UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 2000 Commission file number 000-29599
PATRIOT NATIONAL BANCORP, INC.
(Name of small business issuer as specified in its charter)
Connecticut 06-1559137
(State of incorporation) (IRS employer identification number)
900 Bedford Street, Stamford, Connecticut 06901
(Address of principal executive offices)
(203) 324-7500
Issuer's telephone number:
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Common stock, $2.00 par value per share, 2,400,375 shares issued and outstanding
as of the close of business July 31, 2000.
Transitional Small Business Disclosure Format: Yes No X
----- ------
<PAGE>
Table of Contents
Part I Page
------ ----
Item 1. Consolidated Financial Statements 1
Item 2. Management's Discussion and Analysis or
Plan of Operation 9
Part II
-------
Item 2 Changes in securities 14
Item 4. Submission of matters to a vote of security holders 14
Item 6. Exhibits and reports on Form 8-K 15
<PAGE>
Part 1 -Financial information
ITEM 1. FINANCIAL STATEMENTS
Patriot National Bancorp, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- -------------
ASSETS Unaudited
<S> <C> <C>
Cash and due from banks .................................. $ 6,232,887 $ 2,685,031
Federal funds sold ....................................... 17,000,000 18,900,000
Short-term investments-commercial paper .................. -- 10,976,264
------------- -------------
Cash and cash equivalents ...................... 23,232,887 32,561,295
Available for sale Securities (at fair value) ............ 18,446,998 19,984,309
Held to maturity Securities .............................. 12,299,794 12,301,485
Federal Reserve Bank Stock ............................... 397,150 410,700
Federal Home Loan Bank Stock ............................. 593,600 307,000
Loans receivable (net of allowance for loan losses of
$1,569,103 in 2000 and $1,360,183 in 1999) ............. 124,290,700 107,769,911
Accrued interest receivable .............................. 1,358,886 980,777
Premises and equipment, net .............................. 1,004,419 953,656
Deferred tax asset, net .................................. 666,633 562,928
Goodwill (net of accumulated amortization of
$120,177 in 2000 and $58,180 in 1999) .................. 1,115,951 1,177,948
Other assets (net of accumulated amortization of
$18,744 in 2000 and $17,285 in 1999) ................... 247,576 184,688
------------- -------------
Total assets ........................................ $ 183,654,594 $ 177,194,697
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Non-interest bearing deposits ....................... $ 14,553,196 $ 12,630,926
Interest bearing deposits ........................... 152,454,175 150,115,428
------------- -------------
Total deposits ................................. 167,007,371 162,746,354
Capital lease obligations ................................ 518,829 563,687
Collateralized borrowings ................................ 475,000 325,000
Accrued expenses and other liabilities ................... 439,798 323,568
------------- -------------
Total liabilities .............................. 168,440,998 163,958,609
------------- -------------
SHAREHOLDERS' EQUITY
Common stock ($2 par value);
5,333,333 shares authorized; issued and outstanding
shares 2,372,702 in 2000 and 2,160,952 in 1999 4,745,404 4,321,904
Paid in capital .......................................... 11,288,893 9,807,957
Accumulated deficit ...................................... (419,599) (635,331)
Accumulated other comprehensive income-net
unrealized loss on available for sale securities ....... (401,102) (258,442)
------------- -------------
Total shareholders' equity ..................... 15,213,596 13,236,088
Total liabilities and shareholders' equity ............... $ 183,654,594 $ 177,194,697
============= =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
1
<PAGE>
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three months Three months Six months Six months
Ended Ended Ended Ended
June 30,2000 June 30,1999 June 30,2000 June 30,1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest and Dividend Income
Interest and fees on loans .............................. $2,738,652 $1,658,596 $5,263,291 $3,053,876
Interest and dividends on investment securities ......... 514,982 326,412 1,057,869 661,947
Interest on federal funds sold .......................... 177,420 133,348 464,182 311,387
---------- ---------- ---------- ----------
Total interest and divided income .. 3,431,054 2,118,356 6,785,342 4,027,210
---------- ---------- ---------- ----------
Interest Expense
Interest on deposits .................................... 1,773,730 912,695 3,583,531 1,753,723
