What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2023-03-29 compared with 2022-03-24 · 195 added, 224 removed, 255 unchanged (62% of the section changed)

Market for Registrant ’

s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Market for Registrant ’ s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Market Information

The Company’s Common Stock is traded on the Nasdaq Global Market under the Symbol “PNBK.”

There were approximately 281 shareholders of record of the Company’s Common Stock as of December 31, 2021.

The Company’s Common Stock is traded on the Nasdaq Global Market under the Symbol “PNBK.”

There were approximately 252 shareholders of record of the Company’s Common Stock as of December 31, 2022.

This number does not reflect the number of persons or entities holding stock in nominee name through banks, brokerage firms or other nominees.

The Company’s ability to pay dividends is dependent on the Bank’s ability to pay dividends or execute a return of capital to the Company.

The Bank can make payments to the Company 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 capital program, 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 make payments in excess of the Bank’s earnings retained in the current year plus retained net earnings for the preceding two years.

The Company’s ability to pay dividends is dependent on the Bank’s ability to pay dividends or execute a return of capital to the Company.

The Bank can make payments to the Company 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 capital program, 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 make payments in excess of the Bank’s earnings retained in the current year plus retained net earnings for the preceding two years.

The Company is also prohibited from paying dividends that would reduce its capital ratios below minimum regulatory requirements.

OCC regulations impose limitations upon all capital distributions by commercial institutions, like the Bank, such as dividends, returns of capital, and payments to repurchase or otherwise acquire shares.

The Company may not declare or pay cash dividends on or repurchase any of its shares of common stock, if the effect thereof would cause stockholders’

equity to be reduced below applicable regulatory capital maintenance requirements, or if such declaration and payments would otherwise violate regulatory requirements.

The Company did not pay any dividends in 2021 and 2020, and has temporarily suspended dividend payments pending resolution of the economic uncertainties associated with the Coronavirus pandemic.

For the year ended December 31, 2019, the Company paid cash dividends of $.01 per share of common stock, or an aggregate of $155,000.

The Company may not declare or pay cash dividends on or repurchase any of its shares of common stock, if the effect thereof would cause stockholders’ equity to be reduced below applicable regulatory capital maintenance requirements, or if such declaration and payments would otherwise violate regulatory requirements.

The Company did not pay any dividends since 2020, and has temporarily suspended dividend payments.

There is no assurance that Company will pay dividends in the future.

For information regarding our equity compensation plans, see PART III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.”

For information regarding our equity compensation plans, see PART III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.”

Performance Graph

The performance graph compares the Company’s cumulative total shareholder return on its common stock over the last five fiscal years to the NASDAQ Community Bank Total Return Index and the S&P 500 Total Return Index.

Total shareholder return is measured by dividing the sum of the cumulative amount of dividends for the measurement period (assuming dividend reinvestment) and the Company’s share price at the end of the measurement period, by the share price at the beginning of the measurement period.

Period Ending

2017 2018 2019 2020 2021 2022

Patriot National Bancorp ("PNBK") 100.00 % 79.83 % 71.48 % 55.69 % 87.11 % 59.38 %

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S&P 500 Total Return Index ("SP500TR") 100.00 % 95.62 % 125.72 % 148.85 % 192.08 % 156.88 %

Management ’

s Discussion and Analysis - Financial Condition & Results of Operations

Management ’ s Discussion and Analysis - Financial Condition & Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding the consolidated financial condition and results of operations of the Company.

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Critical Accounting Policies

The accounting and reporting policies of Patriot conform to accounting principles generally accepted in the United States of America (“U.S.

GAAP”) and to general practices within the financial services industry.

A summary of Patriot’s significant accounting policies is included in the Notes to consolidated financial statements that are referenced in Item 8.

The accounting and reporting policies of Patriot conform to accounting principles generally accepted in the United States of America (“U.S.

GAAP”) and to general practices within the financial services industry.

A summary of Patriot’s significant accounting policies is included in the Notes to consolidated financial statements that are referenced in Item 8.

Financial Statements and Supplementary Data.

Although all of Patriot’s policies are integral to understanding its consolidated financial statements, certain accounting policies involve management to exercise judgment, develop assumptions, and make estimates that may have a material impact on the financial information presented in the consolidated financial statements or Notes thereto.

The assumptions and estimates are based on historical experience and other factors representing the best available information to management as of the date of the consolidated financial statements, up to and including the date of issuance or availability for issuance.

