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 September 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 October 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 13
Item 6 Exhibits and Reports on Form 8-K 14
<PAGE>
Item 1. Financial Statements
Patriot National Bancorp, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
Assets 2000 1999
---------------------------------
Unaudited
<S> <C> <C>
Cash and due from banks ............................ $ 5,400,879 $ 2,685,031
Federal funds sold ................................. 21,000,000 18,900,000
Short-term investments-commercial paper ............ -- 10,976,264
-------------------------------
Cash and cash equivalents ................ 26,400,879 32,561,295
Available for sale securities (at fair value) ...... 20,678,389 19,984,309
Held to maturity securities ........................ 12,298,939 12,301,485
Federal Reserve Bank stock ......................... 457,900 410,700
Federal Home Loan Bank stock ....................... 593,600 307,000
Loans receivable (net of allowance for loan losses
of $1,633,603 in 2000 and $1,360,183 in 1999) .... 129,039,795 107,769,911
Accrued interest receivable ........................ 1,268,175 980,777
Premises and equipment, net ........................ 967,208 953,656
Deferred tax asset, net ............................ 487,967 562,928
Goodwill(net of accumulated amortization of
$151,176 in 2000 and $58,180 in 1999) ........... 1,084,952 1,177,948
Other assets (net of accumulated amortization of
$19,616 in 2000 and $17,285 in 1999) ............ 344,260 184,688
-------------------------------
Total assets .................................. $ 193,622,064 $ 177,194,697
===============================
Liabilities and Shareholders' Equity
Deposits
Non-interest bearing deposits ................. $ 17,113,001 $ 12,630,926
Interest bearing deposits ..................... 159,067,980 150,115,428
-------------------------------
Total deposits ........................... 176,180,981 162,746,354
Capital lease obligations .......................... 495,367 563,687
Collateralized borrowings .......................... 475,000 325,000
Accrued expenses and other liabilities ............. 458,004 323,568
-------------------------------
Total liabilities ........................ 177,609,352 163,958,609
-------------------------------
Shareholders' equity
Common stock, $2 par value;
5,333,333 shares authorized; issued and outstanding
2,400,375 shares in 2000 and 2,160,952 in 1999 .... 4,800,750 4,321,904
Paid in capital ................................... 11,483,770 9,807,957
Accumulated deficit ............................... (138,400) (635,331)
Accumulated other comprehensive income - net
unrealized loss on available for sale
securities .................................... (133,408) (258,442)
-------------------------------
Total shareholders' equity ............... 16,012,712 13,236,088
-------------------------------
Total liabilities and shareholders' equity $ 193,622,064 $ 177,194,697
===============================
</TABLE>
See accompanying Notes to Consolidated Financial Statements
1
<PAGE>
Patriot National Bancorp, Inc.
Consolidated Statements of Income
(unaudited)
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
----------------------------------------------------------
Interest and Dividend Income
<S> <C> <C> <C> <C>
Interest and fees on loans .............................. $ 2,974,102 $ 1,995,469 $ 8,237,393 $ 5,049,345
Interest and dividends on Investment securities ......... 514,497 368,677 1,572,366 1,030,624
Interest on federal funds sold .......................... 355,300 151,947 819,482 463,334
--------------------------------------------------------
Total interest and divided income 3,843,899 2,516,093 10,629,241 6,543,303
--------------------------------------------------------
Interest Expense
Interest on deposits .................................... 2,107,567 1,131,857 5,691,098 2,885,580
Interest on capital lease obligation .................... 17,540 21,520 54,681 64,434
Interest expense on collateralized borrowings ........... 11,969 0 28,629 0
--------------------------------------------------------
Total interest expense 2,137,076 1,153,377 5,774,408 2,950,014
--------------------------------------------------------
Net interest income 1,706,823 1,362,716 4,854,833 3,593,289
Provision for Loan Losses ................................... 64,500 171,000 288,000 326,000
--------------------------------------------------------
Net interest income after provision for loan losses .. 1,642,323 1,191,716 4,566,833 3,267,289
--------------------------------------------------------
Non-Interest Income
Mortgage brokerage referral fees ........................ 645,449 489,524 1,772,936 489,524
Fees and service charges ................................ 56,023 41,277 140,519 152,575
Gains and origination fees from loans sold .............. 20,105 13,508 35,120 49,464
Other income ............................................ 25,615 54,263 53,948 98,818
--------------------------------------------------------
Total non-interest income 747,192 598,572 2,002,523 790,381
--------------------------------------------------------
Non-Interest Expenses
Salaries and benefits ................................... 1,093,932 819,914 3,221,646 1,752,484
Occupancy and equipment expense, net .................... 224,884 125,471 626,115 330,845
Professional services ................................... 97,380 76,698 240,611 171,893
Advertising and promotional expenses .................... 75,883 95,311 248,863 237,351
Forms, printing and supplies ............................ 31,059 42,936 134,562 105,895
Directors fees and expenses ............................ 1,072 23,200 50,672 74,840
