest component of expected cash flows (accretable discount)
|
|
|
(429
|
)
|
Fair value of acquired loans
|
|
$
|
2,436
|
|
Risk characteristics of the Company’s portfolio classes include the following:
Commercial Real Estate Loans
In underwriting commercial real estate loans, Patriot evaluates both the prospective borrower’s ability to make timely payments on the loan and the value of the property securing the loans. Repayment of such loans
may
be negatively impacted should the borrower default, the value of the property collateralizing the loan substantially decline, or there are declines in general economic conditions. Where the owner occupies the property, Patriot also evaluates the business’ ability to repay the loan on a timely basis and
may
require personal guarantees, lease assignments, and/or the guarantee of the operating company.
Residential Real Estate Loans
In
2013,
Patriot discontinued offering primary mortgages on personal residences. Repayment of residential real estate loans
may
be negatively impacted should the borrower have financial difficulties, should there be a significant decline in the value of the property securing the loan, or should there be declines in general economic conditions.
In
March 2017,
Patriot purchased
$73
million of residential real estate loans, including a premium of
$985,000
over the book value of the loans.
No
residential real estate loans were purchased in the
first
half of
2018.
Commercial and Industrial Loans
Patriot’s commercial and industrial loan portfolio consists primarily of commercial business loans and lines of credit to businesses and professionals. These loans are generally for the financing of accounts receivable, purchases of inventory, purchases of new or used equipment, or for other short- or long-term working capital purposes. These loans are generally secured by business assets, but are also occasionally offered on an unsecured basis. In granting these types of loans, Patriot considers the borrower’s cash flow as the primary source of repayment, supported by the value of collateral, if any, and personal guarantees, as applicable. Repayment of commercial and industrial loans
may
be negatively impacted by adverse changes in economic conditions, ineffective management, claims on the borrower’s assets by others that are superior to Patriot’s claims, a loss of demand for the borrower’s products or services, or the death or disability of the borrower or other key management personnel.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
Consumer and Other Loans
Patriot offers individual consumers various forms of credit including installment loans, credit cards, overdraft protection, and reserve lines of credit. Repayments of such loans are generally dependent on the personal income of the borrower, which
may
be negatively impacted by adverse changes in economic conditions. The Company does
not
place a high emphasis on originating these types of loans.
The Company does
not
have any lending programs commonly referred to as subprime lending. Subprime lending generally targets borrowers with weakened credit histories that are typically characterized by payment delinquencies, previous charge-offs, judgments against the consumer, a history of bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burdened ratios.
Construction Loans
Construction loans are of a short-term nature, generally of
eighteen
-months or less, that are secured by land intended for commercial, residential, or mixed-use development. Loan proceeds
may
be used for the acquisition of or improvements to the land under development and funds are generally disbursed as phases of construction are completed.
Included in this category are loans to construct single family homes where
no
contract of sale exists, based upon the experience and financial strength of the builder, the type and location of the property, and other factors. Construction loans tend to be personally guaranteed by the principal(s). Repayment of such loans
may
be negatively impacted by an inability to complete construction, a downturn in the market for new construction, by a significant increase in interest rates, or by decline in general economic conditions.
Construction to Permanent –
Commercial Real Estate (“
CRE
”)
One time close of a construction facility with simultaneous conversion to an amortizing mortgage loan. Construction to Permanent loans combine a short term period similar to a construction loan, generally with a variable rate, and a longer term CRE loan typically
20
-
25
years, resetting every
five
years to the Federal Home Loan Bank (“FHLB”) rate.
Close of the construction facility typically occurs when events dictate, such as receipt of a certificate of occupancy and property stabilization, which is defined as cash flow sufficient to support a pre-defined minimum debt coverage ratio and other conditions and covenants particular to the loan. Construction facilities are typically variable rate instruments that, upon conversion to an amortizing mortgage loan, reset to a fixed rate instrument that is the greater of the in-force variable rate plus a predetermined spread over a reference rate (e.g., prime) or a minimum interest rate.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
Allowance for Loan Losses
The following tables summarize the activity in the allowance for loan losses, allocated to segments of the loan portfolio, for the
three
months ended
June
30,
2018
and
2017:
(In thousands)
|
|
Commercial
Real Estate
|
|
|
Residential
Real Estate
|
|
|
Commercial
and
Industrial
|
|
|
Consumer
and
Other
|
|
|
Construction
|
|
|
Construction
to
Permanent
- CRE
|
|
|
Unallocated
|
|
|
Total
|
|
Three months ended
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
$
|
2,480
|
|
|
|
1,073
|
|
|
|
1,759
|
|
|
|
546
|
|
|
|
488
|
|
|
|
61
|
|
|
|
78
|
|
|
|
6,485
|
|
Charge-offs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13
|
)
|
Recoveries
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
Provisions (credits)
|
|
|
(178
|
)
|
|
|
23
|
|
|
|
237
|
|
|
|
(10
|
)
|
|
|
11
|
|
|
|
19
|
|
|
|
(52
|
)
|
|
|
50
|
|
June 30, 2018
|
|
$
|
2,305
|
|
|
|
1,096
|
|
|
|
1,996
|
|
|
|
523
|
|
|
|
499
|
|
|
|
80
|
|
|
|
26
|
|
|
|
6,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
$
|
2,198
|
|
|
|
1,073
|
|
|
|
1,049
|
|
|
|
583
|
|
|
|
591
|
|
|
|
77
|
|
|
|
126
|
|
|
|
5,697
|
|
Charge-offs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13
|
)
|
Recoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Provisions (credits)
|
|
|
20
|
|
|
|
(32
|
)
|
|
|
404
|
|
|
|
23
|
|
|
|
(101
|
)
|
|
|
(4
|
)
|
|
|
(50
|
)
|
|
|
260
|
|
June 30, 2017
|
|
$
|
2,218
|
|
|
|
1,041
|
|
|
|
1,453
|
|
|
|
593
|
|
|
|
490
|
|
|
|
73
|
|
|
|
76
|
|
|
|
5,944
|
|
The following tables summarize the activity in the allowance for loan losses, allocated to segments of the loan portfolio, for the
six
months ended
June
30,
2018
and
2017:
(In thousands)
|
|
Commercial
Real Estate
|
|
|
Residential
Real Estate
|
|
|
Commercial
and
Industrial
|
|
|
Consumer
and
Other
|
|
|
Construction
|
|
|
Construction
to
Permanent
- CRE
|
|
|
Unallocated
|
|
|
Total
|
|
Six months ended
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
$
|
2,212
|
|
|
|
959
|
|
|
|
2,023
|
|
|
|
568
|
|
|
|
481
|
|
|
|
54
|
|
|
|
-
|
|
|
|
6,297
|
|
Charge-offs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13
|
)
|
Recoveries
|
|
|
6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6
|
|
Provisions (credits)
|
|
|
(87
|
)
|
|
|
137
|
|
|
|
(27
|
)
|
|
|
(32
|
)
|
|
|
18
|
|
|
|
26
|
|
|
|
26
|
|
|
|
235
|
|
June 30, 2018
|
|
$
|
2,305
|
|
|
|
1,096
|
|
|
|
1,996
|
|
|
|
523
|
|
|
|
499
|
|
|
|
80
|
|
|
|
26
|
|
|
|
6,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
$
|
1,853
|
|
|
|
534
|
|
|
|
740
|
|
|
|
641
|
|
|
|
712
|
|
|
|
69
|
|
|
|
126
|
|
|
|
4,675
|
|
Charge-offs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13
|
)
|
Recoveries
|
|
|
2
|
|
|
|
-
|
|
|
|
2,769
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,771
|
|
Provisions (credits)
|
|
|
363
|
|
|
|
507
|
|
|
|
(2,056
|
)
|
|
|
(35
|
)
|
|
|
(222
|
)
|
|
|
4
|
|
|
|
(50
|
)
|
|
|
(1,489
|
)
|
June 30, 2017
|
|
$
|
2,218
|
|
|
|
1,041
|
|
|
|
1,453
|
|
|
|
593
|
|
|
|
490
|
|
|
|
73
|
|
|
|
76
|
|
|
|
5,944
|
|
There was
no
allowance for loan losses on all acquired loans as of
June 30, 2018.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
The following tables summarize the business activity loans, by loan portfolio segment, the amount of loans receivable evaluated individually and collectively for impairment as of
June
30,
2018
and
December 31, 2017:
(In thousands)
|
|
Commercial
Real Estate
|
|
|
Residential
Real Estate
|
|
|
Commercial
and
Industrial
|
|
|
Consumer
and
Other
|
|
|
Construction
|
|
|
Construction
to
Permanent
- CRE
|
|
|
Unallocated
|
|
|
Total
|
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
-
|
|
|
|
-
|
|
|
|
45
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
45
|
|
Collectively evaluated for impairment
|
|
|
2,305
|
|
|
|
1,096
|
|
|
|
1,951
|
|
|
|
523
|
|
|
|
499
|
|
|
|
80
|
|
|
|
26
|
|
|
|
6,480
|
|
Total allowance for loan losses
|
|
$
|
2,305
|
|
|
|
1,096
|
|
|
|
1,996
|
|
|
|
523
|
|
|
|
499
|
|
|
|
80
|
|
|
|
26
|
|
|
|
6,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, gross:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
4,071
|
|
|
|
3,524
|
|
|
|
1,025
|
|
|
|
770
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,390
|
|
Collectively evaluated for impairment
|
|
|
288,437
|
|
|
|
143,230
|
|
|
|
161,543
|
|
|
|
77,612
|
|
|
|
46,593
|
|
|
|
8,616
|
|
|
|
-
|
|
|
|
726,031
|
|
Total loans receivable, gross
|
|
$
|
292,508
|
|
|
|
146,754
|
|
|
|
162,568
|
|
|
|
78,382
|
|
|
|
46,593
|
|
|
|
8,616
|
|
|
|
-
|
|
|
|
735,421
|
(1)
|
(
1
) The total loan receivable, gross does
not
include
$21.9
million acquired loans which were all individually evaluated for impairment.
