Connecticut | 06-1559137 | |
(State of incorporation) | (I.R.S. Employer Identification Number) |
Large Accelerated Filer o | Accelerated Filer o | Non-Accelerated Filer o | Smaller Reporting Company þ |
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EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
EX-101 DEFINITION LINKBASE DOCUMENT |
2
3
No. | Description | |
2
|
Agreement and Plan of Reorganization dated as of June 28, 1999 between Bancorp and the Bank (incorporated by reference to Exhibit 2 to Bancorps Current Report on Form 8-K dated December 1, 1999 (Commission File No. 000-29599)). | |
3(i)
|
Certificate of Incorporation of Bancorp, (incorporated by reference to Exhibit 3(i) to Bancorps Current Report on Form 8-K dated December 1, 1999 (Commission File No. 000-29599)). | |
3(i)(A)
|
Certificate of Amendment of Certificate of Incorporation of Patriot National Bancorp, Inc. dated July 16, 2004 (incorporated by reference to Exhibit 3(i)(A) to Bancorps Annual Report on Form 10-KSB for the year ended December 31, 2004 (Commission File No. 000-29599)). | |
3(i)(B)
|
Certificate of Amendment of Certificate of Incorporation of Patriot National Bancorp, Inc. dated June 15, 2006 (incorporated by reference to Exhibit 3(i)(B) to Bancorps Quarterly Report of Form 10-Q for the quarter ended September 30, 2006 (commission File No. 000-29599)). | |
3(i)(C)
|
Certificate of Amendment to the Certificate of Incorporation of Patriot National Bancorp, Inc., filed with the Secretary of State of the State of Connecticut on October 6, 2010 (incorporated by reference to Exhibit 3.1 to Bancorps Current Report on Form 8-K dated October 20, 2010 (Commission File No. 000- 29599)). | |
3(i)(D)
|
Registration Rights Agreement, dated as of October 15, 2010, by and between Patriot National Bancorp, Inc. and PNBK Holdings LLC (incorporated by reference to Exhibit 10.1 to Bancorps Current Report on Form 8-K dated October 20, 2010 (Commission File No. 000-29599)). | |
3(ii)
|
Amended and Restated By-laws of Bancorp (incorporated by reference to Exhibit 3(ii) to Bancorps Current Report on Form 8-K dated November I, 2010 (Commission File No. 000-29599)). | |
10(a)(1)
|
2001 Stock Appreciation Rights Plan of Bancorp (incorporated by reference to Exhibit 10(a)(1) to Bancorps Annual Report on Form 10-KSB for the year ended December 31, 2001 (Commission File No. 000-29599)). | |
10(a)(3)
|
Employment Agreement, dated as of October 23, 2000, as amended by a First Amendment, dated as of March 21, 2001, among the Bank, Bancorp and Charles F. Howell (incorporated by reference to Exhibit 10(aX4) to Bancorps Annual Report on Form 10-KSB for the year ended December 31, 2000 (Commission File No. 000-29599)). | |
10(a)(4)
|
Change of Control Agreement, dated as of January 1, 2007 among Angelo De Caro, and Patriot National Bank and Bancorp (incorporated by reference to Exhibit 10(a)(4) to Bancorps Annual Report on Form 10-K for the year ended December 31, 2006 (Commission File No. 000-29599)). | |
10(a)(5)
|
Employment Agreement dated as of January 1, 2008 among Patriot National Bank, Bancorp and Robert F. OConnell (incorporated by reference to Exhibit 10(a)(5) to Bancorps Annual Report on Form 10-K for the year ended December 31, 2007 (Commission File No. 000-29599)). | |
10(a)(6)
|
Change of Control Agreement, dated as of January 1, 2007 among Robert F. OConnell, Patriot National Bank and Bancorp (incorporated by reference to Exhibit 10(a)(6) to Bancorps Annual Report on Form 10-K for the year ended December 31, 2006 (Commission File No. 000-29599)). | |
10(a)(9)
|
License agreement dated July 1, 2003 between Patriot National Bank and L. Morris Glucksman (incorporated by reference to Exhibit 10(a)(9) to Bancorps Annual Report on Form 10-KSB for the year ended December 31, 2003 (Commission File No. 000-29599)) | |
10(a)(10)
|
Employment Agreement dated as of January 1, 2007 among Patriot National Bank, Bancorp and Charles F. Howell (incorporated by reference to Exhibit 10(a)(10) to Bancorps Annual Report on Form 10-K for the year ended December 31, 2006 (Commission File No. 000-29599)). | |
10(a)(11)
|
Change of Control Agreement, dated as of January I, 2007 among Charles F. Howell, Patriot National Bank and Bancorp (incorporated by reference to Exhibit 10(a)(1 I) to Bancorps Annual Report on Form 10-K for the year ended December 31, 2006 (Commission File No. 000-29599)). | |
10(a)(12)
|
2005 Director Stock Award Plan (incorporated by reference to Exhibit 10(a)(12) to Bancorps Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 (Commission File No. 000 295999)). | |
10(a)(13)
|
Change of Control Agreement, dated as of January 1, 2007 between Martin G. Noble and Patriot National Bank (incorporated by reference to Exhibit 10(a)(13) to Bancorps Annual Report on Form 10-K for the year ended December 31, 2006 (Commission File No. 000-29599)). | |
10(a)(14)
|
Change of Control Agreement, dated as of January 1, 2007 among Philip W. Wolford, Patriot National Bank and Bancorp (incorporated by reference to Exhibit 10(a)(14) to Bancorps Annual Report on Form 10-K for the year ended December 31, 2006 (Commission File No. 000-29599)). | |
10(a)(15)
|
Formal Written Agreement between Patriot National Bank and the Office of the Comptroller of the Currency (incorporated by reference to Exhibit 10(a)(15) to Bancorps Current Report on Form 8-K dated February 9, 2009 (Commission File No. 000-29599)). | |
10(a)(16)
|
Securities Purchase Agreement by and among Patriot National Bancorp, Inc., Patriot National Bank and PNBK Holdings LLC dated as of December 16, 2009 (incorporated by reference to Exhibit 10.1 to Bancorps Current Report on Form 8-K dated December 17, 2009). | |
10(a)(17)
|
First Amendment to Securities Purchase Agreement by and among Patriot National Bancorp, Inc., Patriot National Bank and PNBK Holdings LLC dated as of May 3, 2010. (incorporated by reference to Exhibit 10(a) to Bancorps Current Report on Form 8-K dated May 4, 2010). | |
10(a)(18)
|
Purchase and Sale Agreement, dated February 25, 2011, by and among Patriot National Bank, Pinpat Acquisition Corporation and ES Ventures One LLC (incorporated by reference to Exhibit 2.1 to Bancorps Current Report on Form 8-K dated March 29, 2011). | |
10(a)(19)
|
Formal Written Agreement between Patriot National Bank and the Federal Reserve Bank of New York (as incorporated by reference to Exhibit 10(a)(16) to Bancorps Annual Report on Form 10-K for the year ended December 31, 2010). | |
10(c)
|
1999 Stock Option Plan of the Bank (incorporated by reference to Exhibit 10(c) to Bancorps Current Report on Form 8-K dated December 1, 1999 (Commission File No. 000-29599)). |
4
No. | Description | |
14
|
Code of Conduct for Senior Financial Officers (incorporated by reference to Exhibit 14 to Bancorps Annual Report on Form 10 KSB for the year ended December 31, 2004 (Commission File No. 000-29599). | |
21
|
Subsidiaries of Bancorp (incorporated by reference to Exhibit 21 to Bancorps Annual Report on Form 10-KSB for the year ended December 31, 1999 (Commission File No. 000-29599)). | |