Data processing ......................................... 131,173 77,969 439,825 180,478
Regulatory assessments .................................. 21,557 13,935 61,427 38,518
Insurance ............................................... 24,504 8,841 51,141 26,279
Other operating expenses ................................ 192,043 224,683 597,581 503,172
--------------------------------------------------------
Total non-interest expenses 1,893,487 1,508,958 5,672,443 3,421,755
--------------------------------------------------------
Income before income taxes 496,028 281,330 896,914 635,915
Provision for Income Taxes .................................. 214,829 20,001 399,982 23,086
--------------------------------------------------------
Net income $ 281,199 261,329 $ 496,931 $ 612,829
========================================================
Basic income per share $ 0.12 $ 0.12 $ 0.22 $ 0.29
========================================================
Diluted income per share $ 0.12 $ 0.12 $ 0.22 $ 0.29
========================================================
</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 Nine months Nine months
Ended Ended Ended Ended
September 30,2000 September 30,1999 September 30,2000 September 30,1999
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income .................................... $ 281,199 $ 261,329 $ 496,931 $ 612,829
Unrealized holding gain( losses) on securities:
Unrealized holding gains (losses) arising
during the period, net of taxes ........... 267,694 (2,386) 125,034 (244,114)
Less: Reclassification adjustment for
gains included in net income ............... 42,031
-----------------------------------------------------------------------------
Comprehensive income .......................... $ 548,893 $ 258,943 $ 621,965 $ 410,746
=============================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
Consolidated Statements of Cash Flows
Nine months ended September 30, 2000 and 1999
(unaudited)
<TABLE>
<CAPTION>
2000 1999
-----------------------------------
Cash Flows from Operating Activities
<S> <C> <C>
Net income ............................................. $ 496,931 $ 612,829
Adjustments to reconcile net income to net cash provided
by operating activites:
Amortization and accretion of investment
premiums and discounts, net ........................... (8,013) (15,721)
Originations of loans held for sale .................... (9,906,130) (2,014,950)
Proceeds from sales of loans held for sale ............. 9,906,130 2,014,950
Gain on sale of available for sale securities .......... -- 42,031
Provision for loan losses .............................. 288,000 326,000
Gain on sale of other real estate owned ................ -- (32,238)
Depreciation and amortization .......................... 307,184 197,427
Professional fees paid by issuance of common stock ..... -- 20,222
Directors' fees paid by issuance of common stock ....... -- 55,044
Changes in assets and liabilities:
Increase in deferred loan fees ........................ 188,423 5,202
Increase in accrued interest receivable ............... (287,398) (270,755)
(Increase) decrease in other assets ................... (162,647) 19,890
Increase (decrease) in accrued expenses and other
liabilities .......................................... 134,436 (866)
-----------------------------------
Net cash provided by operating activities .................. 956,916 959,065
-----------------------------------
Cash Flows from Investing Activities
Purchases of Federal Reserve Bank stock .................. (60,750) (170,700)
Purchases of Federal Home Loan Bank stock ................ (286,600) --
Purchases of available for sale securities ............... (3,000,000) (10,478,433)
Redemption of Federal Reserve Bank stock ................. 13,550 --
Proceeds from maturities of available for sale securities. -- 500,000
Proceeds from sales of available for sale securities ..... -- 6,350,708
Purchases of held to maturity securities ................. -- (8,966,053)
Proceeds from maturities of held to maturity securities .. -- 500,000
Principal repayments on available for sale securities .... 2,518,209 461,468
Net increase in loans .................................... (21,746,307) (32,826,784)
Purchases of bank premises and equipment ................. (226,400) (123,074)
Recoveries on other real estate owned .................... -- 18,800
Proceeds from the sale of other real estate owned ........ -- 53,905
Purchase of assets of mortgage company ................... -- (167,269)
-----------------------------------
Net cash used in investing activities ...................... (22,788,298) (44,847,432)
-----------------------------------
Cash Flows from Financing Activities
Net increase in demand, savings and money market
deposits ................................................ 18,460,310 1,924,113
Net (decrease) increase in time certificates of deposit .. (5,025,683) 44,990,743
Principal payments on capital lease obligation ........... (68,320) (59,569)
Increase in collateralized borrowings .................... 150,000 --
Proceeds from issuance of common stock ................... 2,154,659 10,095
-----------------------------------
Net cash provided by financing activities .................. 15,670,966 46,865,382
-----------------------------------
Net (decrease) increase in cash and cash equivalents ....... (6,160,416) 2,977,015
Cash and cash equivalents
Beginning ................................................ 32,561,295 29,567,353
-----------------------------------
Ending ................................................... $ 26,400,879 $ 32,544,368
===================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE>
Patriot National Bancorp, Inc.