(In thousands)
|
|
Commercial
Real Estate
|
|
|
Residential
Real Estate
|
|
|
Commercial
and
Industrial
|
|
|
Consumer
and
Other
|
|
|
Construction
|
|
|
Construction
to
Permanent
- CRE
|
|
|
Unallocated
|
|
|
Total
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
-
|
|
|
|
-
|
|
|
|
251
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
253
|
|
Collectively evaluated for impairment
|
|
|
2,212
|
|
|
|
959
|
|
|
|
1,772
|
|
|
|
566
|
|
|
|
481
|
|
|
|
54
|
|
|
|
-
|
|
|
|
6,044
|
|
Total allowance for loan losses
|
|
$
|
2,212
|
|
|
|
959
|
|
|
|
2,023
|
|
|
|
568
|
|
|
|
481
|
|
|
|
54
|
|
|
|
-
|
|
|
|
6,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, gross:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
1,977
|
|
|
|
3,336
|
|
|
|
748
|
|
|
|
692
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,753
|
|
Collectively evaluated for impairment
|
|
|
297,948
|
|
|
|
143,041
|
|
|
|
130,413
|
|
|
|
87,015
|
|
|
|
47,619
|
|
|
|
6,858
|
|
|
|
-
|
|
|
|
712,894
|
|
Total loans receivable, gross
|
|
$
|
299,925
|
|
|
|
146,377
|
|
|
|
131,161
|
|
|
|
87,707
|
|
|
|
47,619
|
|
|
|
6,858
|
|
|
|
-
|
|
|
|
719,647
|
|
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
Patriot monitors the credit quality of its loans receivable on an ongoing basis. Credit quality is monitored by reviewing certain indicators, including loan to value ratios, debt service coverage ratios, and credit scores.
Patriot employs a risk rating system as part of the risk assessment of its loan portfolio. At origination, lending officers are required to assign a risk rating to each loan in their portfolio, which is ratified or modified by the Loan Committee to which the loan is submitted for approval. If financial developments occur on a loan in the lending officer’s portfolio of responsibility, the risk rating is reviewed and adjusted, as applicable. In carrying out its oversight responsibilities, the Loan Committee can adjust a risk rating based on available information. In addition, the risk ratings on all commercial loans over
$250,000
are reviewed annually by the Credit Department.
Additionally, Patriot retains a
third
-party objective and independent loan reviewing expert to perform a quarterly analysis of the results of its risk rating process. The quarterly 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 quarterly review, are required to be approved by the Loan Committee.
When assigning a risk rating to a loan, management utilizes the Bank’s internal
eleven
-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.
|
Charge-offs, to reduce the loan to its recoverable value, generally commence after the loan is classified as “doubtful”.
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
120
days delinquent, respectively.
If an account is classified as “Loss”, 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.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
Loan Portfolio Aging Analysis
The following tables summarize performing and non-performing loans receivable by portfolio segment, by aging category, by delinquency status as of
June
30,
2018.
Business Activities Loans
(In thousands)
|
|
Performing (Accruing) Loans
|
|
|
|
|
|
|
|
|
|
As of June 30, 2018:
|
|
30 - 59
Days
Past Due
|
|
|
60 - 89
Days
Past Due
|
|
|
90 Days
or
Greater
Past Due
|
|
|
Total
|
|
|
Current
|
|
|
Total
Performing
Loans
|
|
|
Non-accruing
Loans
|
|
|
Loans
Receivable
Gross
|
|
Loan portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
1,858
|
|
|
|
-
|
|
|
|
670
|
|
|
|
2,528
|
|
|
|
283,402
|
|
|
|
285,930
|
|
|
|
-
|
|
|
|
285,930
|
|
Special mention
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
615
|
|
|
|
615
|
|
|
|
-
|
|
|
|
615
|
|
Substandard
|
|
|
638
|
|
|
|
-
|
|
|
|
1,025
|
|
|
|
1,663
|
|
|
|
2,163
|
|
|
|
3,826
|
|
|
|
2,137
|
|
|
|
5,963
|
|
|
|
|
2,496
|
|
|
|
-
|
|
|
|
1,695
|
|
|
|
4,191
|
|
|
|
286,180
|
|
|
|
290,371
|
|
|
|
2,137
|
|
|
|
292,508
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
175
|
|
|
|
-
|
|
|
|
-
|
|
|
|
175
|
|
|
|
141,841
|
|
|
|
142,016
|
|
|
|
-
|
|
|
|
142,016
|
|
Special mention
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Substandard
|
|
|
-
|
|
|
|
-
|
|
|
|
1,516
|
|
|
|
1,516
|
|
|
|
-
|
|
|
|
1,516
|
|
|
|
3,222
|
|
|
|
4,738
|
|
|
|
|
175
|
|
|
|
-
|
|
|
|
1,516
|
|
|
|
1,691
|
|
|
|
141,841
|
|
|
|
143,532
|
|
|
|
3,222
|
|
|
|
146,754
|
|
Commercial and Industrial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
2,157
|
|
|
|
1,767
|
|
|
|
-
|
|
|
|
3,924
|
|
|
|
154,144
|
|
|
|
158,068
|
|
|
|
-
|
|
|
|
158,068
|
|
Substandard
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,025
|
|
|
|
1,025
|
|
|
|
|
2,157
|
|
|
|
4,517
|
|
|
|
-
|
|
|
|
6,674
|
|
|
|
154,869
|
|
|
|
161,543
|
|
|
|
1,025
|
|
|
|
162,568
|
|
Consumer and Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
33
|
|
|
|
24
|
|
|
|
-
|
|
|
|
57
|
|
|
|
78,245
|
|
|
|
78,302
|
|
|
|
-
|
|
|
|
78,302
|
|
Substandard
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
80
|
|
|
|
80
|
|
|
|
|
33
|
|
|
|
24
|
|
|
|
-
|
|
|
|
57
|
|
|
|
78,245
|
|
|
|
78,302
|
|
|
|
80
|
|
|
|
78,382
|
|
Construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,793
|
|
|
|
37,793
|
|
|
|
-
|
|
|
|
37,793
|
|
Substandard
|
|
|
-
|
|
|
|
-
|
|
|
|
8,800
|
|
|
|
8,800
|
|
|
|
-
|
|
|
|
8,800
|
|
|
|
-
|
|
|
|
8,800
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,800
|
|
|
|
8,800
|
|
|
|
37,793
|
|
|
|
46,593
|
|
|
|
-
|
|
|
|
46,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction to Permanent - CRE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,616
|
|
|
|
8,616
|
|
|
|
-
|
|
|
|
8,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,861
|
|
|
|
4,541
|
|
|
|
12,011
|
|
|
|
21,413
|
|
|
|
707,544
|
|
|
|
728,957
|
|
|
|
6,464
|
|
|
|
735,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, gross:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
4,223
|
|
|
|
1,791
|
|
|
|
670
|
|
|
|
6,684
|
|
|
|
704,041
|
|
|
|
710,725
|
|
|
|
-
|
|
|
|
710,725
|
|
Special mention
|
|
|
-
|
|
|
|
2,750
|
|
|
|
-
|
|
|
|
2,750
|
|
|
|
1,340
|
|
|
|
4,090
|
|
|
|
-
|
|
|
|
4,090
|
|
Substandard
|
|
|
638
|
|
|
|
-
|
|
|
|
11,341
|
|
|
|
11,979
|
|
|
|
2,163
|
|
|
|
14,142
|
|
|
|
6,464
|
|
|
|
20,606
|
|
Loans receivable, gross
|
|
$
|
4,861
|
|
|
|
4,541
|
|
|
|
12,011
|
|
|
|
21,413
|
|
|
|
707,544
|
|
|
|
728,957
|
|
|
|
6,464
|
|
|
|
735,421
|
|
As of
June
30,
2018,
the loans over
90
days past due and still accruing primarily consists of
one
construction loan. The loan is well secured, and in process of collection. The Company is confident the collateral will serve to ultimately assure full realization of principal and interest.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