31(1)
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer (incorporated by reference to Exhibit 34(1) to Bancorps Quarterly Report on Form 10-Q for the quarter ended June 30, 2011). | |
31(2)
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer (incorporated by reference to Exhibit 34(2) to Bancorps Quarterly Report on Form 10-Q for the quarter ended June 30, 2011). | |
32
|
Section 1350 Certifications (incorporated by reference to Exhibit 32 to Bancorps Quarterly Report on Form 10-Q for the quarter ended June 30, 2011). | |
101
|
The following materials from Patriot National Bancorp, Inc.s Quarterly Report on Form 10-Q for the three months ended June 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets (unaudited) as of June 30, 2011 and December 31, 2010; (ii) Statements of Operations (unaudited) for the three and six months ended June 30, 2011 and June 30, 2010; (iii) Consolidated Statements of Changes in Shareholders Equity (unaudited) for the six months ended June 30, 2011 and June 30, 2010; (iv) Consolidated Statements of Cash Flows (unaudited) for the three and six months ended June 30, 2011 and June 30, 2010 and (v) Notes to the Unaudited Consolidated Financial Statements (unaudited). |
5
Patriot National Bancorp, Inc. (Registrant) |
||||
By: | /s/ Robert F. OConnell | |||
Robert F. OConnell, | ||||
Senior Executive Vice President Chief Financial Officer (On behalf of the registrant and as chief financial officer) |
6
Consolidated Balance Sheets (Parenthetical) (USD $)
|
Jun. 30, 2011
|
Dec. 31, 2010
|
---|---|---|
Securities: | Â | Â |
Allowance for loans receivable | $ 11,399,727 | $ 15,374,101 |
Shareholders' equity | Â | Â |
Preferred stock, par value | ||
Preferred stock, shares authorized | 1,000,000 | 1,000,000 |
Preferred stock, shares issued | ||
Preferred stock, shares outstanding | ||
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common stock, shares issued | 38,374,432 | 38,374,432 |
Common stock, shares outstanding | 38,362,727 | 38,362,727 |
Treasury stock, shares | 11,705 | 11,705 |
Consolidated Statements of Operations (Unaudited) (USD $)
|
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
|
Jun. 30, 2010
|
|
Interest and Dividend Income | Â | Â | Â | Â |
Interest and fees on loans | $ 6,538,593 | $ 8,937,870 | $ 13,495,154 | $ 18,034,359 |
Interest on investment securities | 486,738 | 377,286 | 760,921 | 866,848 |
Dividends on investment securities | 80,728 | 66,421 | 150,629 | 135,706 |
Interest on federal funds sold | 2,385 | 4,486 | 6,411 | 7,847 |
Other interest income | 58,363 | 21,456 | 120,253 | 53,270 |
Total interest and dividend income | 7,166,807 | 9,407,519 | 14,533,368 | 19,098,030 |
Interest Expense | Â | Â | Â | Â |
Interest on deposits | 1,553,745 | 2,948,548 | 3,419,094 | 6,065,864 |
Interest on Federal Home Loan Bank borrowings | 423,529 | 423,529 | 842,404 | 842,404 |
Interest on subordinated debt | 71,219 | 71,031 | 141,617 | 140,364 |
Interest on other borrowings | 76,927 | 76,927 | 153,009 | 153,008 |
Total interest expense | 2,125,420 | 3,520,035 | 4,556,124 | 7,201,640 |
Net interest income | 5,041,387 | 5,887,484 | 9,977,244 | 11,896,390 |
Provision for Loan Losses | 1,482,798 | 512,000 | 8,464,427 | 1,239,000 |
Net interest income after provision for loan losses | 3,558,589 | 5,375,484 | 1,512,817 | 10,657,390 |
Non-interest Income | Â | Â | Â | Â |
Mortgage brokerage referral fees | 1,610 | 26,790 | 14,610 | 53,674 |
Loan application, inspection & processing fees | 23,966 | 39,554 | 40,765 | 75,383 |
Deposit fees and service charges | 248,039 | 274,197 | 528,940 | 527,718 |
Gains on sale of loans | 79,729 | Â | 79,729 | Â |
Earnings on cash surrender value of life insurance | 152,985 | 138,722 | 321,245 | 268,833 |
Other income | 203,984 | 81,363 | 307,874 | 173,486 |
Total non-interest income | 710,313 | 560,626 | 1,293,163 | 1,099,094 |
Non-interest Expenses | Â | Â | Â | Â |
Salaries and benefits | 3,189,311 | 3,191,355 | 6,403,826 | 6,552,640 |
Occupancy and equipment expense | 1,291,826 | 1,297,900 | 2,646,393 | 2,836,297 |
Data processing | 336,005 | 291,664 | 663,809 | 581,827 |
Advertising and promotional expenses | 271,781 | 71,045 | 429,755 | 154,678 |
Professional and other outside services | 1,234,958 | 702,994 | 2,116,665 | 1,875,171 |
Loan administration and processing expenses | 48,159 | 71,188 | 85,218 | 176,216 |
Regulatory assessments | 628,476 | 689,798 | 1,239,744 | 1,384,641 |
Insurance expense | 228,637 | 128,269 | 459,411 | 404,399 |
Other real estate operations | 774,450 | 511,453 | 1,044,957 | 1,305,627 |
Material and communications | 164,115 | 200,581 | 364,253 | 401,863 |
Restructuring charges and asset disposals (Note 11) | 2,986,441 | Â | 2,986,441 | Â |
Other operating expenses | 290,111 | 180,040 | 523,474 | 389,869 |
Total non-interest expenses | 11,444,270 | 7,336,287 | 18,963,946 | 16,063,228 |
Loss before income taxes | (7,175,368) | (1,400,177) | (16,157,966) | (4,306,744) |
Provision for Income Taxes | Â | Â | Â | (225,000) |
Net loss | $ (7,175,368) | $ (1,400,177) | $ (16,157,966) | $ (4,531,744) |
Basic and diluted loss per share (Note 5) | $ (0.19) | $ (0.29) | $ (0.42) | $ (0.95) |
Document and Entity Information (USD $)
|
6 Months Ended | ||
---|---|---|---|
Jun. 30, 2011
|
Jul. 29, 2011
|
Jun. 30, 2010
|
|
Document and Entity Information [Abstract] | Â | Â | Â |
Entity Registrant Name | PATRIOT NATIONAL BANCORP INC | Â | Â |
Entity Central Index Key | 0001098146 | Â | Â |
Document Type | 10-Q | Â | Â |
Document Period End Date | Jun. 30, 2011 | ||
Amendment Flag | false | Â | Â |
Document Fiscal Year Focus | 2011 | Â | Â |
Document Fiscal Period Focus | Q2 | Â | Â |
Current Fiscal Year End Date | --12-31 | Â | Â |
Entity Well-known Seasoned Issuer | No | Â | Â |
Entity Voluntary Filers | No | Â | Â |
Entity Current Reporting Status | Yes | Â | Â |
Entity Filer Category | Smaller Reporting Company | Â | Â |
Entity Public Float | Â | Â | $ 6,415,115 |
Entity Common Stock, Shares Outstanding | Â | 38,362,727 | Â |
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Other Comprehensive Income
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Jun. 30, 2011
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Other Comprehensive Income [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Comprehensive Income |
Note 6: Other Comprehensive Income
Other comprehensive income, which is comprised solely of the change in unrealized gains and losses
on available-for-sale securities, is as follows:
|
Restructuring Charges and Asset Disposals
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Jun. 30, 2011
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Restructuring Charges and Asset Disposals [Abstract] | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring Charges and Asset Disposals |
Note 11: Restructuring Charges and Asset Disposals
Bancorp recorded restructuring charges and asset disposals of $3.0 million for the quarter ended
June 30, 2011. These costs are included in restructuring charges and asset disposals expense in
the Consolidated Statements of Operations.