Consolidated Statements of Cash Flows, continued
Nine months ended September 30, 2000 and 1999
(unaudited)
<TABLE>
<CAPTION>
2000 1999
---------------------------------
Suppmental Disclosures of Cash Flow Information
Cash paid for:
<S> <C> <C>
Interest ................................................. $5,507,545 $2,950,014
===========================
Income taxes ............................................. $ 439,328 $ 23,086
===========================
Supplemental Disclosures of Noncash Investing and
Financing Activities
Purchase of assets of mortgage company:
Purchase price .................................. $ 0 $1,130,409
Direct acquisition costs ........................ 0 17,269
------------- ------------
$ 0 $1,147,678
============= ============
Fair value of asset acquired:
Goodwill ...................................... $ 0 $1,147,678
===========================
Source of Funds
Cash ........................................... $ 0 $ 167,269
Issuance of capital stock ...................... 0 980,409
------------- ------------
$ 0 $1,147,678
============= ============
Accrued prior year director and professional fees settled
in common stock ....................................... $ 0 $ 19,965
============= ============
</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 nine months ended September 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 nine months ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
Quarter ended September 30, 2000
Net Income Shares Amount
---------- ------ ------
Basic Income Per Share
<S> <C> <C> <C>
Income available to common stockholders ... $ 281,199 2,397,969 $ 0.12
Effect of Dilutive Securities
Warrants and options outstanding .......... 26,738
--------- --------- --------
Diluted Income Per Share
Income available to common stockholders
plus assumed conversions .................. $ 281,199 2,424,707 $ 0.12
========= ========= ========
Quarter ended September 30, 1999
Net Income Shares Amount
---------- ------ ------
Basic Income Per Share
Income available to common stockholders ... $ 261,329 2,198,757 $ 0.12
Effect of Dilutive Securities
Warrants and options outstanding .......... 39,495
--------- --------- ----------
Diluted Income Per Share
Income available to common stockholders
plus assumed conversions .................. $ 261,329 2,238,252 $ 0.12
========= ========= ==========
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Nine months ended September 30, 2000
Net Income Shares Amount
---------- ------ ------
Basic Income Per Share
<S> <C> <C> <C>
Income available to common stockholders ............ $ 496,931 2,242,244 $ 0.22
Effect of Dilutive Securities
Warrants and options outstanding .................. 40,401
--------- --------- --------
Diluted Income Per Share
Income available to common stockholders
plus assumed conversions ........................... $ 496,931 2,282,645 $ 0.22
========= ========= ========
Nine months ended September 30, 1999
Net Income Shares Amount
---------- ------ ------
Basic Income Per Share
Income available to common stockholders ............ $ 612,829 2,080,579 $ 0.29
Effect of Dilutive Securities
Warrants and options outstanding .................. 27,016
--------- --------- --------
Diluted Income Per Share
Income available to common stockholders
plus assumed conversions ...................... $ 612,829 2,107,595 $ 0.29
========= ========= ========
</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 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.