Acquired Loans
(In thousands)
|
|
Performing (Accruing) Loans
|
|
|
|
|
|
|
|
|
|
As of June 30, 2018:
|
|
30 - 59
Days
Past Due
|
|
|
60 - 89
Days
Past Due
|
|
|
90 Days
or
Greater
Past Due
|
|
|
Total
|
|
|
Current
|
|
|
Total
Performing
Loans
|
|
|
Non-accruing
Loans
|
|
|
Loans
Receivable
Gross
|
|
Loan portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,526
|
|
|
|
8,526
|
|
|
|
-
|
|
|
|
8,526
|
|
Special mention
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,537
|
|
|
|
2,537
|
|
|
|
-
|
|
|
|
2,537
|
|
Substandard
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,799
|
|
|
|
1,799
|
|
|
|
56
|
|
|
|
1,855
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,862
|
|
|
|
12,862
|
|
|
|
56
|
|
|
|
12,918
|
|
Commercial and Industrial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
34
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34
|
|
|
|
4,346
|
|
|
|
4,380
|
|
|
|
-
|
|
|
|
4,380
|
|
Special mention
|
|
|
267
|
|
|
|
-
|
|
|
|
-
|
|
|
|
267
|
|
|
|
794
|
|
|
|
1,061
|
|
|
|
-
|
|
|
|
1,061
|
|
Substandard
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,619
|
|
|
|
2,619
|
|
|
|
48
|
|
|
|
2,667
|
|
|
|
|
301
|
|
|
|
-
|
|
|
|
-
|
|
|
|
301
|
|
|
|
7,759
|
|
|
|
8,060
|
|
|
|
48
|
|
|
|
8,108
|
|
Consumer and Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
26
|
|
|
|
13
|
|
|
|
-
|
|
|
|
39
|
|
|
|
834
|
|
|
|
873
|
|
|
|
-
|
|
|
|
873
|
|
Substandard
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9
|
|
|
|
9
|
|
|
|
|
26
|
|
|
|
13
|
|
|
|
-
|
|
|
|
39
|
|
|
|
834
|
|
|
|
873
|
|
|
|
9
|
|
|
|
882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
327
|
|
|
|
13
|
|
|
|
-
|
|
|
|
340
|
|
|
|
21,455
|
|
|
|
21,795
|
|
|
|
113
|
|
|
|
21,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, gross:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
60
|
|
|
|
13
|
|
|
|
-
|
|
|
|
73
|
|
|
|
13,706
|
|
|
|
13,779
|
|
|
|
-
|
|
|
|
13,779
|
|
Special mention
|
|
|
267
|
|
|
|
-
|
|
|
|
-
|
|
|
|
267
|
|
|
|
3,331
|
|
|
|
3,598
|
|
|
|
-
|
|
|
|
3,598
|
|
Substandard
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,418
|
|
|
|
4,418
|
|
|
|
113
|
|
|
|
4,531
|
|
Loans receivable, gross
|
|
$
|
327
|
|
|
|
13
|
|
|
|
-
|
|
|
|
340
|
|
|
|
21,455
|
|
|
|
21,795
|
|
|
|
113
|
|
|
|
21,908
|
|
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
The following tables summarize performing and non-performing loans receivable by portfolio segment, by aging category, by delinquency status as of
December 31, 2017.
Business Activities Loans
(In thousands)
|
|
Performing (Accruing) Loans
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017:
|
|
30 - 59
Days
Past Due
|
|
|
60 - 89
Days
Past Due
|
|
|
90 Days
or
Greater
Past Due
|
|
|
Total
|
|
|
Current
|
|
|
Total
Performing
Loans
|
|
|
Non-accruing
Loans
|
|
|
Loans
Receivable
Gross
|
|
Loan portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
286,428
|
|
|
|
286,428
|
|
|
|
-
|
|
|
|
286,428
|
|
Special mention
|
|
|
-
|
|
|
|
1,121
|
|
|
|
-
|
|
|
|
1,121
|
|
|
|
9,317
|
|
|
|
10,438
|
|
|
|
-
|
|
|
|
10,438
|
|
Substandard
|
|
|
-
|
|
|
|
1,688
|
|
|
|
-
|
|
|
|
1,688
|
|
|
|
1,371
|
|
|
|
3,059
|
|
|
|
-
|
|
|
|
3,059
|
|
|
|
|
-
|
|
|
|
2,809
|
|
|
|
-
|
|
|
|
2,809
|
|
|
|
297,116
|
|
|
|
299,925
|
|
|
|
-
|
|
|
|
299,925
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
1,068
|
|
|
|
255
|
|
|
|
-
|
|
|
|
1,323
|
|
|
|
140,497
|
|
|
|
141,820
|
|
|
|
-
|
|
|
|
141,820
|
|
Special mention
|
|
|
-
|
|
|
|
1,529
|
|
|
|
-
|
|
|
|
1,529
|
|
|
|
-
|
|
|
|
1,529
|
|
|
|
-
|
|
|
|
1,529
|
|
Substandard
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,028
|
|
|
|
3,028
|
|
|
|
|
1,068
|
|
|
|
1,784
|
|
|
|
-
|
|
|
|
2,852
|
|
|
|
140,497
|
|
|
|
143,349
|
|
|
|
3,028
|
|
|
|
146,377
|
|
Commercial and Industrial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
-
|
|
|
|
2,000
|
|
|
|
375
|
|
|
|
2,375
|
|
|
|
127,057
|
|
|
|
129,432
|
|
|
|
-
|
|
|
|
129,432
|
|
Substandard
|
|
|
-
|
|
|
|
-
|
|
|
|
981
|
|
|
|
981
|
|
|
|
-
|
|
|
|
981
|
|
|
|
748
|
|
|
|
1,729
|
|
|
|
|
-
|
|
|
|
2,000
|
|
|
|
1,356
|
|
|
|
3,356
|
|
|
|
127,057
|
|
|
|
130,413
|
|
|
|
748
|
|
|
|
131,161
|
|
Consumer and Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
498
|
|
|
|
-
|
|
|
|
-
|
|
|
|
498
|
|
|
|
87,207
|
|
|
|
87,705
|
|
|
|
-
|
|
|
|
87,705
|
|
Substandard
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
498
|
|
|
|
-
|
|
|
|
-
|
|
|
|
498
|
|
|
|
87,207
|
|
|
|
87,705
|
|
|
|
2
|
|
|
|
87,707
|
|
Construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
47,619
|
|
|
|
47,619
|
|
|
|
-
|
|
|
|
47,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction to Permanent - CRE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,858
|
|
|
|
6,858
|
|
|
|
-
|
|
|
|
6,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,566
|
|
|
|
6,593
|
|
|
|
1,356
|
|
|
|
9,515
|
|
|
|
706,354
|
|
|
|
715,869
|
|
|
|
3,778
|
|
|
|
719,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, gross:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
1,566
|
|
|
|
2,255
|
|
|
|
375
|
|
|
|
4,196
|
|
|
|
695,666
|
|
|
|
699,862
|
|
|
|
-
|
|
|
|
699,862
|
|
Special mention
|
|
|
-
|
|
|
|
2,650
|
|
|
|
-
|
|
|
|
2,650
|
|
|
|
9,317
|
|
|
|
11,967
|
|
|
|
-
|
|
|
|
11,967
|
|
Substandard
|
|
|
-
|
|
|
|
1,688
|
|
|
|
981
|
|
|
|
2,669
|
|
|
|
1,371
|
|
|
|
4,040
|
|
|
|
3,778
|
|
|
|
7,818
|
|
Loans receivable, gross
|
|
$
|
1,566
|
|
|
|
6,593
|
|
|
|
1,356
|
|
|
|
9,515
|
|
|
|
706,354
|
|
|
|
715,869
|
|
|
|
3,778
|
|
|
|
719,647
|
|
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
The following tables summarize non-performing (i.e., non-accruing) loans by aging category and status, within the applicable loan portfolio segment as of
June
30,
2018:
Business Activities Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Non-accruing Loans
|
|
|
|
|
|
|
|
30 - 59 Days
Past Due
|
|
|
60 - 89 Days
Past Due
|
|
|
90 Days
or
Greater Past Due
|
|
|
Total
Past Due
|
|
|
Current
|
|
|
Total
Non-accruing
Loans
|
|
As of June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substandard
|
|
$
|
-
|
|
|
|
-
|
|
|
|
2,137
|
|
|
|
2,137
|
|
|
|
-
|
|
|
|
2,137
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substandard
|
|
|
-
|
|
|
|
-
|
|
|
|
3,222
|
|
|
|
3,222
|
|
|
|
-
|
|
|
|
3,222
|
|
Commercial and Industrial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substandard
|
|
|
-
|
|
|
|
-
|
|
|
|
1,025
|
|
|
|
1,025
|
|
|
|
-
|
|
|
|
1,025
|
|
Consumer and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substandard
|
|
|
-
|
|
|
|
80
|
|
|
|
-
|
|
|
|
80
|
|
|
|
-
|
|
|
|
80
|
|
Total non-accruing loans
|
|
$
|
-
|
|
|
|
80
|
|
|
|
6,384
|
|
|
|
6,464
|
|
|
|
-
|
|
|
|
6,464
|
|