During 2011, Bancorp announced that it would be undertaking a series of initiatives that are
designed to transform and enhance its operations. In order to strengthen Bancorp’s competitive
position and return it to its goal of restored health and profitability, it executed one initiative
to consolidate four branch locations and vacate other office space, and a second plan to reduce
workforce by approximately 10% of employees.
On March 3, 2011, Bancorp announced that it would consolidate four branches, effective June 2011,
to reduce operating expenses. All customer accounts in the affected branches were transferred to
nearby Patriot branches to minimize any inconvenience to customers. The consolidation of these
branches resulted in an earnings charge of $1.8 million, which is comprised of lease termination
expenses of $1.2 million, lease liabilities charges of $0.4 million, and severance payments of $0.2
million to affected employees. In addition, there was a $0.6 million write-off of leasehold
improvements and other fixed assets for these branches that were closed.
In order to further reduce operating expenses, Bancorp announced on May 16, 2011 that it would be
executing a workforce reduction plan with employees in the back office operational areas. There
were a total of eighteen employees affected by this reduction. This initiative resulted in an
earnings charge of $0.6 million, which is comprised exclusively of severance payments to affected
employees.
Restructuring reserves at June 30, 2011 for the restructuring activities taken in connection with
these initiatives are comprised of the following:
The restructuring reserves at June 30, 2011 are included in accrued expenses and other liabilities
in the Consolidated Balance Sheet.
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Investment Securities
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Investment Securities [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment Securities |
Note 2: Investment Securities
The amortized cost, gross unrealized gains, gross unrealized losses and approximate fair values of
available-for-sale securities at June 30, 2011 and December 31, 2010 are as follows:
The following table presents the gross unrealized loss and fair value of Bancorp’s
available-for-sale securities, aggregated by the length of time the individual securities have been
in a continuous loss position, at June 30, 2011 and December 31, 2010:
At June 30, 2011, 11 securities had unrealized holding losses with aggregate depreciation of 0.41%
from the amortized cost. There were no securities with unrealized losses greater than 5% of
amortized cost. At December 31, 2010, two securities had unrealized losses with aggregate
depreciation of 1.0% from the amortized cost. There were no securities with unrealized losses
greater than 5% of amortized cost.
Bancorp performs a quarterly analysis of those securities that are in an unrealized loss position
to determine if those losses qualify as other-than-temporary impairments. This analysis considers
the following criteria in its determination: the ability of the issuer to meet its obligations, an
impairment due to a deterioration in credit, management’s plans and ability to maintain its
investment in the security, the length of time and the amount by which the security has been in a
loss position, the interest rate environment, the general economic environment and prospects or
projections for improvement or deterioration.
Management believes that none of the unrealized losses on available-for-sale securities noted above
are other than temporary due to the fact that they relate to interest rate changes on corporate
debt and on mortgage-backed securities issued by U.S. Government agencies. Management considers
the issuers of the mortgage-backed securities, as well as the corporate bonds, to be financially
sound, and the Company expects to receive all contractual principal and interest related to these
investments. Because the Company does not intend to sell the investments, and it is not
more-likely-than-not that the Company will be required to sell the investments before recovery of
their amortized cost basis, which may be maturity, the Company does not consider those investments
to be other-than-temporarily impaired at June 30, 2011.
The amortized cost and fair value of available-for-sale debt securities at June 30, 2011, by
contractual maturity, are presented below. Actual maturities of mortgage-backed securities may
differ from contractual maturities because the mortgages underlying the securities may be repaid
without any penalties. Because mortgage-backed securities are not due at a single maturity date,
they are not included in the maturity categories in the following maturity summary:
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Regulatory and Operational Matters
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Jun. 30, 2011
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Regulatory and Operational Matters [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Regulatory and Operational Matters |
Note 8: Regulatory and Operational Matters
The Company and the Bank are subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can initiate certain
mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could
have a direct material effect on the Company’s financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must
meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s
assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting
practices. The Company’s and the Bank’s capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and
the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I
capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital
(as defined) to average assets (as defined). In addition, due to the Bank’s asset profile and
current economic conditions in its markets, the Bank’s capital plan pursuant to the Agreement
described below targets a minimum 9% Tier 1 leverage capital ratio.
In February 2009 the Bank entered into a formal written agreement (the “Agreement”) with the Office
of the Comptroller of the Currency (the “OCC”). Under the terms of the Agreement, the Bank has
appointed a Compliance Committee of outside directors and the Chief Executive Officer. The
Committee must report quarterly to the Board of Directors and to the OCC on the Bank’s progress in
complying with the Agreement. The Agreement requires the Bank to review, adopt and implement a
number of policies and programs related to credit and operational issues. The Agreement further
provides for certain asset growth restrictions for a limited period of time together with
limitations on the acceptance of certain brokered deposits and the extension of credit to borrowers
whose loans are criticized. The Bank may pay dividends during the term of the Agreement only with
prior written permission from
the OCC. The Agreement also requires that the Bank develop and implement a three-year capital
plan. The Bank has taken or put into process many of the steps required by the Agreement, and does
not anticipate that the restrictions included within the Agreement will impair its current business
plan.
In June 2010 the Company entered into a formal written agreement (the “Reserve Bank Agreement”)
with the Federal Reserve Bank of New York (the “Reserve Bank”). Under the terms of the Reserve
Bank Agreement, the Board of Directors of the Company is still required to take appropriate steps
to fully utilize the Company’s financial and managerial resources to serve as a source of strength
to the Bank including taking steps to insure that the Bank complies with the Agreement with the
OCC. The Reserve Bank Agreement requires the Company to submit, adopt and implement a capital plan
that is acceptable to the Reserve Bank. The Company must also report to the Reserve Bank quarterly
on the Company’s progress in complying with the Reserve Bank Agreement. The Agreement further
provides for certain restrictions on the payment or receipt of dividends, distributions of interest
or principal on subordinate debentures or trust preferred securities and the Company’s ability to
incur debt or to purchase or redeem its stock without the prior written approval of the Reserve
Bank. The Company has taken or put into process many of the steps required by the Reserve Bank
Agreement, and does not anticipate that the restrictions included within the Reserve Bank Agreement
will impair its current business plan.