Information about reportable segments, and a reconciliation of such
information to the consolidated financial statements for the quarter
and nine-month periods as follows (in thousands):
7
<PAGE>
<TABLE>
<CAPTION>
Nine months ended September 30, 2000 Elimination of
Mortgage Intersegment Consolidated
Bank Broker Revenue Totals
-------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income ............ $ 4,855 $ - $ - $ 4,855
Non-interest income ............ 194 1,932 (123) 2,003
Non-interest expense ........... 3,772 1,900 - 5,672
Provision for loan losses ...... 288 - - 288
Income before taxes ............ 865 32 - 897
Assets ......................... 193,544 78 - 193,622
Quarter ended September 30, 2000
Elimination of
Mortgage Intersegment Consolidated
Bank Broker Revenue Totals
-------------------------------------------------------
Net interest income ............ $ 1,707 $ - $ - $ 1,707
Non-interest income ............ 65 805 (123) 747
Non-interest expense ........... 1,196 697 - 1,893
Provision for loan losses ...... 65 - - 65
Income before taxes ............ 388 108 - 496
Nine months ended September 30, 1999
Elimination of
Mortgage Intersegment Consolidated
Bank Broker Revenue Totals
-------------------------------------------------------
Net interest income ............ $ 3,593 $ - $ - $ 3,593
Non-interest income ............ 295 495 - 790
Non-interest expense ........... 3,124 298 - 3,422
Provision for loan losses ...... 326 - - 326
Income before taxes ............ 444 192 - 636
Assets ......................... 150,659 - - 150,659
Quarter ended September 30, 1999
Elimination of
Mortgage Intersegment Consolidated
Bank Broker Revenue Totals
-------------------------------------------------------
Net interest income ............ $ 1,363 $ - $ - $ 1,363
Non-interest income ............ 104 495 - 599
Non-interest expense ........... 1,211 298 - 1,509
Provision for loan losses ...... 171 - - 171
Income before taxes ............ 89 192 - 281
</TABLE>
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
8
<PAGE>
5. During the quarter ended September 30, 2000, Bancorp issued an
aggregate of 27,673 shares of its $2 par value common stock through a
private placement offering. The proceeds from the sale of these shares
was $250,223
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 $281,000 ($0.12 basic income per share and $0.12
diluted income per share) for the quarter ended September 30, 2000, compared to
net income of $261,000 ($0.12 basic income per share and $0.12 diluted Income
per share) for the quarter ended September 30, 1999. On a pre-tax basis, income
increased 76.3% during the quarter ended September 30, 2000 compared to the same
period in 1999. For the nine- month period ended September 30, 2000, net income
was $497,000 which represents a decrease of $116,000from the $613,000 earned
during the nine-month period ended September 30, 1999. During that same period,
however, pre-tax income increased 41%, from $636,000 to $897,000.
Total assets increased $16.4 million from $177.2 million at December 31, 1999 to
$193.6 million at September 30, 2000. The net loan portfolio increased $21.2
million from $107.8 million at December 31, 1999 to $129.0 million at September
30, 2000. Loan growth was funded through growth in deposits and the proceeds
from maturities of short-term investments. For the quarter ended September 30,
2000, Bancorp recorded a provision for loan losses of $65,000 as compared to
$171,000 for the corresponding period in 1999. The decrease in the loan loss
provision is due to continued strength in the credit quality of the loan
portfolio and strong local economic conditions. During the quarter ended
September 30, 2000, there were no loan charge-offs as compared to net recoveries
from loans charged off of $10,000 during the same period in 1999. Deposits
increased $13.5 million from $162.7 million at December 31, 1999 to $176.2
million at September 30, 2000. Total Shareholder's Equity increased $2.8 million
to $16.0 million at September 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 $16.4 million from $177.2 million at December
31, 1999 to $193.6 million at September 30, 2000. Cash and cash equivalents
decreased $6.2 million at September 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 $2.7 million and federal funds sold increased $2.1
million as compared to December 31, 1999.
LOANS
Bancorp's net loan portfolio increased $21.2 million from $107.8 million at
December 31, 1999 to $129.0 million at September 30, 2000. Construction loans
increased $8.1 million, commercial real estate loans increased $5.5 million and
home equity loans increased $6.5 million, reflecting the strong local real
estate market. Commercial lines of credit increased $2.1 as Bancorp continues to
expand into small business lending.
9
<PAGE>
Loan growth was funded through deposit growth and the maturity of short-term
investments. At September 30, 2000, the net loan to deposit ratio was 73.2% and
the net loan to asset ratio was 66.6%. At December 31, 1999, the net loan to
deposit ratio was 66.2%, and the net loan to asset ratio was 60.8%. Bancorp
experienced robust loan demand during the first nine months of 2000 although
management believes that loan growth will moderate somewhat during the remainder
of the year due to the higher interest rate environment.
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 other relevant factors.
Based upon this evaluation, management believes the allowance for loan losses of
$1.6 million at September 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 September 30,
------------------------------------------------------
(Thousands of dollars) 2000 1999
-------------------------------------------------------------------------
Balance at beginning of period $1,360 $785
-----------------------
Charge-offs (14) (19)
Recoveries 0 41
-----------------------
Net (charge-offs) recoveries (14) 22
-----------------------
Provision charged to operations 288 326
-----------------------
Balance at end of period $1,634 $1,133
=======================
Ratio of net (charge-offs) recoveries
during the period to average loans
outstanding during the period (0.00%) 0.03%
======= ======
10
<PAGE>
NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The following table presents non-accruing and past due loans as of September 30,
2000 and December 31, 1999.