Acquired Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Non-accruing Loans
|
|
|
|
|
|
|
|
30 - 59 Days
Past Due
|
|
|
60 - 89 Days
Past Due
|
|
|
90 Days
or
Greater Past Due
|
|
|
Total
Past Due
|
|
|
Current
|
|
|
Total
Non-accruing
Loans
|
|
As of June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substandard
|
|
$
|
-
|
|
|
|
-
|
|
|
|
56
|
|
|
|
56
|
|
|
|
-
|
|
|
|
56
|
|
Commercial and Industrial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substandard
|
|
|
-
|
|
|
|
-
|
|
|
|
48
|
|
|
|
48
|
|
|
|
-
|
|
|
|
48
|
|
Consumer and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substandard
|
|
|
-
|
|
|
|
-
|
|
|
|
9
|
|
|
|
9
|
|
|
|
-
|
|
|
|
9
|
|
Total non-accruing loans
|
|
$
|
-
|
|
|
|
-
|
|
|
|
113
|
|
|
|
113
|
|
|
|
-
|
|
|
|
113
|
|
If non-accrual loans had been performing in accordance with the original contractual terms, additional interest income of approximately
$103,000
and
$176,000
would have been recognized in income during the
three
and
six
months ended
June
30,
2018,
respectively.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
The following tables summarize non-performing (i.e., non-accruing) loans by aging category and status, within the applicable loan portfolio segment as of
December 31, 2017:
Business Activities Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Non-accruing Loans
|
|
|
|
|
|
|
|
30 - 59 Days
Past Due
|
|
|
60 - 89 Days
Past Due
|
|
|
90 Days
or
Greater Past Due
|
|
|
Total
Past Due
|
|
|
Current
|
|
|
Total
Non-accruing
Loans
|
|
As of December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substandard
|
|
$
|
-
|
|
|
|
-
|
|
|
|
3,028
|
|
|
|
3,028
|
|
|
|
-
|
|
|
|
3,028
|
|
Commercial and Industrial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substandard
|
|
|
-
|
|
|
|
-
|
|
|
|
748
|
|
|
|
748
|
|
|
|
-
|
|
|
|
748
|
|
Consumer and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substandard
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
2
|
|
|
|
-
|
|
|
|
2
|
|
Total non-accruing loans
|
|
$
|
-
|
|
|
|
-
|
|
|
|
3,778
|
|
|
|
3,778
|
|
|
|
-
|
|
|
|
3,778
|
|
If non-accrual loans had been performing in accordance with the original contractual terms, additional interest income of approximately
$22,000
and
$43,000
would have been recognized in income during the
three
and
six
months ended
June
30,
2017,
respectively.
Additionally, certain loans for which the borrower cannot demonstrate sufficient cash flow to continue loan payments in the future and certain troubled debt restructurings (“TDRs”) are placed on non-accrual status. During the
three
and
six
months ended
June
30,
2018
and
2017,
no
interest income was collected and recognized on non-accruing loans.
The accrual of interest on loans is discontinued at the time the loan is
90
days past due for payment unless the loan is well-secured and in process of collection. Consumer installment loans are typically charged off
no
later than
180
days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed on non-accrual status or charged-off, at an earlier date, if collection of principal or interest is considered doubtful. All interest accrued, but
not
collected for loans that are placed on non-accrual status or charged off, is reversed against interest income. The interest on these loans is accounted for on the cash-basis method until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, future payments are reasonably assured, and there is
six
months of performance. Management considers all non-accrual loans and TDRs to be impaired. In most cases, loan payments that are past due less than
90
days, based on contractual terms, are considered collection delays and
not
an indication of loan impairment. The Bank considers consumer installment loans to be pools of smaller homogeneous loan balances, which are collectively evaluated for impairment.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
Troubled Debt Restructurings
(“TDR”)
On a case-by-case basis, Patriot
may
agree to modify the contractual terms of a borrower’s loan to assist customers who
may
be experiencing financial difficulty. If the borrower is experiencing financial difficulties and a concession has been made, the loan is classified as a TDR.
Substantially all 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 loan modifications
may
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, the loan continues accruing interest. Non-accruing TDRs
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 recorded investment in TDRs was
$2.9
million at
June 30, 2018
and
$3.0
million at
December 31, 2017,
respectively. All TDRs at
June 30, 2018
and
December 31, 2017
were performing in accordance with their modified terms and therefore, were on accrual status.
Business Activities Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Loan portfolio segment:
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
Commercial Real Estate
|
|
$
|
1,934
|
|
|
|
1,977
|
|
Residential Real Estate
|
|
|
992
|
|
|
|
999
|
|
Total TDR Loans
|
|
|
2,926
|
|
|
|
2,976
|
|
Less: TDRs included in non-accrual loans
|
|
|
-
|
|
|
|
-
|
|
Total accrual TDR Loans
|
|
$
|
2,926
|
|
|
|
2,976
|
|
There were
no
loans modified as TDRs and
no
defaults of TDRs during the
three
months ended
June
30,
2018
and
2017.
At
June
30,
2018
and
December 31, 2017,
there were
no
commitments to advance additional funds under TDRs.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
Impaired Loans
Impaired loans
may
consist of non-accrual loans and/or performing and non-performing TDRs. As of
June
30,
2018
and
December 31, 2017,
based on the on-going monitoring and analysis of the loan portfolio, impaired loans of
$9.4
million and
$6.8
million, respectively, were identified, for which
$45,000
and
$253,000
specific reserves were established, respectively. Loans
not
requiring specific reserves had sufficient collateral values, less costs to sell, 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.
At
June
30,
2018
and
December 31, 2017,
exposure to the impaired loans was related to
14
and
12
borrowers, respectively. In all cases, appraisal reports of the underlying collateral, if any, have been obtained from independent licensed appraisal firms. For non-performing loans, the independently determined appraised values were reduced by an estimate of the costs to sell the assets, 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.
In addition there was
$2.4
million of PCI loans acquired from Prime Bank;
$2.0
million of commercial and industrial, and
$0.4
million of residential real estate. All the acquired loans were considered individually with
no
allowance recorded. The
$2.4
million PCI loans were originally recorded at fair value by the Bank on the date of acquisition.