The Bank and the Company continue to execute their business plan with the goal of achieving full
compliance with the Agreement and the Reserve Bank Agreement noted above. The financial condition
of the Company has improved with the continued reduction in non-performing assets. The operating
performance has also been strengthened with the reduction in operating expenses, resulting from the
closure of four branches and the elimination of selective staff positions. Net interest income is
also improving due to the continued deposit cost reduction and the investment of excess liquidity.
The Company’s and the Bank’s actual capital amounts and ratios at June 30, 2011 and December 31,
2010 were:
Restrictions on dividends, loans and advances
The Company’s ability to pay dividends is dependent on the Bank’s ability to pay dividends to the
Company. Pursuant to the February 9, 2009 Agreement between the Bank and the OCC, the Bank can pay
dividends to the Company only pursuant to a dividend policy requiring compliance with the Bank’s
OCC-approved capital program, in compliance with applicable law and with the prior written
determination of no supervisory objection by the Assistant Deputy Comptroller. In addition to the
Agreement, certain other restrictions exist regarding the ability of the Bank to transfer funds to
the Company in the form of cash dividends, loans or advances. The approval of the OCC is required
to pay dividends in excess of the Bank’s earnings retained in the current year plus retained net
earnings for the preceding two years. As of June 30, 2011, the Bank had an accumulated deficit;
therefore, dividends may not be paid to the Company. The Bank is also prohibited from paying
dividends that would reduce its capital ratios below minimum regulatory requirements.
The Company’s ability to pay dividends and incur debt is also restricted by the Reserve Bank
Agreement. Under the terms of the Reserve Bank Agreement, the Company has agreed that it shall not
declare or pay any dividends or incur, increase or guarantee any debt without the prior written
approval of the Reserve Bank and the Director of the Division of Banking Supervision and Regulation
(the “Director”) of the Board of Governors.
Loans or advances to the Company from the Bank are limited to 10% of the Bank’s capital stock and
surplus on a secured basis.
Recent Legislative Developments
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Act”) was signed into
law on July 21, 2010. The Act is a significant piece of legislation that will have a major impact
on the financial services industry, including the organization, financial condition and operations
of banks and bank holding companies. Management is currently evaluating the impact of the Act;
however, uncertainty remains as to its operational impact, which could have a material adverse
impact on the Company’s business, results of operations and financial condition. Many of the
provisions of the Act are aimed at financial institutions that are significantly larger than the
Company and the Bank. Notwithstanding this, there are many other provisions that the Company and
the Bank are subject to and will have to comply with, including any new rules applicable to the
Company and the Bank promulgated by the Bureau of Consumer Financial Protection, a new regulatory
body dedicated to consumer protection. As rules and regulations are promulgated by the agencies
responsible for implementing and enforcing the Act, the Company and the Bank will have to address
each to ensure compliance with applicable provisions of the Act and compliance costs are expected
to increase.
The Dodd-Frank Act broadens the base for Federal Deposit Insurance Corporation insurance
assessments. Under rules issued by the FDIC in February 2011, the base for insurance assessments
changed from domestic deposits to consolidated assets less tangible equity. Assessment rates are
calculated using formulas that take into account the risks of the institution being assessed. The
rule was effective beginning April 1, 2011. This did not have a material impact on the Company.
On June 28, 2011, the Federal Reserve Board approved a final debit-card interchange rule. This
primarily impacts larger banks and should not have a material impact on the Company.
It is difficult to predict at this time what specific impact the Dodd-Frank Act and the yet to be
written implementing rules and regulations will have on the Company. The financial reform
legislation and any implementing rules that are ultimately issued could have adverse implications
on the financial industry, the competitive environment, and our ability to conduct business.
Management will have to apply resources to ensure compliance with all applicable provisions of the
Dodd-Frank Act and any implementing rules, which may increase our costs of operations and adversely
impact our earnings.
|
Income Taxes
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6 Months Ended |
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Jun. 30, 2011
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Income Taxes [Abstract] | Â |
Income Taxes |
Note 9: Income Taxes
The determination of the amount of deferred tax assets which are more likely than not to be
realized is primarily dependent on projections of future earnings, which are subject to uncertainty
and estimates that may change given economic conditions and other factors. A valuation allowance
related to deferred tax assets is required when it is considered more likely than not that all or
part of the benefit related to such assets will not be realized. Management has reviewed the
deferred tax position of the Company at June 30, 2011. The deferred tax position has been affected
by several significant transactions in the past three years. These transactions include increased
provision for loan losses, the heightened levels of non-accrual loans and other-than-temporary
impairment write-offs of certain investments. As a result, the Company is in a cumulative net loss
position at June 30, 2011, and under the applicable accounting guidance, has concluded that it is
not more-likely-than-not that the Company will be able to realize its deferred tax assets and,
accordingly, has established a full valuation allowance totaling $16.4 million against its deferred
tax asset at June 30, 2011. The valuation allowance is analyzed quarterly for changes affecting
the deferred tax asset. If, in the future, the Company generates taxable income on a sustained
basis, management’s conclusion regarding the need for a deferred tax asset valuation allowance
could change, resulting in the reversal of all or a portion of the deferred tax asset valuation
allowance.
As measured under the rules of the Tax Reform Act of 1986, the Company has undergone a greater than
50% change of ownership in 2010. Consequently, use of the Company’s net operating loss carryforward
and certain built in deductions available against future taxable income in any one year is limited.
The maximum amount of carryforwards available in a given year is limited to the product of the
Company’s fair market value on the date of ownership change and the federal long-term tax-exempt
rate, plus any limited carryforward not utilized in prior years. The Company is currently
analyzing the impact of its recent ownership change. There is a full valuation allowance against
the deferred tax assets as the Company does not believe that it is more-likely-than-not that the
Company will generate sufficient taxable income to realize the deferred tax assets. Accordingly,
the Company does not believe the analysis will result in a material impact to the consolidated
financial statements.
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Financial Instruments with Off-Balance Sheet Risk
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Financial Instruments with Off-Balance Sheet Risk [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||
Financial Instruments with Off-Balance Sheet Risk |
Note 7: Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, the Company 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
sheets. The contractual amounts of these instruments reflect the extent of involvement the Company
has in particular classes of financial instruments.
The contractual amounts of commitments to extend credit and standby letters of credit represent the
amounts of potential accounting loss should the contracts be fully drawn upon; the customers
default; and the values of any existing collateral become worthless. The Company uses the same
credit policies in making commitments and conditional obligations as it does for on-balance-sheet
instruments and evaluates each customer’s creditworthiness on a case-by-case basis. Management
believes that the Company controls the credit risk of these financial instruments through credit
approvals, credit limits, monitoring procedures and the receipt of collateral as deemed necessary.