Interest on capital lease obligation .................... 18,148 21,125 37,141 42,914
Interest Expense on collateralized borrowings ........... 9,299 16,660
---------- ---------- ---------- ----------
Total interest expense .. 1,801,177 933,820 3,637,332 1,796,637
---------- ---------- ---------- ----------
Net interest income .. 1,629,877 1,184,536 3,148,010 2,230,573
Provision for Loan Losses ................................... 114,000 87,000 223,500 155,000
---------- ---------- ---------- ----------
Net interest income after provision for loan losses 1,515,877 1,097,536 2,924,510 2,075,573
---------- ---------- ---------- ----------
Non-Interest Income
Mortgage brokerage referral fees ........................ 605,817 0 1,127,487 0
Fees and service charges ................................ 45,880 56,300 84,496 111,298
Gains and origination fees from loans sold .............. 15,015 25,701 15,015 35,955
Other income ............................................ 15,533 12,328 28,333 44,555
---------- ---------- ---------- ----------
Total non-interest income .. 682,245 94,329 1,255,331 191,808
---------- ---------- ---------- ----------
Non-Interest Expense
Salaries and benefits ................................... 1,080,560 467,640 2,127,714 932,570
Occupancy and equipment expense, net .................... 214,712 98,556 401,231 205,374
Professional services ................................... 70,981 53,831 143,231 95,195
Advertising and promotional expenses .................... 102,110 83,535 172,980 142,040
Forms, printing and supplies ............................ 40,392 26,738 103,503 62,959
Directors fees and expenses ............................. 24,500 27,500 49,600 51,640
Data processing ......................................... 173,360 54,425 308,652 102,509
Regulatory assessments .................................. 18,519 14,291 39,870 24,583
Insurance ............................................... 16,894 10,859 26,637 17,438
Other operating expenses ............................... 219,072 141,505 405,538 278,489
---------- ---------- ---------- ----------
Total non-interest expenses .. 1,961,100 978,880 3,778,956 1,912,797
---------- ---------- ---------- ----------
Income before income taxes .. 237,022 212,985 400,885 354,584
Provision for Income Taxes .................................. 107,903 1,885 185,153 3,085
---------- ---------- ---------- ----------
Net income .. $ 129,119 $ 211,100 $ 215,732 $ 351,499
========== ========== ========== ==========
Basic income per share .. $ 0.06 $ 0.11 $ 0.10 $ 0.18
Diluted income per share .. $ 0.06 $ 0.10 $ 0.10 $ 0.17
</TABLE>
See accompanying Notes to Consolidated Financial Statements
2
<PAGE>
Patriot National Bancorp, Inc.
Consolidated Statements of Comprehensive Income
(unaudited)
<TABLE>
<CAPTION>
Three months Three months Six months Six months
Ended Ended Ended Ended
June 30,2000 June 30,1999 June 30,2000 June 30,1999
------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 129,119 $ 211,100 $ 215,732 $ 351,499
Unrealized holding losses on securities:
Unrealized holding losses arising
during the period, net of taxes. (88,341) (154,663) (142,660) (199,697)
-----------------------------------------------------------
Comprehensive income $ 40,778 $ 56,437 $ 73,072 $ 151,802
===========================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
Consolidated Statements of Cash Flows
Six months ended June 30, 2000 and 1999
(unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income ............................................. $ 215,732 $ 351,499
Adjustments to reconcile net income to net cash provided
by operating activites:
Amortization and accretion of investment
premiums and discounts, net ........................... (3,350) 27,155
Originations of loans held for sale .................... (1,521,410) (2,014,950)
Proceeds from sales of loans held for sale ............. 1,521,410 2,014,950
Gain on sale of available for sale securities .......... 0 (42,031)
Provision for loan losses .............................. 223,500 155,000
Depreciation and amortization .......................... 197,005 122,411
Professional fees paid by issuance of common stock ..... 0 4,719
Director's fees paid by issuance of common stock ....... 0 50,044
Changes in assets and liabilities:
Decrease in deferred loan fees ........................ (63,681) (16,946)
Increase in accrued interest receivable ............... (378,109) (238,077)
Increase in other assets .............................. (63,354) (8,997)
Increase in accrued expenses and other liabilities .... 116,230 13,434
------------ ------------
Net cash provided by operating activities .................. 243,973 418,211