The following summarizes the investment in, outstanding principal balance of, and the related allowance, if any, for impaired business activity loans as of
June
30,
2018
and
December 31, 2017:
Business Activities Loans
(In thousands)
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
Recorded
Investment
|
|
|
Principal
Outstanding
|
|
|
Related
Allowance
|
|
|
Recorded
Investment
|
|
|
Principal
Outstanding
|
|
|
Related
Allowance
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
$
|
4,071
|
|
|
|
4,524
|
|
|
|
-
|
|
|
|
1,977
|
|
|
|
2,425
|
|
|
|
-
|
|
Residential Real Estate
|
|
|
3,524
|
|
|
|
3,557
|
|
|
|
-
|
|
|
|
3,336
|
|
|
|
3,369
|
|
|
|
-
|
|
Commercial and Industrial
|
|
|
980
|
|
|
|
1,163
|
|
|
|
-
|
|
|
|
497
|
|
|
|
683
|
|
|
|
-
|
|
Consumer and Other
|
|
|
770
|
|
|
|
842
|
|
|
|
-
|
|
|
|
690
|
|
|
|
818
|
|
|
|
-
|
|
|
|
|
9,345
|
|
|
|
10,086
|
|
|
|
-
|
|
|
|
6,500
|
|
|
|
7,295
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With a related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Residential Real Estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial and Industrial
|
|
|
45
|
|
|
|
51
|
|
|
|
45
|
|
|
|
251
|
|
|
|
251
|
|
|
|
251
|
|
Consumer and Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
45
|
|
|
|
51
|
|
|
|
45
|
|
|
|
253
|
|
|
|
253
|
|
|
|
253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans, Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
4,071
|
|
|
|
4,524
|
|
|
|
-
|
|
|
|
1,977
|
|
|
|
2,425
|
|
|
|
-
|
|
Residential Real Estate
|
|
|
3,524
|
|
|
|
3,557
|
|
|
|
-
|
|
|
|
3,336
|
|
|
|
3,369
|
|
|
|
-
|
|
Commercial and Industrial
|
|
|
1,025
|
|
|
|
1,214
|
|
|
|
45
|
|
|
|
748
|
|
|
|
934
|
|
|
|
251
|
|
Consumer and Other
|
|
|
770
|
|
|
|
842
|
|
|
|
-
|
|
|
|
692
|
|
|
|
820
|
|
|
|
2
|
|
Impaired Loans, Total
|
|
$
|
9,390
|
|
|
|
10,137
|
|
|
|
45
|
|
|
|
6,753
|
|
|
|
7,548
|
|
|
|
253
|
|
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
The following tables summarize additional information regarding impaired loans for the
three
and
six
months ended
June
30,
2018
and
2017.
Business Activities Loans
(In thousands)
|
|
Three Months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
$
|
3,250
|
|
|
|
25
|
|
|
|
6,188
|
|
|
|
75
|
|
Residential Real Estate
|
|
|
3,480
|
|
|
|
3
|
|
|
|
1,907
|
|
|
|
3
|
|
Commercial and Industrial
|
|
|
980
|
|
|
|
-
|
|
|
|
37
|
|
|
|
-
|
|
Consumer and Other
|
|
|
750
|
|
|
|
8
|
|
|
|
541
|
|
|
|
5
|
|
|
|
|
8,460
|
|
|
|
36
|
|
|
|
8,673
|
|
|
|
83
|
|
With a related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Residential Real Estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial and Industrial
|
|
|
293
|
|
|
|
-
|
|
|
|
232
|
|
|
|
-
|
|
Consumer and Other
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
296
|
|
|
|
-
|
|
|
|
232
|
|
|
|
-
|
|
Impaired Loans, Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
3,250
|
|
|
|
25
|
|
|
|
6,188
|
|
|
|
75
|
|
Residential Real Estate
|
|
|
3,480
|
|
|
|
3
|
|
|
|
1,907
|
|
|
|
3
|
|
Commercial and Industrial
|
|
|
1,273
|
|
|
|
-
|
|
|
|
269
|
|
|
|
-
|
|
Consumer and Other
|
|
|
753
|
|
|
|
8
|
|
|
|
541
|
|
|
|
5
|
|
Impaired Loans, Total
|
|
$
|
8,756
|
|
|
|
36
|
|
|
|
8,905
|
|
|
|
83
|
|
(In thousands)
|
|
Six Months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
$
|
2,770
|
|
|
|
49
|
|
|
|
6,213
|
|
|
|
148
|
|
Residential Real Estate
|
|
|
3,421
|
|
|
|
6
|
|
|
|
1,909
|
|
|
|
5
|
|
Commercial and Industrial
|
|
|
912
|
|
|
|
-
|
|
|
|
37
|
|
|
|
-
|
|
Consumer and Other
|
|
|
725
|
|
|
|
15
|
|
|
|
541
|
|
|
|
10
|
|
|
|
|
7,828
|
|
|
|
70
|
|
|
|
8,700
|
|
|
|
163
|
|
With a related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Residential Real Estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial and Industrial
|
|
|
244
|
|
|
|
-
|
|
|
|
232
|
|
|
|
-
|
|
Consumer and Other
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
246
|
|
|
|
-
|
|
|
|
232
|
|
|
|
-
|
|
Impaired Loans, Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
2,770
|
|
|
|
49
|
|
|
|
6,213
|
|
|
|
148
|
|
Residential Real Estate
|
|
|
3,421
|
|
|
|
6
|
|
|
|
1,909
|
|
|
|
5
|
|
Commercial and Industrial
|
|
|
1,156
|
|
|
|
-
|
|
|
|
269
|
|
|
|
-
|
|
Consumer and Other
|
|
|
727
|
|
|
|
15
|
|
|
|
541
|
|
|
|
10
|
|
Impaired Loans, Total
|
|
$
|
8,074
|
|
|
|
70
|
|
|
|
8,932
|
|
|
|
163
|
|
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
Note
6
: Deposits
The following table presents the balance of deposits held, by category as of
June
30,
2018
and
December
31,
2017.
(In thousands)
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
$
|
83,808
|
|
|
$
|
81,197
|
|
Interest bearing:
|
|
|
|
|
|
|
|
|
NOW
|
|
|
26,352
|
|
|
|
25,476
|
|
Savings
|
|
|
111,812
|
|
|
|
135,975
|
|
Money market
|
|
|
38,240
|
|
|
|
16,575
|
|
Certificates of deposit, less than $250,000
|
|
|
205,896
|
|
|
|
173,221
|
|
Certificates of deposit, $250,000 or greater
|
|
|
68,287
|
|
|
|
66,866
|
|
Brokered deposits
|
|
|
177,917
|
|
|
|
138,129
|
|
Interest bearing, Total
|
|
|
628,504
|
|
|
|
556,242
|
|
|
|
|
|
|
|
|
|
|
Total Deposits
|
|
$
|
712,312
|
|
|
$
|
637,439
|
|
As of
June
30,
2018
total deposits consists of
$44.3
million deposits acquired in connection with the Prime Bank merger.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
Note
7
:
Share-Based Compensation
and Employee Benefit Plan
The Company maintains the Patriot National Bancorp, Inc.
2012
Stock Plan (the “Plan”) to provide an incentive to directors and employees of the Company by the grant of restricted stock awards (“RSA”), options, or phantom stock units. Since
2013,
the Company’s practice is to grant RSAs. As of
June
30,
2018
and
December 31, 2017,
there were
no
options or phantom stock units outstanding, or that have been exercised during the period then ended.
The Plan provides for the issuance of up to
3,000,000
shares of the Company’s common stock subject to certain limitations. As of
June
30,
2018,
2,869,913
shares of stock are available for issuance under the Plan. In accordance with the terms of the Plan, the vesting of RSAs and options
may
be accelerated at the discretion of the Compensation Committee of the Board of Directors. The Compensation Committee sets the terms and conditions applicable to the vesting of RSAs and stock option grants. RSAs granted to directors and employees generally vest in quarterly or annual installments over a three,
four
or
five
year period from the date of grant.
During the
three
and
six
months ended
June
30,
2018,
the Company granted
0
and
11,200
RSAs to the CEO,
0
and
2,999
RSAs to Executive Vice Presidents, and
4,124
and
4,124
RSAs to directors, respectively. There were
1,968
and
4,903
shares of restricted stock vested,
1,104
and
1,204
shares of restricted stock forfeited, respectively. All RSAs are non- participating grants.
During the
three
and
six
months ended
June
30,
2017,
the Company granted
5,084
RSAs to directors and
zero
RSAs to employees. There were
0
and
2,231
shares of restricted stock vested,
6,000,
and
6,000
shares of restricted stock forfeited, respectively.
The Company recognizes compensation expense for all director and employee share-based compensation awards on a straight-line basis over the requisite service period, which is equal to the vesting schedule of each award, for each vesting portion of an award equal to its grant date fair value.
For the
three
and
six
months ended
June
30,
2018,
the Company recognized total share-based compensation expense of
$54,000
and
$107,000,
respectively. The share-based compensation attributable to employees of Patriot amounted to
$32,000
and
$67,000,
respectively, for the
three
and
six
months ended
June 30, 2018.
Included in share-based compensation expense for the
three
and
six
months ended
June
30,
2018
were
$22,000
and
$40,000
attributable to Patriot’s external Directors, who received total compensation of
$77,000
and
$159,000
for each of those periods, respectively, which amounts are included in Other Operating Expenses in the Consolidated Statements of Income.