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Allowance for Loan and Lease Losses (ALLL)

The Company maintains an ALLL at a level management believes is sufficient to absorb estimated credit losses incurred as of the report date. Management’s determination of the adequacy of the ALLL is based on periodic evaluations of the loan portfolio and other relevant factors.

The Company maintains an ALLL at a level management believes is sufficient to absorb estimated credit losses incurred as of the report date.

Management’s determination of the adequacy of the ALLL is based on periodic evaluations of the loan portfolio and other relevant factors.

However, this evaluation is inherently subjective as it requires significant estimates by management.

perceived financial and management strengths, the adequacy of underlying collateral, the dependence on collateral, and the strength of the present value of future cash flows and other relevant factors. These factors may be susceptible to significant change. 

To the extent actual outcomes differ from management’s estimates, additional provisions for loan losses may be required, which may adversely affect the Company’s results of operations in the future.

Subsequent to acquisition of purchased-credit-impaired loans, estimates of cash flows expected to be collected are updated each reporting period based on updated assumptions regarding default rates, loss severities, and other factors that are reflective of current market conditions.

As applicable, consideration is given to a variety of factors in establishing these estimates including historical losses, peer and industry data, current economic conditions, the size and composition of the loan portfolio, delinquency statistics, criticized and classified assets and impaired loans, results of internal loan reviews, borrowers’ perceived financial and management strengths, the adequacy of underlying collateral, the dependence on collateral, and the strength of the present value of future cash flows and other relevant factors.

These factors may be susceptible to significant change.

Subsequent to acquisition of purchased-credit-impaired loans, estimates of cash flows expected to be collected are updated each reporting period based on updated assumptions regarding default rates, loss severity, and other factors that are reflective of current market conditions.

Subsequent decreases in expected cash flows will generally result in a provision for loan losses;

subsequent increases in expected cash flows may result in a reversal of the provision for loan losses to the extent of prior charges.

The new accounting standard, CECL, effective for the Company as of January 1, 2023.

will require the Bank to determine periodic estimates of lifetime expected credit losses on loans, other financial instruments and other commitments to extend credit and provide for the expected credit losses as allowances for credit losses.

This will change our current method of providing allowance for loan losses and require us to record an allowance for credit losses as of January 1,2023 materially in excess of our existing allowance for loan losses.

CECL will also greatly increase the data we will need to collect and review to determine the appropriate level of the allowance for credit losses and will likely require larger allowances for credit losses going forward than our current methodology.

Unrealized Gains and Losses on Securities Available-for-sale

The Company receives estimated fair values of debt securities from independent valuation services and brokers. In developing these fair values, the valuation services and brokers use estimates of cash flows based on historical performance of similar instruments in similar rate environments.

The Company receives estimated fair values of debt securities from independent valuation services and brokers.

In developing these fair values, the valuation services and brokers use estimates of cash flows based on historical performance of similar instruments in similar rate environments.

Available-for-sale debt securities consist primarily of U.S.

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The debt securities are monitored for changes in credit ratings because adverse changes in credit ratings could indicate a change in the estimated cash flows of the underlying collateral or issuer.

The Company also considers the volatility of a security’s price in comparison to the market as a whole and any recoveries or declines in fair value subsequent to the balance sheet date.

If management determines that the impairment is other-than-temporary, the entire amount of the impairment, as of the balance sheet date, is recognized in earnings, even if the decision to sell the security has not been made.

The fair value of the security becomes the new amortized cost basis of the investment and is not adjusted for subsequent recoveries in fair value.

Available-for-sale debt securities were not considered to be other-than-temporarily impaired as of December 31, 2021, 2020, or 2019 because the unrealized losses were related to changes in interest rates and did not affect the expected cash flows to be received, or indicate a loss of value on the underlying collateral, or a loss of financial stability on the part of the issuer.

Available-for-sale debt securities were not considered to be other-than-temporarily impaired as of December 31, 2022, 2021, or 2020 because the unrealized losses were related to changes in interest rates and did not affect the expected cash flows to be received, or indicate a loss of value on the underlying collateral, or a loss of financial stability on the part of the issuer.

Management concluded that the declines in fair value of the investment portfolio as of the reporting dates is temporary and that values would recover by way of increases in market price or positive changes in market interest rates.

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The Company regularly reviews the deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies.

The Company’s judgments regarding future profitability may change due to many factors, including future market conditions and the ability to successfully execute its business plans.