Financial instruments whose contractual amounts represent credit risk at June 30, 2011 are as
follows:
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 by the Company upon extension of credit, is based on management’s credit
evaluation of the counterparty. Collateral held varies but may include residential and commercial
property, deposits and securities.
Standby letters of credit are written commitments issued by the Company to guarantee the
performance of a customer to a third party. The credit risk involved in issuing letters of credit
is essentially the same as that involved in extending loan facilities to customers. Newly issued
or modified guarantees that are not derivative contracts are recorded on the Company’s consolidated
balance sheet at the fair value at inception. No liability related to guarantees was required to
be recorded at June 30, 2011.
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Loans Receivable and Allowance for Loan Losses
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Jun. 30, 2011
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Loans Receivable and Allowance for Loan Losses [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans Receivable and Allowance for Loan Losses |
Note 3: Loans Receivable and Allowance for Loan Losses
A summary of the Company’s loan portfolio at June 30, 2011 and December 31, 2010 is as follows:
The changes in the allowance for loan losses for the periods shown are as follows:
At June 30, 2011 and December 31, 2010, the unpaid balances of loans delinquent 90 days or
more and still accruing interest were $906,962 and $3,374,242, respectively. At June 30, 2011,
this was comprised of one loan which has matured, is well secured and the borrower continues to
make payments monthly. The Company has agreed to forbear from pursuing its remedies while the
borrower arranges refinancing from another financial institution.
The unpaid principal balances of loans on nonaccrual status and considered impaired were $26.7
million at June 30, 2011 and $89.1 million at December 31, 2010. On March 24, 2011, the Company
completed the sale of certain non-performing assets that included 21 non-accruing loans with an
aggregate net book value of $52.4 million (net of related specific reserves) and 4 other real
estate owned (“OREO”) properties with an aggregate carrying value of $14.4 million. The sale of
$66.8 million of non-performing assets was consummated for a cash purchase price of $60,602,036
which represented 90.7% of the Bank’s net book value for these assets.
If non-accrual loans had been performing in accordance with their original terms, the Company would
have recorded approximately $0.5 million of additional income during the quarter ended June 30,
2011 and $1.6 million during the quarter ended June 30, 2010. If non-accrual loans had been
performing in accordance with their original terms, the Company would have recorded approximately
$1.5 million of additional income for the six months ended June 30, 2011 and $3.4 million during
the six months ended June 30, 2010.
For the three months ended June 30, 2011 and 2010, the interest collected and recognized as income
on impaired loans was approximately $30,000 and $546,000, respectively. For the six months ended
June 30, 2011 and 2010, the interest income collected and recognized on impaired loans was
approximately $461,000 and $1,279,000 respectively. The average recorded investment in impaired
loans for the three and six months ended June 30, 2011 was $42.0 million and $60.8 million
respectively.
At June 30, 2011, there were 16 loans totaling $31.5 million that were considered “troubled debt
restructurings,” all of which are included in impaired loans, as compared to December 31, 2010 when
there were 19 loans totaling $38.0 million, all of which were included in impaired loans. At June
30, 2011, 6 of the 16 loans aggregating $16.1 million were accruing loans and 10 loans aggregating
$15.4 million were non-accruing loans.
The Company’s lending activities are conducted principally in Fairfield and New Haven Counties in
Connecticut and Westchester County, New York City and Long Island, New York. The Company grants
commercial real estate loans, commercial business loans and a variety of consumer loans. In
addition, the Company had granted loans for the construction of residential homes, residential
developments and for land development projects. A moratorium on all new construction loans was
instituted by management in July 2008. All residential and commercial mortgage 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 in large part upon the status of the
regional economy and 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.
The Company has established credit policies applicable to each type of lending activity in which it
engages, evaluates the creditworthiness of each customer and, in most cases, extends credit of up
to 75% of the market value of the collateral at the date of the credit extension depending on the
Company’s evaluation of the borrowers’ creditworthiness and type of collateral. In the case of
construction loans, the maximum loan-to-value was 65% of the “as completed” market value. The
market value of collateral is monitored on an ongoing basis and additional collateral is obtained
when warranted. Real estate is the primary form of collateral. Other important forms of
collateral are accounts receivable, inventory, other business assets, marketable securities and
time deposits. While collateral provides assurance as a secondary source of repayment, the Company
ordinarily requires the primary source of repayment to be based on the borrower’s ability to
generate continuing cash flows on all loans not related to construction.
Risk characteristics of the Company’s portfolio classes include the following:
Commercial Real Estate Loans — In underwriting commercial real estate loans, the Company
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 or should there be a substantial decline in the value of the property securing the
loan or a decline in the general economic conditions. Where the owner occupies the property, the
Company also evaluates the business’s ability to repay the loan on a timely basis. In addition,
the Company may require personal guarantees, lease assignments and/or the guarantee of the
operating company when the property is owner occupied. These types of loans may involve greater
risks than other types of lending, because payments on such loans are often dependent upon the
successful operation of the business involved, therefore, repayment of such loans may be negatively
impacted by adverse changes in economic conditions affecting the borrowers’ business.
Construction Loans — Construction loans are short-term loans (generally up to 18 months)
secured by land for both residential and commercial development. The loans are generally made for
acquisition and improvements. Funds are disbursed as phases of construction are completed.
In the past, the Company funded construction of single family homes, when no contract of sale
exists, based upon the experience of the builder, the financial strength of the owner, the type and
location of the property and other factors. Construction loans are generally personally guaranteed
by the principal(s). Repayment of such loans may be negatively impacted by the builders’ inability
to complete construction, by a downturn in the new construction market, by a significant increase
in interest rates or by a decline in general economic conditions. The Company has had a moratorium
in place since mid-2008 on new speculative construction loans.
Residential Real Estate Loans — Various loans secured by residential real estate properties
are offered by the Company, including 1-4 family residential mortgages, multi-family residential
loans and a variety of home equity line of credit products. Repayment of such loans may be
negatively impacted should the borrower default, should there be a significant decline in the value
of the property securing the loan or should there be a decline in general economic conditions.
Commercial and Industrial Loans — The Company’s commercial and industrial loan portfolio
consists primarily of commercial business loans and lines of credit to businesses and
professionals. These loans are usually made to finance the purchase of inventory, new or used
equipment or other short or long-term working capital purposes. These loans are generally secured
by corporate assets, often with real estate as secondary collateral, but are also offered on an
unsecured basis. In granting this type of loan, the Company primarily looks to the borrower’s cash
flow as the source of repayment with collateral and personal guarantees, where obtained, as a
secondary source. Commercial loans are often larger and may involve greater risks than other type
of loans offered by the Company. Payments on such loans are often dependent upon the successful
operation of the underlying business involved and, therefore, repayment of such loans may be
negatively impacted by adverse changes in economic conditions, management’s inability to
effectively manage the business, claims of others against the borrower’s assets which may take
priority over the Company’s claims against assets, death or disability of the borrower or loss of
market for the borrower’s products or services.
Other Loans — The Company also offers installment loans and reserve lines of credit to
individuals. Repayments of such loans are often dependent on the personal income of the borrower
which may be negatively impacted by adverse changes in economic conditions. The Company does not
place an 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 typically characterized by
payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with
questionable repayment capacity as evidenced by low credit scores or high debt-burdened ratios.