For the
three
and
six
months ended
June
30,
2017,
the Company recognized total share-based compensation expense of
$25,000
and
$68,000,
respectively. The share-based compensation attributable to employees of Patriot amounted to
$4,000
and
$32,000,
respectively. Included in share-based compensation expense for the
three
and
six
months ended
June
30,
2017
were
$21,000
and
$36,000
attributable to Patriot’s external Directors, who received total compensation of
$77,000
and
$146,000
for each of those periods, respectively, which amounts are included in Other Operating Expenses in the Consolidated Statements of Income.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
The following is a summary of the status of the Company’s restricted shares as of
June
30,
2018
and
2017
and changes therein during the periods indicated:
Three months ended June 30, 2018:
|
|
Number
of
Shares Awarded
|
|
|
Weighted Average
Grant Date
Fair Value
|
|
Unvested at March 31, 2018
|
|
|
37,034
|
|
|
$
|
14.20
|
|
Granted
|
|
|
4,124
|
|
|
$
|
18.55
|
|
Vested
|
|
|
(1,968
|
)
|
|
$
|
16.05
|
|
Forfeited
|
|
|
(1,104
|
)
|
|
$
|
14.15
|
|
Unvested at June 30, 2018
|
|
|
38,086
|
|
|
$
|
14.57
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2018:
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2017
|
|
|
25,870
|
|
|
$
|
12.15
|
|
Granted
|
|
|
18,323
|
|
|
$
|
18.07
|
|
Vested
|
|
|
(4,903
|
)
|
|
$
|
14.93
|
|
Forfeited
|
|
|
(1,204
|
)
|
|
$
|
14.26
|
|
Unvested at June 30, 2018
|
|
|
38,086
|
|
|
$
|
14.57
|
|
Three months ended June 30, 2017:
|
|
Number
of
Shares Awarded
|
|
|
Weighted Average
Grant Date
Fair Value
|
|
Unvested at March 31, 2017
|
|
|
33,033
|
|
|
$
|
12.55
|
|
Granted
|
|
|
5,084
|
|
|
$
|
15.05
|
|
Forfeited
|
|
|
(6,000
|
)
|
|
$
|
15.50
|
|
Unvested at June 30, 2017
|
|
|
32,117
|
|
|
$
|
12.39
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2017:
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2016
|
|
|
35,264
|
|
|
$
|
12.84
|
|
Granted
|
|
|
5,084
|
|
|
$
|
15.05
|
|
Vested
|
|
|
(2,231
|
)
|
|
$
|
13.05
|
|
Forfeited
|
|
|
(6,000
|
)
|
|
$
|
15.50
|
|
Unvested at June 30, 2017
|
|
|
32,117
|
|
|
$
|
12.39
|
|
Unrecognized compensation expense attributable to the unvested restricted shares outstanding as of
June
30,
2018
amounts to
$485,000,
which amount is expected to be recognized over the weighted average remaining life of the awards of
2.77
years.
RSA Grant - Non-executive Employees
During the
three
and
six
months ended
June
30,
2018,
0
and
100
granted shares were forfeited, respectively. During the
three
and
six
months ended
June
30,
2017,
none
of the granted shares were forfeited. The remaining
6,200
shares continue to vest and
$16,000
of compensation expense is expected to be recognized through the
January 2019
vesting date.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
Retirement Plan
The Company offers a
401K
retirement plan (the
“401K”
), which provides for tax-deferred salary deductions for eligible employees. Employees
may
choose to make voluntary contributions to the
401K,
limited to an annual maximum amount as set forth periodically by the Internal Revenue Service. The Company matches
50%
of such contributions, up to a maximum of
six
percent of an employee's annual compensation. During the
three
and
six
months ended
June
30,
2018
compensation expense under the
401K
aggregated
$65,000
and
$116,000,
respectively. During the
three
and
six
months ended
June
30,
2017
compensation expense under the
401K
aggregated
$60,000
and
$94,000,
respectively.
Dividends
On
July 17, 2017,
the Company announced its intention to make quarterly cash dividend payments. For the
three
and
six
months ended
June
30,
2018,
the Company paid cash dividends of
$.01
per share of common stock, or an aggregated of
$39,000
and
$77,000,
respectively.
No
dividend was declared and paid for the
three
and
six
months ended
June
30,
2017.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
Note
8
:
Earnings
per share
The Company is required to present basic earnings per share and diluted earnings per share in its Consolidated Statements of Income. Basic earnings per share amounts are computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share reflects additional common shares that would have been outstanding if potentially dilutive common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares 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.
The following table summarizes the computation of basic and diluted earnings per share for the
three
and
six
months ended
June
30,
2018
and
2017:
(Net income in thousands)
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Common shareholders
|
|
$
|
1,036
|
|
|
|
804
|
|
|
|
2,101
|
|
|
|
2,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divided by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
3,903,858
|
|
|
|
3,894,128
|
|
|
|
3,902,195
|
|
|
|
3,893,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.27
|
|
|
|
0.21
|
|
|
|
0.54
|
|
|
|
0.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Common shareholders
|
|
$
|
1,036
|
|
|
|
804
|
|
|
|
2,101
|
|
|
|
2,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
3,903,858
|
|
|
|
3,894,128
|
|
|
|
3,902,195
|
|
|
|
3,893,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of potentially dilutive restricted common shares
|
|
|
13,603
|
|
|
|
7,400
|
|
|
|
17,943
|
|
|
|
5,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divided by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding
|
|
|
3,917,461
|
|
|
|
3,901,528
|
|
|
|
3,920,138
|
|
|
|
3,898,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
0.26
|
|
|
|
0.21
|
|
|
|
0.54
|
|
|
|
0.65
|
|
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
No
te
9
:
Financial Instruments with Off-Balance Sheet Risk
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.
The contractual amount of commitments to extend credit and standby letters of credit represents the maximum amount of potential accounting loss should: the contract be fully drawn upon; the customer default; and the value of any existing collateral becomes worthless. Patriot applies its credit policies to entering commitments and conditional obligations and, as with its lending activates, evaluates each customer’s creditworthiness on a case-by-case basis. Management believes that it effectively mitigates the credit risk of these financial instruments through its credit approval processes, establishing credit limits, monitoring the on-going creditworthiness of recipients and grantees, and the receipt of collateral as deemed necessary.
Financial instruments with credit risk at
June
30,
2018
are as follows:
(In thousands)
|
|
|
|
|
|
|
As of June 30, 2018
|
|
Commitments to extend credit:
|
|
|
|
|
Unused lines of credit
|
|
$
|
81,743
|
|
Undisbursed construction loans
|
|
|
14,136
|
|
Home equity lines of credit
|
|
|
20,162
|
|
Future loan commitments
|
|
|
14,497
|
|
Financial standby letters of credit
|
|
|
1,286
|
|
|
|
$
|
131,824
|
|
Commitments to extend credit are agreements to lend to a customer as long as there is
no
violation of any condition established in the contract. Commitments to extend credit generally have fixed expiration dates or other termination clauses, and
may
require payment of a fee by the borrower. Since these commitments could expire without being drawn upon, the total commitment amounts do
not
necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary upon extending credit, is based on management’s credit evaluation of the customer. Collateral held varies, but
may
include commercial property, residential property, deposits and securities. Patriot has established a
$8,000
reserve for credit loss as of
June
30,
2018,
which is included in accrued expenses and other liabilities.
Standby letters of credit are written commitments issued by Patriot to guarantee the performance of a customer to a
third
party. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers. Guarantees that are
not
derivative contracts are recorded at fair value and included in the Consolidated Balance Sheet.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
Note
10
: Regulatory and Operational Matters
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
(
“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.
Capital adequacy is
one
of the most important factors used to determine the safety and soundness of individual banks and the banking system. Under the instituted regulatory framework, to be considered “well capitalized”, a financial institution must generally have a Total Capital ratio of at least
10%,
a Tier
1
Capital ratio of at least
8.0%,
a
CET1
Capital ratio at least
6.5%,
and a Tier
1
Leverage Capital ratio of at least
5.0%.
However, regardless of a financial institution’s ratios, the Office of Comptroller of the Currency (the “OCC”)
may
require increased capital ratios or impose dividend restrictions based on the other factors it considers in assessing a bank’s capital adequacy.