Should there be a change in the ability to recover deferred tax assets, the tax provision would increase or decrease in the period in which the assessment is changed.

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Derivatives Instruments and Hedging Activities

The Company enters into interest rate swap agreements as part of the Company’s interest rate risk management strategy.

The Company has derivatives not designated as hedges.

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FINANCIAL CONDITION

The Company’s total assets increased $67.8 million, or 7.7%, from $880.7 million at December 31, 2020 to $948.5 million at December 31, 2021, primarily due to an increase in available-for-sale securities of $45.1 million.

Net loans increased from $719.6 million as of December 31, 2020, to $729.6 million at December 31, 2021.

Total deposits increased from $685.7 million at December 31, 2020, to $748.6 million at December 31, 2021.

The Company’s total assets increased $94.9 million, or 10.0%, from $948.5 million at December 31, 2021 to $1.0 billion at December 31, 2022, primarily due to an increase in net loans from $729.6 million as of December 31, 2021, to $838.0 million at December 31, 2022.

Cash and cash equivalents

Cash and cash equivalents increased $12.4 million or 35.8%, from $34.6 million at December 31, 2020 to $47.0 million as of December 31, 2021.

The increase as of December 31, 2021 was primarily attributable to increase in deposits.

The Company’s liquidity position is strong with liquid assets rising to 11.4% of total assets as of December 31, 2021.

Cash and cash equivalents decreased $8.6 million or 18.2%, from $47.0 million at December 31, 2021 to $38.5 million as of December 31, 2022.

The decrease as of December 31, 2022 was primarily attributable to increase in loan origination and purchased loans.

The Company’s liquidity position is strong with liquid assets to total assets of 9.3% as of December 31, 2022.

Investment securities

The following table is a summary of the Company’s available-for-sale securities portfolio and other investments at the dates shown:

(In thousands)

The following table is a summary of the Company’s available-for-sale securities portfolio and other investments at the dates shown:

(In thousands, except per share amounts) 2022 2021 2020

Government agency and mortgage-backed securities $ 59,046 $ 66,629 $ 16,833

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Other investments, at cost 4,450 4,450 4,450

Total investments increased $45.1 million or 83.9%, from $53.7 million at December 31, 2020 to $98.8 million at December 31, 2021.

This increase was primarily attributable to the purchases of $112.0 million U.S.

Government agency debt and mortgage-backed securities, $18.2 million corporate bonds, and $5.9 million SBA loan pools, which was offset by $58.8 million sales of available-for-sales securities, $18.9 million maturity, and $11.7 million in repayments of principal on available-for-sale securities.

During the year ended December 31, 2021, the Bank recognized net gain on sale of securities of $76,000.

$ 88,970 $ 98,791 $ 53,712

Total investments decreased $9.8 million or 9.9%, from $98.8 million at December 31, 2021 to $89.0 million at December 31, 2022.

This decrease was primarily attributable to the net unrealized loss of $18.9 million for the available-for-sale securities, associated with rising market interest rates, and $10.3 million in repayments and maturity of principal on available-for-sale securities, which was partially offset by purchases of available-for-sale securities of $19.3 million in 2022.

There were no sales of available-for-sales securities during the year ended December 31, 2022 and 2020.

During the year ended December 31, 2021, the Bank sold $58.8 million available-for-sale securities and recognized net gain on sale of securities of $76,000.

Loans held for investment

The following table provides the composition of the Company’s loan held for investment portfolio as of December 31, for each of the years shown:

(In thousands) 2022 2021 2020

Amount % Amount % Amount %

Loan portfolio segment:

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Consumer and Other 141,091 16.63 % 59,364 8.03 % 67,635 9.26 %

Construction 4,922 0.58 % 21,781 2.95 % 66,984 9.17 %

Construction to permanent - CRE 1,933 0.23 % 11,695 1.58 % 15,035 2.06 %

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Loans receivable, net $ 838,006 $ 729,583 $ 719,596

The gross loans receivable increased $9.3 million or 1.3%, from $730.2 million at December 31, 2020 to $739.5 million at December 31, 2021.

The increase in loans was primarily attributable to $89.3 million in purchases of loans receivable which was partially offset by a net decrease in internal loan originations of $77.7 million for the year ended December 31, 2021.

The gross loans receivable increased $108.8 million or 14.7%, from $739.5 million at December 31, 2021 to $848.3 million at December 31, 2022.