The following table sets forth activity in our allowance for loan losses, by loan type, for the
period ended June 30, 2011. The following table also details the amount of loans receivable, net,
that are evaluated individually, and collectively, for impairment, and the related portion of
allowance for loan losses that is allocated to each loan portfolio segment.
The Company monitors the credit quality of its loans receivable in an ongoing manner.
Credit quality is monitored by reviewing certain credit quality indicators. Management has
determined that loan-to-value ratios (LTVs), (at period end) and internally assigned risk ratings
are the key credit quality indicators that best help management monitor the credit quality of the
Company’s loans receivable. Loan-to-value ratios used by management in monitoring credit quality
are based on current period loan balances and original values at time of origination (unless a
current appraisal has been obtained as a result of the loan being deemed impaired or the loan is a
maturing construction loan).
Appraisals on properties securing impaired loans and Other Real Estate Owned are updated annually.
Additionally, appraisals on construction loans are updated four months in advance of scheduled
maturity dates. We update our impairment analysis monthly based on the most recent appraisal as
well as other factors (such as senior lien positions, e.g. property taxes), and we are using
published information regarding actual median home sales prices in the towns/counties where our
collateral is located in CT and NY.
The majority of the Company’s impaired loans have been resolved through courses of action other
than via bank liquidations of real estate collateral through the OREO. These include normal loan
payoffs, the traditional workout process, triggering personal guarantee obligations, and troubled
debt restructurings. However, as loan workout efforts progress to a point where the bank’s
liquidation of real estate collateral is the likely outcome, the impairment analysis is updated to
reflect actual recent experience with bank sales of OREO properties.
A disposition discount is built into our impairment analysis and reflected in our allowance once a
property is determined to be a likely OREO (e.g. foreclosure is probable). To determine the
discount we compare the actual sales prices of our OREO properties to the appraised value that was
obtained as of the date when we took title to the property. The difference is the bank-owned
disposition discount.
The Company has a risk rating system as part of the risk assessment of its loan portfolio. The
Company’s lending officers are required to assign a risk rating to each loan in their portfolio at
origination. When the lender learns of important financial developments, the risk rating is
reviewed accordingly, and adjusted if necessary. Similarly, the Loan Committee can adjust a risk
rating. The Loan Workout Committee meets on a regular basis and reviews loans rated “special
mention” or worse. In addition, the Company engages a third party independent loan reviewer that
performs semi-annual reviews of a sample of loans, validating the Bank’s risk ratings assigned to
such loans. The risk ratings play an important role in the establishment of the loan loss
provision and to confirm the adequacy of the allowance for loan losses.
When assigning a risk rating to a loan, management utilizes the Bank’s internal nine-point risk
rating system. Loans deemed to be “acceptable quality” are rated 1 through 5, with a rating of 1
established for loans with minimal risk and borrowers exhibiting the strongest financial condition.
Loans rated 1 — 5 are considered “Pass”. Loans that are deemed to be of “questionable quality”
are rated 6 (special mention). 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. Loans with adverse classifications
(substandard, doubtful or loss) are rated 7, 8 or 9, respectively. An asset is considered
“substandard” if it is not adequately protected by the current net worth and paying capacity of the
obligor or of 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 the deficiencies are not corrected. Assets classified as “doubtful”
have all of the weaknesses inherent in those classified “substandard” with the added characteristic
that the weaknesses present make “collection or liquidation in full,” on the basis of currently
existing facts, conditions, and values, “highly questionable and improbable.”
Charge-off generally commences in the month that the loan is classified “doubtful” and is fully
charged off within six months of such classification. If the account is classified “loss” the full
balance is charged off immediately. The full balance is charged off regardless of the potential
recovery from the sale of the collateral. This amount is recognized as a recovery once the
collateral is sold.
In accordance with FFIEC (“Federal Financial Institutions Examination Council”) published policies
establishing uniform criteria for the classification of retail credit based on delinquency status,
“Open-end” credits are charged-off when 180 days delinquent and “Closed-end” credits are
charged-off when 120 days delinquent. Typically, consumer installment loans are charged off no
later than 90 days past due.
The following table details the credit risk exposure of loans receivable, by loan type and credit
quality indicator at June 30, 2011:
CREDIT RISK PROFILE BY CREDITWORTHINESS CATEGORY
CREDIT RISK PROFILE
The following table details the credit risk exposure of loans receivable, by loan type and
credit quality indicator at December 31, 2010:
CREDIT RISK PROFILE BY CREDITWORTHINESS CATEGORY
CREDIT RISK PROFILE
Included in loans receivable are loans for which the accrual of interest income has been
discontinued due to deterioration in the financial condition of the borrowers. The recorded
balance of these nonaccrual loans was $26.7 million and $89.1 million at June 30, 2011, and
December 31, 2010 respectively. Generally, loans are placed on non-accruing status when they
become 90 days or more delinquent, or earlier if deemed appropriate, and remain on non-accrual
status until they are brought current, have six months of performance under the loan terms, and
factors indicating reasonable doubt about the timely collection of payments no longer exist.
Therefore, loans may be current in accordance with their loan terms, or may be less than 90 days
delinquent and still be on a non-accruing status. Additionally, certain loans that cannot
demonstrate sufficient global cash flow to continue loan payments in the future and certain trouble
debt restructures (TDRs) are placed on non-accrual status.
The following table sets forth the detail, and delinquency status, of non-accrual loans and
past due loans at June 30, 2011:
The following table sets forth the detail, and delinquency status, of non-accrual loans and
past due loans at December 31, 2010:
These non-accrual and past due amounts included loans deemed to be impaired of $42.8 million
and $89.1 million at June 30, 2011, and December 31, 2010, respectively. Loans past due ninety
days or more and still accruing interest were approximately $907,000 and $3.4 million at June 30,
2011, and December 31, 2010 respectively, and consisted of one loan at June 30, 2011 that is
current as to payment but past maturity where payoff is pending.
The following table sets forth the detail and delinquency status of loans receivable, by
performing and non-performing loans at June 30, 2011.
The following table sets forth the detail and delinquency status of loans receivable, net, by
performing and non-performing loans at December 31, 2010.
The following table summarizes impaired loans as of June 30, 2011:
The recorded investment of impaired loans at June 30, 2011 and December 31, 2010 was $42.8
million and $100.7 million respectively, with related allowances of $3.0 million and $6.0 million,
respectively.
Included in the table above at June 30, 2011, are 19 loans with carrying balances of $24.9 million
that required no specific reserves in our allowance for loan losses comprised of 15 non-accruing
loans aggregating $13.9 million and 4 accruing TDR loans aggregating $11.0 million. Loans that did
not require specific reserves at June 30, 2011 have sufficient collateral values, less costs to
sell, supporting the carrying balances of the loans. In some cases, there may be no specific
reserves because the Company already charged-off the specific impairment. Once a borrower is in
default, the Company is under no obligation to advance additional funds on unused commitments.