Management continuously assesses the adequacy of the Bank’s capital in order to maintain its “well capitalized” status.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
The Company’s and the Bank’s regulatory capital amounts and ratios at
June
30,
2018
and
December
31,
2017
are summarized as follows:
(In thousands)
|
|
Patriot National Bancorp, Inc.
|
|
|
Patriot Bank, N.A.
|
|
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
Amount
($)
|
|
|
Ratio
(%)
|
|
|
Amount
($)
|
|
|
Ratio
(%)
|
|
|
Amount
($)
|
|
|
Ratio
(%)
|
|
|
Amount
($)
|
|
|
Ratio
(%)
|
|
Total Capital (to risk weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
77,930
|
|
|
|
9.575
|
|
|
|
74,264
|
|
|
|
10.092
|
|
|
|
95,988
|
|
|
|
11.852
|
|
|
|
83,711
|
|
|
|
11.406
|
|
To be Well Capitalized
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
80,987
|
|
|
|
10.000
|
|
|
|
73,393
|
|
|
|
10.000
|
|
For capital adequacy with Capital Buffer
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
79,975
|
|
|
|
9.875
|
|
|
|
67,889
|
|
|
|
9.250
|
|
For capital adequacy
|
|
|
65,108
|
|
|
|
8.000
|
|
|
|
58,868
|
|
|
|
8.000
|
|
|
|
64,790
|
|
|
|
8.000
|
|
|
|
58,715
|
|
|
|
8.000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Capital (to risk weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
71,394
|
|
|
|
8.772
|
|
|
|
67,959
|
|
|
|
9.235
|
|
|
|
89,451
|
|
|
|
11.045
|
|
|
|
77,407
|
|
|
|
10.547
|
|
To be Well Capitalized
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
64,790
|
|
|
|
8.000
|
|
|
|
58,715
|
|
|
|
8.000
|
|
For capital adequacy with Capital Buffer
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
63,777
|
|
|
|
7.875
|
|
|
|
53,210
|
|
|
|
7.250
|
|
For capital adequacy
|
|
|
48,831
|
|
|
|
6.000
|
|
|
|
44,151
|
|
|
|
6.000
|
|
|
|
48,592
|
|
|
|
6.000
|
|
|
|
44,036
|
|
|
|
6.000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Equity Tier 1 Capital (to risk weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
63,394
|
|
|
|
7.789
|
|
|
|
59,959
|
|
|
|
8.148
|
|
|
|
89,451
|
|
|
|
11.045
|
|
|
|
77,407
|
|
|
|
10.547
|
|
To be Well Capitalized
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
52,642
|
|
|
|
6.500
|
|
|
|
47,706
|
|
|
|
6.500
|
|
For capital adequacy with Capital Buffer
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
51,629
|
|
|
|
6.375
|
|
|
|
42,201
|
|
|
|
5.750
|
|
For capital adequacy
|
|
|
36,623
|
|
|
|
4.500
|
|
|
|
33,113
|
|
|
|
4.500
|
|
|
|
36,444
|
|
|
|
4.500
|
|
|
|
33,027
|
|
|
|
4.500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Leverage Capital (to average assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
71,394
|
|
|
|
7.974
|
|
|
|
67,959
|
|
|
|
8.219
|
|
|
|
89,451
|
|
|
|
10.029
|
|
|
|
77,407
|
|
|
|
9.360
|
|
To be Well Capitalized
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
44,598
|
|
|
|
5.000
|
|
|
|
41,351
|
|
|
|
5.000
|
|
For capital adequacy
|
|
|
35,815
|
|
|
|
4.000
|
|
|
|
33,072
|
|
|
|
4.000
|
|
|
|
35,679
|
|
|
|
4.000
|
|
|
|
33,081
|
|
|
|
4.000
|
|
(
1
)
|
Designation as "Well Capitalized" does
not
apply to bank holding companies - - the Company. Such categorization of capital adequacy only applies to insured depository institutions - - the Bank.
|
(
2
)
|
The Capital Conservation Buffer implemented by the FDIC began to be phased in beginning
January 1, 2016.
It was
not
applicable to periods prior to that date and does
not
apply to bank holding companies - - the Company.
|
Under the final capital rules that became effective on
January 1, 2015,
there was a requirement for a
CET1
capital conservation buffer of
2.5%
of risk-weighted assets, which is in addition to the other minimum risk-based capital standards in the rule. Institutions that do
not
maintain this required capital buffer become subject to progressively more stringent limitations on the percentage of earnings that
may
be distributed to shareholders or used for stock repurchases and on the payment of discretionary bonuses to senior executive management.
The capital buffer requirement is being phased in over
three
years beginning in
2016.
The
1.25%
capital conversation buffer for
2017
has been included in the minimum capital adequacy ratios in the
2017
column in the table above. The capital conversation buffer increased to
1.875%
for
2018,
which has been included in the minimum capital adequacy ratios in the
2018
column above.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
The capital buffer requirement effectively raises the minimum required Total Capital ratio to
10.5%,
the Tier
1
capital ratio to
8.5%
and the
CET1
capital ratio to
7.0%
on a fully phased-in basis, which will be effective beginning on
January 1, 2019.
Management believes that, as of
June
30,
2018,
Patriot satisfies all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis, as if all such requirements were currently in effect.
Note
1
1
: Fair Value and Interest Rate Risk
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.
Following is a detailed summary of the guidance provided by US GAAP regarding the application of fair value measurements and Patriot’s application thereof. Additionally, the following information includes detailed summaries of the effects fair value measurements have on the carrying amounts of asset and liabilities presented in the Consolidated Financial Statements.
The objective of fair value measurement is to value an asset that
may
be sold or a liability that
may
be transferred at the estimated value which might be obtained in a transaction between unrelated parties under current market conditions. US GAAP establishes a framework for measuring assets and liabilities at fair value, as well as certain financial instruments classified in equity. The framework provides a fair value hierarchy, which prioritizes quoted prices in active markets for identical assets and liabilities and minimizes unobservable inputs, which are inputs for which market data are
not
available and that are developed by management using the best information available to develop assumptions about the value market participants might place on the asset to be sold or liability to be transferred.
The
three
levels of the fair value hierarchy consist of:
Level
1
|
Unadjusted 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
2
|
Observable 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
3
|
Valuation 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).
|
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
A description of the valuation methodologies used for assets and liabilities recorded at fair value, and for estimating fair value for financial and non-financial instruments
not
recorded at fair value, is set forth below.
Cash and due from banks, federal funds sold
, short-term investments
,
and accrued interest receivable and payable
The carrying amount is a reasonable estimate of fair value and accordingly these are classified as Level
1.
These financial instruments are
not
recorded at fair value on a recurring basis.
Available-for-
s
ale
s
ecurities
The fair value of securities available for sale (carried at fair value) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level
1
), or matrix pricing (Level
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
).
Other Investments
The Bank’s investment portfolio includes the Solomon Hess SBA Loan Fund totaling
$4.5
million. This investment is utilized by the Bank to satisfy its Community Reinvestment Act (“CRA”) lending requirements. As this fund operates as a private fund, shares in the fund are
not
publicly traded but
may
be redeemed with
60
days notice at cost. For that reason, the carrying amount was considered comparable to fair value.
Federal Reserve Bank Stock and Federal Home Loan Bank Stock
Shares in the Federal Reserve Bank (“FRB”) and Federal Home Loan Bank (“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.
Loans
The fair value of loans are estimated by discounting the future cash flows using the rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. In connection with the adoption of ASU
2016
-
01
on
January 1, 2018,
we refined our methodology to estimate the fair value of our loan portfolio using an exit price notion resulting in prior periods
no
longer being comparable. The exit price notion requires determination of the price at which willing market participants would transact at the measurement date under current market conditions depending on facts and circumstances, such as origination rates, credit risk, transaction costs, liquidity, national and regional market trends and other adjustments, utilizing publicly available rates and indices. The application of an exit price notion requires the use of significant judgment.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
Deposits
The fair value of demand deposits, regular savings and certain money market deposits is the amount payable on demand at the reporting date.
The fair value of certificates of deposit and other time deposits is estimated using a discounted cash flow calculation that applies interest rates currently being offered for deposits of similar remaining maturities, estimated using local market data, to a schedule of aggregated expected maturities on such deposits. Patriot does
not
record deposits at fair value on a recurring basis.
Senior Notes
,
Subordinated Note
s,
and
Junior Subordinated Debt
Patriot does
not
record senior notes at fair value on a recurring basis. The fair value of the senior 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.
Patriot does
not
record subordinated notes issued in
June 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.
Patriot does
not
record junior subordinated debt at fair value on a recurring basis. Junior subordinated debt reprices quarterly, as a result, the carrying amount is considered a reasonable estimate of fair value.