------------ ------------
Cash Flows from Investing Activities
Purchases of Federal Home Loan Bank stock ................ (286,600) 0
Purchases of available for sale securities ............... 0 (10,562,517)
Redemption of Federal Reserve Bank stock ................. 13,550 0
Proceeds from maturities of available for sale securities 0 500,000
Proceeds from sales of available for sale securities ..... 0 6,350,708
Principal repayments on available for sale securities .... 1,295,985 0
Purchase of held to maturity securities .................. 0 (8,966,053)
Net increase in loans .................................... (16,680,607) (18,314,231)
Purchases of bank premises and equipment ................. (185,304) (103,822)
Recoveries on other real estate owned .................... 0 18,800
Purchase of assets of mortgage company ................... 0 (167,269)
------------ ------------
Net cash used in investing activities ...................... (15,842,976) (31,244,384)
------------ ------------
Cash Flows from Financing Activities
Net increase in demand, savings and money market deposits 13,264,940 6,083,753
Net (decrease) increase in time certificates of deposit .. (9,003,923) 12,154,403
Principal payments on capital lease obligation ........... (44,858) (39,086)
Increase in collateralized borrowings .................... 150,000 0
Proceeds from issuance of common stock ................... 1,904,436 10,091
------------ ------------
Net cash provided by financing activities .................. 6,270,595 18,209,161
------------ ------------
Net decrease in cash and cash equivalents .................. (9,328,408) (12,617,012)
Cash and cash equivalents
Beginning ................................................ 32,561,295 29,567,353
------------ ------------
Ending ................................................... $ 23,232,887 $ 16,950,341
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
Patriot National Bancorp, Inc.
Consolidated Statements of Cash Flows, continued
Six months ended June 30, 2000 and 1999
(unaudited)
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Suppmental Disclosures of Cash Flow Information
Cash paid for:
Interest ................................................. $3,637,332 $1,796,637
========== ==========
Income taxes ............................................. $ 53,000 $ 3,085
========== ==========
Supplemental Disclosures of Noncash Investing and
Financing Activities
Purchase of assets of mortgage company:
Purchase price .................................. $ 0 $1,500,000
Direct acquisition costs ........................ 0 17,269
---------- ----------
$ 0 $1,517,269
========== ==========
Fair value of asset acquired:
Goodwill ...................................... $ 0 $1,517,269
========== ==========
Source of Funds
Cash ........................................... $ 0 $ 167,269
Issuance of capital stock ..................... 0 1,350,000
---------- ----------
$ 0 $1,517,269
========== ==========
Accrued prior year director and professional fees settled
in common stock ....................................... $ 0 $ 24,965
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
Notes to Consolidated Financial Statements
1. The Consolidated Balance Sheet at December 31, 1999 has been derived from
the audited financial statements of Patriot National Bancorp, Inc.
("Bancorp") at that date, but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
2. The accompanying unaudited consolidated 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 generally accepted accounting principles 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 fiscal year ended December 31, 1999.
The information furnished reflects, in the opinion of management, all
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the results of the interim periods presented. The results
of operations for the six months ended June 30, 2000 are not necessarily
indicative of the results of operations that may be expected for all of
2000.
3. Bancorp is required to present basic income per share and diluted income
per share in its income statements. Basic income per share amounts are
computed by dividing net income by the weighted average number of common
shares outstanding. Diluted income per share assumes the exercise of all
potential common stock in weighted average shares outstanding, unless the
effect is antidilutive. Bancorp is also required to provide a
reconciliation of the numerator and denominator used in the computation of
both basic and diluted income per share. The following is information about
the computation of income per share for the quarters and six months ended
June 30, 2000 and 1999.