The following table summarizes impaired loans as of December 31, 2010:
Included in the table above at December 31, 2010, are loans with carrying balances of $53.9
million that required no specific reserves in our allowance for loan losses. Loans that did not
require specific reserves at December 31, 2010 have sufficient collateral values, less costs to
sell, supporting the carrying balances of the loans.
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Deposits
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Jun. 30, 2011
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Deposits [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits |
Note 4: Deposits
The following table is a summary of the Company’s deposits at:
Included in time certificates are certificates of deposit through the Certificate of Deposit
Account Registry Service (CDARS) network of $1,452,257 and $2,879,838 at June 30, 2011 and December
31, 2010, respectively. These are considered brokered deposits. Pursuant to the Agreement
discussed in Note 8, the Bank’s participation in the CDARS program, as an issuer of deposits to
customers of other banks in the CDARS program, may not exceed 10% of total deposits.
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Recent Accounting Pronouncements
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6 Months Ended | ||||||||||||||||
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Jun. 30, 2011
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Recent Accounting Pronouncements [Abstract] | Â | ||||||||||||||||
Recent Accounting Pronouncements |
Note 12: Recent Accounting Pronouncements
In February 2010, the FASB issued ASU No. 2010-06 Topic 820 “Improving Disclosures about Fair Value
Measurements” which amended the existing guidance related to Fair Value Measurements and
Disclosures. The amendments require the following new fair value disclosures:
In addition, the amendments clarify existing disclosure requirements, as follows:
The new disclosures and clarifications of existing disclosures were effective for the Company
beginning in the quarter ended March 31, 2010, except for the disclosures included in the roll
forward of activity for Level 3 fair value measurements, for which the effective date is for fiscal
years beginning after December 15, 2010, and for interim periods within those fiscal years. The
Company adopted this guidance during the quarters ended March 31, 2010 and March 31, 2011
respectively, and has included these disclosures in these financial statements.
The FASB issued ASU No. 2010-20, Disclosures about the Credit Quality of Financing Receivables and
the Allowance for Credit Losses in July 2010. The amendments in this ASU apply to all entities,
both public and nonpublic, with financing receivables, excluding short-term trade accounts
receivable or receivables measured at fair value or lower of cost or fair value. The amendments in
this ASU enhance disclosures about the credit quality of financing receivables and the allowance
for credit losses. This ASU amends existing disclosure guidance to require entities to provide a
greater level of disaggregated information about the credit quality of its financing receivables
and its allowance for credit losses. In addition, this ASU requires entities to disclose credit
quality indicators, past due information, and modifications of its financing receivables. For
public entities, the disclosures as of the end of a reporting period are effective for interim and
annual reporting periods ending on or after December 15, 2010. The disclosures about activity that
occurs during a reporting period are effective for interim and annual reporting periods beginning
on or after December 15, 2010. The adoption of this guidance did not have an impact on the
Company’s results of operations or financial position.
In April 2011, the FASB issued ASU No. 2011-02, A Creditor’s Determination of Whether a
Restructuring Is a Troubled Debt Restructuring. The amendments in this update apply to all
creditors, both public and nonpublic, that restructure receivables that fall within the scope of
Subtopic 310-40, Receivables — Troubled Debt Restructurings by Creditors. The amendments in this
ASU clarify the guidance on a creditor’s evaluation of whether it has granted a concession and
whether a debtor is experiencing financial difficulties. In addition, the amendments clarify that
a creditor is precluded from using the effective interest rate test in the debtor’s guidance on
restructuring of payables when evaluating whether a restructuring constitutes a troubled debt
restructuring. These amendments are effective for the first interim or annual period beginning on
or after June 15, 2011. The Company adopted this guidance in the first quarter ended March 31,
2011 and the guidance did not have a material impact on the Company’s results of operations or
financial position.
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Loss per share
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Loss per share [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loss per share |
Note 5: Loss per share
The Company is required to present basic income (loss) per share and diluted income (loss) per
share in its consolidated statements of operations. Basic income (loss) per share amounts are
computed by dividing net income (loss) by the weighted average number of common shares outstanding.
Diluted income (loss) 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 stock options and are 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 loss per share.
The following is information about the computation of loss per share for the three and six months
ended June 30, 2011 and 2010:
Three months ended June 30, 2011
Three months ended June 30, 2010
Six months ended June 30, 2011
Six months ended June 30, 2010
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Consolidated Statements of Shareholders' Equity (Unaudited) (USD $)
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Total
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Common Stock
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Additional Paid-In Capital
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Accumulated Deficit
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Treasury Stock
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Accumulated Other Comprehensive Income
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Balance at Dec. 31, 2009 | $ 35,861,310 | $ 9,548,864 | $ 49,651,534 | $ (24,000,400) | $ (160,025) | $ 821,337 |
Balance, shares at Dec. 31, 2009 | Â | 4,762,727 | Â | Â | Â | Â |
Comprehensive loss | Â | Â | Â | Â | Â | Â |
Net loss | (4,531,744) | Â | Â | (4,531,744) | Â | Â |
Unrealized holding gain on available for sale securities, net of taxes | 258,733 | Â | Â | Â | Â | 258,733 |
Total comprehensive loss | (4,273,011) | Â | Â | Â | Â | Â |
Balance at Jun. 30, 2010 | 31,588,299 | 9,548,864 | 49,651,534 | (28,532,144) | (160,025) | 1,080,070 |
Balance, shares at Jun. 30, 2010 | Â | 4,762,727 | Â | Â | Â | Â |
Balance at Dec. 31, 2010 | 67,172,188 | 383,744 | 105,050,433 | (39,399,345) | (160,025) | 1,297,381 |
Balance, shares at Dec. 31, 2010 | Â | 38,362,727 | Â | Â | Â | Â |
Comprehensive loss | Â | Â | Â | Â | Â | Â |
Net loss | (16,157,966) | Â | Â | (16,157,966) | Â | Â |
Unrealized holding gain on available for sale securities, net of taxes | 250,746 | Â | Â | Â | Â | 250,746 |
Total comprehensive loss | (15,907,220) | Â | Â | Â | Â | Â |
Balance at Jun. 30, 2011 | $ 51,264,968 | $ 383,744 | $ 105,050,433 | $ (55,557,311) | $ (160,025) | $ 1,548,127 |
Balance, shares at Jun. 30, 2011 | Â | 38,362,727 | Â | Â | Â | Â |
Basis of Financial Statement Presentation
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6 Months Ended |
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Jun. 30, 2011
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Basis of Financial Statement Presentation [Abstract] | Â |
Basis of Financial Statement Presentation |
Note 1: Basis of Financial Statement Presentation
The Consolidated Balance Sheet at December 31, 2010 has been derived from the audited financial
statements of Patriot National Bancorp, Inc. (“Bancorp” or “the Company”) at that date, but does
not include all of the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements.
The accompanying unaudited financial statements and related notes have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. 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 have been
omitted. The accompanying consolidated financial statements and related notes should be read in
conjunction with the audited financial statements of Bancorp and notes thereto for the year ended
December 31, 2010.
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 six months June 30, 2011 are not necessarily indicative of the results of
operations that may be expected for the remainder of 2011.