(Thousands of dollars) 2000 1999
--------------------------------------------------------------
Loans delinquent over 90
days still accruing $ 660 $ 475
Non-accruing loans 1,694 91
-------------------------
$2,354 $ 566
=========================
% of Total Loans 1.80% .52%
% of Total Assets 1.22% .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 September 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 $13.5 million from $162.7 million at December 31, 1999
to $176.2 million at September 30, 2000. Non-interest bearing deposits increased
by $4.5 million due to higher levels of commercial DDA accounts. Interest
bearing deposits increased $9.0 million from December 31, 1999. Certificates of
deposit decreased $5.0 million as Bancorp did not aggressively price such
deposits in a rising rate environment. These deposits were replaced with $17.4
million in a new high yield checking account product, as well as an increase in
NOW accounts of $1.7 million as compared to December 31, 1999. In addition,
savings accounts decreased by $5.2 million resulting from a shift to high yield
checking accounts.
RESULTS OF OPERATIONS
INTEREST AND DIVIDEND INCOME AND EXPENSE
Bancorp's interest and dividend income increased 52.8%, or $1.3 million, for the
quarter ended September 30, 2000 over the comparable period in 1999. This
increase reflects a 44.1% increase in the loan portfolio over the past twelve
months. The rising interest rate environment also was a positive factor
improving the yields on variable rate loans and overnight investments. For the
nine-month period ended September 30, 2000, interest and dividend income was
$10.6 million representing a 62.4% increase over the comparable period in 1999.
Interest earning asset growth and a higher interest rate environment were again
the cause of the increase.
Interest expense increased 85.3% to $2.1 million for the quarter ended September
30,2000 compared to the same period in 1999. For the nine month period ended
September 30, 2000 interest expense increased $2.8 million, or 95.7% from the
same period in 1999. The higher funding costs reflect an increase in
certificates of deposit of $31.9 million during the month of September 1999. The
impact of this growth for the 1999 reporting periods is minimal, but is fully
reflected in the cost of funds for 2000.
11
<PAGE>
NON-INTEREST INCOME
Non-interest income increased $149,000 and $1.2 million, respectively, for the
three-month and nine- month periods ended September 30, 2000 compared to the
same periods in 1999. The increase in non-interest income is primarily
attributed to the acquisition of a mortgage broker operation ("Pinnacle") in
June 1999, which offers mortgage brokerage services and generated approximately
$645,000 in fee revenue in the third quarter of 2000 and $1.8 million for the
nine months ended September 30,2000. Mortgage brokerage fees increased $156,000
in the quarter ended September 30, 2000 compared to the comparable period in the
prior year due to a higher number of loan origination employees in the mortgage
division resulting in increased volume.
NON-INTEREST EXPENSES
Non-interest expenses increased from $1.5 million for the three months ended
September 30, 1999 to $1.9 million for the three months ended September 30,
2000. For the nine months ended September 30, 2000, non- interest expenses were
$5.7 million, which represents an increase of $2.3 million over the comparable
period in 1999. Salaries and benefits increased $274,000 and $1.5 million,
respectively, and occupancy and equipment expense increased $99,000 and
$295,000, respectively 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 $215,000 and $400,000 for the three-month
and nine- month periods ended September 30, 2000, as compared to $20,000 and
$23,000, respectively, for the same periods in 1999 when Bancorp recognized a
benefit from the utilization of available net operating loss carry forwards.
LIQUIDITY
Bancorp's liquidity position was 25.12% and 29.83% at September 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 loan demand, potential fluctuations in deposit
accounts and to meet other anticipated cash requirements.
CAPITAL
The following table illustrates the Bancorp's regulatory capital ratios at
September 30, 2000 and December 31, 1999 respectively:
2000 1999
---- ----
Leverage Capital 7.97% 7.21%
Tier 1 Risk-based Capital 9.88% 8.91%
Total Risk-based Capital 10.96% 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 September 30, 2000 it is
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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 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. As of September 30, 2000, net proceeds from
the private placement aggregated $2.1 million.
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
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 September 30, 2000, Bancorp issued an
aggregate of 27,673 shares of its common stock, par value $2.00
per share (the "common stock"). The shares were sold for an
aggregate selling price of approximately $250,000 in a private
placement 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
Regulation D.
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d. Not applicable
Item 6. Exhibits and Reports on Form 8-K
a Exhibits
No. Description
--- -----------
27 Financial Data Schedule
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
(On behalf of the registrant and as chief financial officer)
November 14, 2000
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EXHIBIT INDEX
No. Description
--- -----------
27 Financial Data Schedule
15