<TABLE>
Quarter ended June 30, 2000
<CAPTION>
Net Income Shares Amount
---------- ------ ------
<S> <C> <C> <C>
Basic Income Per Share
Income available to common stockholders $ 129,119 2,166,100 $ 0.06
Effect of Dilutive Securities
Warrants and options outstanding - 34,966 -
--------------------------------------
Diluted Income Per Share
Income available to common stockholders
plus assumed conversions $ 129,119 2,201,066 $ 0.06
======================================
</TABLE>
6
<PAGE>
<TABLE>
Quarter ended June 30, 1999
<CAPTION>
Net Income Shares Amount
---------- ------ ------
<S> <C> <C> <C>
Basic Income Per Share
Income available to common stockholders $ 211,100 2,001,378 $ 0.11
Effect of Dilutive Securities
Warrants outstanding ................. -- 28,255 --
--------- --------- ---------
Diluted Income Per Share
Income available to common stockholders
plus assumed conversions .............. $ 211,100 2,029,633 $ 0.10
========= ========= ==========
</TABLE>
<TABLE>
Six months ended June 30, 2000
<CAPTION>
Net Income Shares Amount
---------- ------ ------
<S> <C> <C> <C>
Basic Income Per Share
Income available to common stockholders $ 215,732 2,163,526 $ 0.10
Effect of Dilutive Securities
Warrants and options outstanding ..... -- 46,470 --
--------- --------- ---------
Diluted Income Per Share
Income available to common stockholders
plus assumed conversions .............. $ 215,732 2,209,996 $ 0.10
========= ========= ========
</TABLE>
<TABLE>
Six months ended June 30, 1999
<CAPTION>
Net Income Shares Amount
---------- ------ ------
<S> <C> <C> <C>
Basic Income Per Share
Income available to common stockholders $ 351,499 1,999,837 $ 0.18
Effect of Dilutive Securities
Warrants outstanding .................. -- 31,959 --
--------- --------- ---------
Diluted Income Per Share
Income available to common stockholders
plus assumed conversions ......... $ 351,499 2,031,796 $ 0.17
========= ========= =========
</TABLE>
4. Bancorp has two reportable segments, the commercial bank and the mortgage
broker. The Bank provides its commercial customers with products such as
commercial mortgage loans, working capital loans, equipment loans and other
business financing arrangements, and provides its consumer customers with
residential mortgage loans, home equity loans and other consumer
installment loans. The commercial bank segment also attracts deposits from
both consumer and commercial customers and invests such deposits in loans,
Investments and working capital. Revenues of the bank are generated
primarily from net interest income from its lending, investment and deposit
activities.
The mortgage broker solicits and processes conventional mortgage loan
applications from consumers and originates loans on behalf of permanent
investors, and revenues are generated from loan brokerage fees received
from permanent investors.
7
<PAGE>
Information about reportable segments, and a reconciliation of such
information to the consolidated financial statements as of June 30, 2000 is
as follows (in thousands):
Six months ended June 30, 2000
Mortgage Consolidated
Bank Broker Totals
-------------------------------------------
Net interest income ..... $ 3,148 -- $ 3,148
Non-interest income ..... 128 1,127 1,255
Non-interest expense .... 2,576 1,203 3,779
Provision for loan losses 224 -- 224
Income before taxes ..... 477 (76) 401
Assets .................. 183,583 72 183,655
Quarter ended June 30, 2000
Mortgage Consolidated
Bank Broker Totals
-------------------------------------
Net interest income ..... $1,630 -- $1,630
Non-interest income ..... 76 606 682
Non-interest expense .... 1,242 719 1,961
Provision for loan losses 114 -- 114
Income before taxes ..... 351 (11 ) 237
Bancorp did not have a mortgage brokerage segment in the first six months
of 1999 as such operations relate to Pinnacle, a division of the Bank
acquired on June 30, 1999.
5. During the quarter ended June 30, 2000, Bancorp issued an aggregate of
211,750 shares of its $2 par value common stock through a private placement
offering of 208,416 shares, and the issuance of 3,334 shares upon the
exercise of stock warrants. The proceeds from the sale of these shares was
$1,904,436.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
a. Plan of Operation
Not applicable since Bancorp had revenues from operations in each of the last
two fiscal years.
b. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Summary
-------
Bancorp had net income of $129,000 ($0.06 basic income per share and $0.06
diluted income per share) for the quarter ended June 30, 2000, compared to net
income of $211,000 ($0.11 basic income per share and $0.10 diluted income per
share) for the quarter ended June 30, 1999. On a pre-tax basis, income increased
11.3% during the quarter ended June 30, 2000. For the six- month period ended
June 30, 2000, net income was $216,000 which represents a decrease from the
$351,000 earned during the period ended June 30, 1999. During that same period
however, pre-tax income increased 13%, from $355,000 to $401,000.
Total assets increased $6.5 million from $177.2 million at December 31, 1999 to
$183.7 million at June 30, 2000. The net loan portfolio increased $16.5 million
from $107.8 million at December 31, 1999 to $124.3 million at June 30, 2000.