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Fair Value and Interest Rate Risk
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Jun. 30, 2011
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Fair Value and Interest Rate Risk [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value and Interest Rate Risk |
Note 10: Fair Value and Interest Rate Risk
The Company uses fair value measurements to record fair value adjustments to certain assets and
liabilities and to determine fair value disclosures. Fair value is 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. Fair value is best determined based upon quoted market
prices. However, in certain instances, there are no quoted market prices for certain assets or
liabilities. In cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and estimates of future cash flows.
Accordingly, the fair value estimates may not be realized in an immediate settlement of the asset
or liability.
Fair value measurements focus on exit prices in an orderly transaction (that is, not a forced
liquidation or distressed sale) between market participants at the measurement date under current
market conditions. If there has been a significant decrease in the volume and level of activity
for the asset or liability, a change in valuation technique or the use of multiple valuation
techniques may be appropriate. In such instances, determining the price at which willing market
participants would transact at the measurement date under current market conditions depends on the
facts and circumstances and requires the use of significant judgment.
The Company’s fair value measurements are classified into a fair value hierarchy based on the
markets in which the assets and liabilities are traded and the reliability of the assumptions used
to determine fair value. The three categories within the hierarchy are as follows:
The fair value measurement level of an asset or liability within the fair value hierarchy is based
on the lower level of any input that is significant to the fair value measurement. Valuation
techniques used need to maximize the use of observable inputs and minimize the use of unobservable
inputs.
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. These financial
instruments are not recorded at fair value on a recurring basis.
Available-for-Sale Securities: These financial instruments are recorded at fair value in the
financial statements. Where quoted prices are available in an active market, securities are
classified within Level 1 of the fair value hierarchy. If quoted prices are not available, then
fair values are estimated by using pricing models (i.e., matrix pricing) or quoted prices of
securities with similar characteristics and are classified within Level 2 of the fair value
hierarchy. Examples of such instruments include government agency bonds and mortgage-backed
securities, and money market preferred equity securities. Level 3 securities are instruments for
which significant unobservable inputs are utilized. Available-for-sale Securities are recorded at
fair value on a recurring basis.
Other Investments: This investment includes the Solomon Hess SBA Loan Fund, utilized for the
purpose of the Bank satisfying its CRA lending requirements. As this fund operates as a private
fund, shares in the Fund are not publicly traded and therefore have no readily determinable market
value. Therefore, this investment is classified within Level 2 of the fair value hierarchy. An
investor can have their interest in the Fund redeemed for the balance of their capital account at
any quarter end assuming they give the Fund 60 days notice. The investment in this Fund is
recorded at cost. The Company does not record other investments at fair value on a recurring
basis.
Loans: For variable rate loans, which reprice frequently and have no significant change in credit
risk, carrying values are a reasonable estimate of fair values, adjusted for credit losses inherent
in the portfolios. The fair value of fixed rate loans is estimated by discounting the future cash
flows using the period end rates, estimated by using local market data, at which similar loans
would be made to borrowers with similar credit ratings and for the same remaining maturities,
adjusted for credit losses inherent in the portfolios. The Company does not record loans at fair
value on a recurring basis. However, from time to time, nonrecurring fair value adjustments to
collateral-dependent impaired loans are recorded to reflect partial write-downs based on the
observable market price or current appraised value of collateral. Fair values estimated in this
manner do not fully incorporate an exit-price approach to fair value, but instead are based on a
comparison to current market rates for comparable loans.
Other Real Estate Owned: The fair values of the Company’s other real estate owned (“OREO”)
properties are based on the estimated current property valuations less estimated selling costs.
When the fair value is based on current observable appraised values, OREO is classified within
Level 2. The Company classifies OREO within Level 3 when unobservable adjustments are made to
appraised values. The Company does not record other real estate owned at fair value on a recurring
basis.
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. The Company does
not record deposits at fair value on a recurring basis.
Short-term borrowings: The carrying amounts of borrowings under short-term repurchase agreements
and other short-term borrowings maturing within 90 days approximate their fair values. The Company
does not record short-term borrowings at fair value on a recurring basis.
Junior Subordinated Debt: Junior subordinated debt reprices quarterly and as a result the carrying
amount is considered a reasonable estimate of fair value. The Company does not record junior
subordinated debt at fair value on a recurring basis.
Federal Home Loan Bank Borrowings: The fair value of the advances is estimated using a discounted
cash flow calculation that applies current Federal Home Loan Bank interest rates for advances of
similar maturity to a schedule of maturities of such advances. The Company does not record these
borrowings at fair value on a recurring basis.
Other Borrowings: The fair values of longer term borrowings and fixed rate repurchase agreements
are estimated using a discounted cash flow calculation that applies current interest rates for
transactions of similar maturity to a schedule of maturities of such transactions. The Company
does not record these borrowings at fair value on a recurring basis.
Off-balance sheet instruments: Fair values for the Company’s off-balance-sheet instruments
(lending commitments) 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 Company does not record its off-balance-sheet instruments at
fair value on a recurring basis.
The following table details the financial assets measured at fair value on a recurring basis as of
June 30, 2011 and December 31, 2010, and indicates the fair value hierarchy of the valuation
techniques utilized by the Company to determine fair value:
Certain financial assets and financial liabilities are measured at fair value on a
nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but
are subject to fair value adjustments in certain circumstances (for example, when there is evidence
of impairment).
The following tables reflect financial assets measured at fair value on a non-recurring basis as of
June 30, 2011 and December 31, 2010, segregated by the level of the valuation inputs within the
fair value hierarchy utilized to measure fair value:
The Company 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 represent the underlying value of the Company.
The estimated fair value amounts have been measured as of June 30, 2011 and December 31, 2010 and
have not been reevaluated or updated for purposes of these financial statements subsequent to those
respective dates. As such, the estimated fair value of these financial instruments subsequent to
the respective reporting dates may be different than amounts reported on those dates.
The information presented should not be interpreted as an estimate of the fair value of the Company
since a fair value calculation is only required for a limited portion of the Company’s assets and
liabilities. Due to the wide range of valuation techniques and the degree of subjectivity used in
making the estimates, comparisons between the Company’s disclosures and those of other bank holding
companies may not be meaningful.
The following is a summary of the carrying amounts and estimated fair values of the Company’s
financial instruments at June 30, 2011 and December 31, 2010 (in thousands):
The Company assumes interest rate risk (the risk that general interest rate levels will
change) as a result of its normal operations. As a result, the fair values of the Company’s
financial instruments will change when interest rate levels change and that change may be either
favorable or unfavorable to the Company. Management attempts to match maturities of assets and
liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers
with fixed rate obligations are less likely to prepay in a rising rate environment and more likely
to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are
more likely to withdraw funds before maturity in a rising rate environment and less likely to do so
in a falling rate environment. Management monitors rates and maturities of assets and liabilities
and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by
investing in securities with terms that mitigate the Company’s overall interest rate risk.
Off-balance sheet instruments
Loan commitments on which the committed interest rate is less than the current market rate were
insignificant at June 30, 2011 and December 31, 2010. The estimated fair value of fee income on
letters of credit at June 30, 2011 and December 31, 2010 was insignificant.
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