Federal Home Loan Bank Borrowings
The fair value of FHLB advances is estimated using a discounted cash flow calculation that applies current FHLB interest rates for advances of similar maturity to a schedule of maturities of such advances. Patriot does
not
record FHLB advances at fair value on a recurring basis.
Off-balance sheet
financial
instruments
Off-balance sheet financial instruments are based on interest rate changes and fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The off-balance-sheet financial instruments (i.e., commitments to extend credit) are insignificant and are
not
recorded on a recurring basis.
The following tables detail the financial assets measured at fair value on a recurring basis and the valuation techniques utilized relative to the fair value hierarchy, as of
June
30,
2018
and
December 31, 2017:
(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, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Government agency mortgage-backed securities
|
|
$
|
-
|
|
|
|
6,229
|
|
|
|
-
|
|
|
|
6,229
|
|
Corporate bonds
|
|
|
-
|
|
|
|
13,201
|
|
|
|
-
|
|
|
|
13,201
|
|
Subordinated notes
|
|
|
-
|
|
|
|
4,552
|
|
|
|
-
|
|
|
|
4,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
$
|
-
|
|
|
|
23,982
|
|
|
|
-
|
|
|
|
23,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Government agency mortgage-backed securities
|
|
$
|
-
|
|
|
|
7,224
|
|
|
|
-
|
|
|
|
7,224
|
|
Corporate bonds
|
|
|
-
|
|
|
|
13,804
|
|
|
|
-
|
|
|
|
13,804
|
|
Subordinated notes
|
|
|
-
|
|
|
|
4,548
|
|
|
|
-
|
|
|
|
4,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
$
|
-
|
|
|
|
25,576
|
|
|
|
-
|
|
|
|
25,576
|
|
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
Patriot measures certain financial assets and financial liabilities at fair value on a non-recurring basis. When circumstances dictate (e.g., impairment of long-lived assets, other than temporary impairment of collateral value), the carrying values of such financial assets and financial liabilities are adjusted to fair value or fair value less costs to sell, as
may
be appropriate.
The table below presents the valuation methodology and unobservable inputs for level
3
assets measures at fair value on a non-recurring basis as of
June
30,
2018
and
December 31, 2017:
(In thousands)
|
|
Fair Value
|
|
Valuation Methodology
|
|
Unobservable Inputs
|
|
Range of Inputs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
9,345
|
|
Real Estate Appraisals
|
|
Discount for appraisal type
|
|
|
0%
|
-
|
8%
|
|
Other real estate owned
|
|
|
991
|
|
Real Estate Appraisals
|
|
Discount for appraisal type
|
|
|
|
14%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
6,500
|
|
Real Estate Appraisals
|
|
Discount for appraisal type
|
|
|
0%
|
-
|
8%
|
|
Patriot discloses fair value information about financial instruments, whether or
not
recognized in the Consolidated Balance Sheet, for which it is practicable to estimate that value. Certain financial instruments are excluded from disclosure requirements and, accordingly, the aggregate fair value amounts presented do
not
necessarily represent the complete underlying value of financial instruments included in the Consolidated Financial Statements.
The estimated fair value amounts have been measured as of
June
30,
2018
and
December 31, 2017,
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.
The information presented should
not
be interpreted as an estimate of the total fair value of Patriot’s assets and liabilities, since only a portion of Patriot’s assets and liabilities are required to be measured at fair value for financial reporting purposes. Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between Patriot’s fair value disclosures and those of other bank holding companies
may
not
be meaningful.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
The following table provides a comparison of the carrying amounts and estimated fair values of Patriot’s financial assets and liabilities as of
June
30,
2018
and
December 31, 2017:
(In thousands)
|
|
|
|
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
Fair Value
Hierarchy
|
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and noninterest bearing balances due from banks
|
|
Level 1
|
|
|
$
|
4,589
|
|
|
|
4,589
|
|
|
|
3,582
|
|
|
|
3,582
|
|
Interest-bearing deposits due from banks
|
|
Level 1
|
|
|
|
81,052
|
|
|
|
81,052
|
|
|
|
45,659
|
|
|
|
45,659
|
|
U. S. Government agency mortgage-backed securities
|
|
Level 2
|
|
|
|
6,229
|
|
|
|
6,229
|
|
|
|
7,224
|
|
|
|
7,224
|
|
Corporate bonds
|
|
Level 2
|
|
|
|
13,201
|
|
|
|
13,201
|
|
|
|
13,804
|
|
|
|
13,804
|
|
Subordinated notes
|
|
Level 2
|
|
|
|
4,552
|
|
|
|
4,552
|
|
|
|
4,548
|
|
|
|
4,548
|
|
Other investments
|
|
Level 2
|
|
|
|
4,450
|
|
|
|
4,450
|
|
|
|
4,450
|
|
|
|
4,450
|
|
Federal Reserve Bank stock
|
|
Level 2
|
|
|
|
2,564
|
|
|
|
2,564
|
|
|
|
2,502
|
|
|
|
2,502
|
|
Federal Home Loan Bank stock
|
|
Level 2
|
|
|
|
5,807
|
|
|
|
5,807
|
|
|
|
5,889
|
|
|
|
5,889
|
|
Loans receivable, net
|
|
Level 3
|
|
|
|
750,804
|
|
|
|
734,773
|
|
|
|
713,350
|
|
|
|
702,816
|
|
Accrued interest receivable
|
|
Level 2
|
|
|
|
3,306
|
|
|
|
3,306
|
|
|
|
3,496
|
|
|
|
3,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets, total
|
|
|
|
|
|
$
|
876,554
|
|
|
|
860,523
|
|
|
|
804,504
|
|
|
|
793,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
Level 2
|
|
|
$
|
83,808
|
|
|
|
83,808
|
|
|
|
81,197
|
|
|
|
81,197
|
|
Savings deposits
|
|
Level 2
|
|
|
|
111,812
|
|
|
|
111,812
|
|
|
|
135,975
|
|
|
|
135,975
|
|
Money market deposits
|
|
Level 2
|
|
|
|
38,240
|
|
|
|
38,240
|
|
|
|
16,575
|
|
|
|
16,575
|
|
NOW accounts
|
|
Level 2
|
|
|
|
26,352
|
|
|
|
26,352
|
|
|
|
25,476
|
|
|
|
25,476
|
|
Time deposits
|
|
Level 2
|
|
|
|
274,183
|
|
|
|
272,605
|
|
|
|
240,087
|
|
|
|
239,219
|
|
Brokered deposits
|
|
Level 1
|
|
|
|
177,917
|
|
|
|
177,503
|
|
|
|
138,129
|
|
|
|
137,870
|
|
FHLB and correspondent bank borrowings
|
|
Level 2
|
|
|
|
110,000
|
|
|
|
110,150
|
|
|
|
120,000
|
|
|
|
120,218
|
|
Senior notes
|
|
Level 2
|
|
|
|
11,740
|
|
|
|
11,108
|
|
|
|
11,703
|
|
|
|
11,249
|
|
Subordinated debt
|
|
Level 2
|
|
|
|
9,576
|
|
|
|
9,576
|
|
|
|
-
|
|
|
|
-
|
|
Junior subordinated debt owed to unconsolidated trust
|
|
Level 2
|
|
|
|
8,090
|
|
|
|
8,090
|
|
|
|
8,086
|
|
|
|
8,086
|
|
Note payable
|
|
Level 3
|
|
|
|
1,484
|
|
|
|
1,298
|
|
|
|
1,580
|
|
|
|
1,416
|
|
Accrued interest payable
|
|
Level 2
|
|
|
|
1,422
|
|
|
|
1,422
|
|
|
|
569
|
|
|
|
569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities, total
|
|
|
|
|
|
$
|
854,624
|
|
|
|
851,964
|
|
|
|
779,377
|
|
|
|
777,850
|
|
The carrying amount of cash and noninterest bearing balances due from banks, interest-bearing deposits due from banks, and demand deposits approximates fair value, due to the short-term nature and high turnover of these balances. These amounts are included in the table above for informational purposes.
In the normal course of its operations, Patriot assumes interest rate risk (i.e., the risk that general interest rate levels will fluctuate). As a result, the fair value of 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.
PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to consolidated financial statements (Unaudited)
Off-balance
-
sheet instruments
Loan commitments on which the committed interest rate is less than the current market rate were insignificant at
June
30,
2018
and
December 31, 2017.
The estimated fair value of fee income on letters of credit at
June
30,
2018
and
December 31, 2017
was insignificant.