Loan growth was funded through the proceeds from maturities of short-term
investments and growth in deposits. For the quarter ended June 30, 2000, Bancorp
recorded a provision for loan losses of $114,000 as compared to $87,000 for the
corresponding period in 1999. The increase in the loan loss provision is due to
the growth in the loan portfolio. During the quarter ended June 30, 2000,
Bancorp recorded net loan charge offs of $15,000 as compared to net recoveries
from loans charged off of $12,000 during the same period in 1999. Deposits
increased $4.3 million from $162.7 million at December 31, 1999 to $167.0
million at June 30, 2000. Total Shareholder's Equity increased $2 million to
$15.2 million at June 30, 2000. The increase was due primarily to proceeds from
the private placement of the Bancorp's common stock on June 30, 2000.
FINANCIAL CONDITION
Assets
------
Bancorp's total assets increased $6.5 million from $177.2 million at December
31, 1999 to $183.7 million at June 30, 2000. Cash and cash equivalents decreased
$9.3 million at June 30, 2000 as compared to December 31, 1999 due mainly to the
maturity of $11 million of short-term investments. Cash and due from banks
increased $3.5 million and federal funds sold decreased $1.9 million.
Loans
-----
Bancorp's net loan portfolio increased $16.5 million from $107.8 million at
December 31, 1999 to $124.3 million at June 30, 2000. Loan growth was funded
through the maturity of short-term investments and deposit growth. At June 30,
2000, the net loan to deposit ratio was 74.42% and
9
<PAGE>
the net loan to asset ratio was 67.68%. At December 31, 1999, the net loan to
deposit ratio was 66.22%, and the net loan to asset ratio was 60.82%. Bancorp
experienced robust loan demand during the first half of 2000 and, although the
higher interest rate environment may slow loan demand somewhat, management
believes that loan growth will remain strong for the remainder of 2000.
Allowance for Loan Losses
-------------------------
The provision for loan losses is a charge against income and an addition to the
allowance for loan losses. Management's judgement in determining the adequacy of
the allowance is based on an evaluation of individual loans, the risk
characteristics and size of the loan portfolio, an assessment of current
economic and real estate market conditions, estimates of the current value of
underlying collateral, past loan loss experience, review of regulatory authority
examination reports and evaluations of specific loans and other relevant
factors.
Based upon this evaluation, management believes the allowance for loan losses of
$1.6 million at June 30, 2000, which represents 1.25% of gross loans
outstanding, is adequate, under prevailing economic conditions, to absorb losses
on existing loans which may become uncollectible. At December 31, 1999, the
allowance for loan losses was $1.4 million or 1.25% of gross loans outstanding.
Analysis of Allowance for Loan Losses at June 30,
-------------------------------------------------
(Thousands of dollars) 2000 1999
--------------------------------------------------------------
Balance at beginning of period $1,360 $785
------------------------
Charge-offs (15) (17)
Recoveries 0 29
------------------------
Net (charge-offs) recoveries (15) 12
------------------------
Provision charged to operations 224 155
------------------------
Balance at end of period $1,569 $952
========================
Ratio of net (charge-offs)
recoveries during the period
to average loans outstanding
during the period (0.00%) 0.02%
========================
Non-Accrual, Past Due and Restructured Loans
--------------------------------------------
The following table presents non-accruing and past due loans as of June 30, 2000
and December 31, 1999.
10
<PAGE>
(Thousands of dollars) 2000 1999
----------------------------------------------------------------
Loans delinquent over 90
days still accruing $ 482 $ 475
Non-accruing loans 1,711 91
---------------------------
$2,193 $ 566
===========================
% of Total Loans 1.74% .52%
% of Total Assets 1.19% .32%
The increase in non-accruing loans is due to two loans for which management does
not anticipate any loss due to sufficient loan to value ratios.
Potential Problem Loans
-----------------------
At June 30, 2000, Bancorp had no loans other than those described above, as to
which management has significant doubts as to the ability of the borrower to
comply with the present repayment terms.
Deposits
--------
Total deposits increased $4.3 million from $162.7 million at December 31, 1999
to $167.0 million at June 30, 2000. Certificates of deposit decreased $9.0
million as Bancorp did not aggressively price such deposits in a rising rate
environment. These deposits were replaced with $11.4 million in high cost
checking accounts. Other NOW, DDA and Money Market Accounts increased $5.9
million, but Savings Accounts decreased by $4.0 million.
RESULTS OF OPERATIONS
Interest and dividend income and expense
----------------------------------------
Bancorp's interest and dividend income increased 62%, or $1.3 million, for the
quarter ended June 30, 2000 over the comparable period in 1999. This increase
reflects a 65.2% increase in the loan portfolio over the past twelve months and
a 54.5% increase in federal funds sold over the same period. The rising interest
rate environment also was a positive factor improving the yields on variable
rate loans and overnight investments. For the six-month period ended June 30,
2000, interest and dividend income was $6.8 million representing a 68.5%
increase over the comparable period in 1999. Interest earning asset growth and a
rising interest rate environment were again the cause of the increase.
Interest expense increased 92.9% to $1.8 million for the quarter ended June
30,2000 compared to the same period in 1999. The increase was due to the growth
in deposits of 55.3% over the past twelve months. The increase was primarily in
higher yielding certificates of deposit. Rising interest rates also increased
funding costs on the Bankcorp's certificate of deposit portfolio.
11
<PAGE>
Non-interest income
-------------------
Non-interest income increased $588,000 and $1.1 million respectively for
three-month and six- month periods ended June 30, 2000. The increase in other
non-interest income is attributed to the acquisition of a mortgage broker
operation ("Pinnacle") in June 1999, which offers mortgage brokerage services
and generated approximately $606,000 mortgage brokerage referral fee revenue in
the second quarter of 2000 and $1.1 million for the six months ended June
30,2000.
Non-interest expenses
---------------------
Non-interest expenses increased from $979,000 for the three months ended June
30, 1999 to $2.0 million for the three months ended June 30, 2000. For the six
months ended June 30, 2000, non- interest expenses were $3.8 million which
represents an increase of $1.9 million over the comparable period in 1999.
Salaries and benefits increased $613,000 and $1.2 million, respectively, and
occupancy and equipment expense increased $116,000 and $196,000 from the
comparable periods in 1999. The overall increase in non-interest expenses was
due to the acquisition of Pinnacle as of June 30, 1999, the opening of a bank
branch office in the fourth quarter of 1999, the continued expansion of Pinnacle
including the opening of a new office in the first quarter of 2000, and the
overall growth of the Bank.
Income Taxes
------------
Bancorp recorded income tax expense of $108,000 and $185,000 for the three-month
and six- month periods ended June 30, 2000. This compares to the prior year when
the expense was $2,000 and $3,000 as Bancorp recognized a benefit from the
utilization of available net operating loss carry forwards.
LIQUIDITY
Bancorp's liquidity position was 23.53% and 24.83% at June 30, 2000 and 1999,
respectively. The liquidity ratio is defined as the percentage of liquid assets
to total assets. The following categories of assets as described in the
accompanying consolidated balance sheets are considered liquid assets: cash and
due from banks, federal funds sold, short-term investments, available-for-sale
securities and held-to-maturity securities maturing in one year or less.
Liquidity is a measure of Bancorp's ability to generate adequate cash to meet
financial obligations. The principal cash requirements of a financial
institution are to cover downward fluctuations in deposit accounts and increases
in its loan portfolio. Management believes Bancorp's short-term assets have
sufficient liquidity to cover potential fluctuations in deposit accounts, loan
demand and to meet other anticipated cash requirements.
CAPITAL
The following table illustrates the Bancorp's regulatory capital ratios at June
30, 2000 and December 31, 1999 respectively:
12
<PAGE>
2000 1999
---- ----
Leverage Capital 8.47% 7.21%
Tier 1 Risk-based Capital 9.89% 8.91%
Total Risk-based Capital 10.97% 9.90%
Capital adequacy is one of the most important factors used to determine the
safety and soundness of individual banks and the banking system. Based on the
above ratios, Bancorp believes that at June 30, 2000 it is considered to be
"well capitalized" under applicable regulations. To be considered
"well-capitalized," an institution must generally have a leverage capital ratio
of at least 5%, a Tier 1 risk-based capital ratio of at least 6% and a total
risk-based capital ratio of at least 10%.
At the Bancorp's annual meeting held June 14, 2000, shareholders approved a
private placement of up to $5 million of common stock. Bancorp intends to sell
the stock in one or more closings as the need arises. The proceeds of the
offerings will be used to provide the Bank with additional capital sufficient
for the Bank to continue to be "well capitalized" for regulatory purposes and
the balance of the net proceeds of the offering will be retained by Bancorp for
working capital and other general corporate purposes. $1.9 million from the
first closing was sold on June 30, 2000.
Impact of Inflation and Changing Prices
---------------------------------------
Bancorp's consolidated financial statements have been prepared in terms of
historical dollars, without considering changes in relative purchasing power of
money over time due to inflation. Unlike most industrial companies, virtually
all of the assets and liabilities of a financial institution are monetary in
nature. As a result, interest rates have a more significant impact on a
financial institution's performance than the effect of general levels of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the prices of goods and services. Notwithstanding this,
inflation can directly affect the value of loan collateral, in particular, real
estate. Inflation, or disinflation, could significantly affect Bancorp's
earnings in future periods.
"Safe Harbor" Statement Under Private Securities Litigation Reform Act of 1995
------------------------------------------------------------------------------
Certain statements contained in Bancorp's public reports, including this report,
and in particular in this "Management's Discussion and Analysis of Financial
Condition and Results of Operation," may be forward looking and subject to a
variety of risks and uncertainties. These factors include, but are not limited
to, (1) changes in prevailing interest rates which would affect the interest
earned on Bancorp's interest earning assets and the interest paid on its
interest bearing liabilities, (2) the timing of repricing of Bancorp's interest
earning assets and interest bearing liabilities, (3) the effect of changes in
governmental monetary policy, (4) the effect of changes in regulations
applicable to Bancorp and the conduct of its business, (5) changes in
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competition among financial service companies, including possible further
encroachment of non- banks on services traditionally provided by banks and the
impact of recently enacted federal legislation, (6) the ability of competitors
which are larger than Bancorp to provide products and services which it is
impracticable for Bancorp to provide, (7) the effect of Bancorp's opening of
branches, and (8) the effect of any decision by Bancorp to engage in any
business not historically permitted to it. Other such factors may be described
in Bancorp's filings with the SEC.
PART II - OTHER INFORMATION
---------------------------
Item 2. Changes in Securities
a. Not applicable
b. Not applicable
c. During the quarter ended June 30, 2000, Bancorp issued an
aggregate of 211,750 shares of its common stock, par value $2.00
per share (the "common stock"). 208,416 shares of common stock
were sold in a private placement for an aggregate selling price
of approximately $1.9 million approved by the shareholders at the
annual meeting held on June 14. These shares were issued in
transactions exempt from the registration requirements of the
Securities Act of 1933 under rule 506 of Regulation D under such
act. Each purchaser of such shares is an Accredited Investor as
such term is defined in rule 506 of Regulation D. The remaining
3,334 shares were issued to accredited investors as the result of
the exercise of warrants previously granted.
d. Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders (the "Annual Meeting") of
Patriot National Bancorp, Inc. was held on June 14, 2000.
(b) Not applicable pursuant to Instruction 3 to Item 4 of Part II of
Form 10 - QSB.
(c) The following is a brief description of the matters voted upon at
the Annual Meeting and the number of votes cast for, against or
withheld as well as the number of abstentions to each such
matter:
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(i) The election of nine directors for the ensuing year.
Withheld
Authority
For to Vote for
Herbert A. Bregman ..... 15,728,463 544,725
Angelo DeCaro .......... 16,105,563 167,625
Fred A. DeCaro, Jr ..... 15,410,124 863,064
John A. Geoghegan ...... 16,103,263 164,925
L. Morris Glucksman..... 15,698,124 575,064
Michael Intrieri ....... 15,321,024 952,164
Richard Naclerio ....... 15,715,863 557,325
Salvatore Travato ...... 16,089,363 183,825
Philip W. Wolford ...... 16,103,263 164,925
(ii) The proposal to approve a private placement of up to $5 million
of common stock.
For Against Abstain
1,344,558 24,100 59,305
(iii) The consideration of a proposal to ratify the appointment of
McGladrey & Pullen, LLP as independent accountants for the
Bankcorp for the year ending December 31, 2000.
For Against Abstain
1,791,431 14,296 2,405
(d) Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
No. Description
--- -----------
27 Financial Data Schedule
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b. Report on Form 8-K
A Current Report on Form 8-K dated June 30, 2000 was filed by Bancorp
with the Securities and Exchange Commission on July 18, 2000. This report
responded to item 5 of the Form 8-K.
SIGNATURES
In accordance with of the requirements of Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Patriot National Bancorp, Inc.
By: /s/ Robert F. O'Connell
---------------------------
Robert F. O'Connell,
Executive Vice President
Chief Financial Officer
August 14, 2000
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