The increase in loans was primarily attributable to $211.4 million in loan origination and $141.4 million in purchases of loans receivable which was partially offset by a net decrease in loan payoffs of $239.6 million for the year ended December 31, 2022.

Patriot originates SBA 7(a) loans, on which the SBA has historically provided guarantees of 75% of the principal balance.

However, during the COVID-19 pandemic in 2021, the SBA temporarily increased the guarantees to 90% and reverted to 75% on October 1, 2021.

The guaranteed portion of the Company’s SBA loans is generally sold in the secondary market with the unguaranteed portion held in the portfolio as a loan held for investment.

SBA loans held for investment were included in the commercial real estate loans and commercial and industrial loan classifications above.

As of December 31, 2021 and 2020, SBA loans included in the commercial real estate loans were $9.7 million and $5.7 million, respectively.

SBA loans included in the commercial and industrial loan were $17.4 million and $15.9 million as of December 31, 2021 and 2020, respectively.

As of December 31, 2022 and 2021, SBA loans included in the commercial real estate loans were $12.2 million and $9.7 million, respectively.

SBA loans included in the commercial and industrial loan were $20.3 million and $17.4 million as of December 31, 2022 and 2021, respectively.

At December 31, 2022, the net loan to deposit ratio was 97.4% and the net loan to total assets ratio was 80.3%.

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Maturities and Sensitivities of Loans to Changes in Interest Rates

The following table presents loans receivable, gross by portfolio segment, by contractual maturity as of December 31, 2021:

The following table presents loans receivable, gross by portfolio segment, by contractual maturity as of December 31, 2022:

Contractual Maturity of Loan Balance

(In thousands)

(In thousands) One year or less One through Five Years After Five Years Total

Loan portfolio segment:

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Consumer and Other 112 72,991 67,988 141,091

Construction 3,885 1,037 — 4,922

Construction to permanent - CRE — — 1,933 1,933

Total $ 74,551 $ 343,418 $ 430,347 $ 848,316

Fixed rate loans $ 7,307 $ 211,974 $ 148,959 $ 368,240

Variable rate loans 67,244 131,444 281,388 480,076

Total $ 74,551 $ 343,418 $ 430,347 $ 848,316

All variable rate loans account for 56.59% of the total loan portfolio.

Approximately 26.00% of the variable rate loan portfolio reprices with changes in interest rates within three months of the rate change.

The balance of the loan portfolio has an initial rate for a fixed period, for example 1, 3 or 5 years and then reprice annually after the initial fixed period.

These repricing characteristics are reflected in the Bank’s aggregate analysis of net interest sensitivity included in Item 7A.

The balance of the loan portfolio has an initial rate for a fixed period, for example one, three or five years and then reprice annually after the initial fixed period.

These repricing characteristics are reflected in the Bank’s aggregate analysis of net interest sensitivity included in Item 7A.

of this report.

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Allowance for loan and lease losses

The allowance for loan and lease losses decreased $679,000 from $10.6 million at December 31, 2020 to $9.9 million at December 31, 2021.

The decrease was primarily attributable to a credit to provision for loan losses of $500,000 due to improvements in the economy and improvement in classified loans in 2021.

Based upon the overall assessment and evaluation of the loan portfolio at December 31, 2021, management believes the allowance for loan and lease losses of $9.9 million, which represents 1.34% of gross loans outstanding, was adequate under prevailing economic conditions to absorb existing losses in the loan portfolio.

The allowance for loan and lease losses increased $405,000 from $9.9 million at December 31, 2021 to $10.3 million at December 31, 2022.

The increase was primarily attributable to a provision for loan losses of $1.9 million due to increased loan balances and additional specific reserve for one impaired loan, which was partially offset by net charge-offs of $1.5 million for the year ended December 31, 2022.

Based upon the overall assessment and evaluation of the loan portfolio at December 31, 2022 and based upon the prevailing accounting standard (ASC 310-10-35), management believes the allowance for loan and lease losses of $10.3 million, which represents 1.2% of gross loans outstanding, was adequate under prevailing economic conditions to absorb existing losses in the loan portfolio.

As of January 1, 2023, the Company adopted ASU 2016-13 to recognize and measure credit losses on financial assets measured at amortized cost as discussed further in the Summary of Significant Accounting Policies.

The following table provides detail of activity in the allowance for loan and lease losses:

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Consumer and Other (1,690) (23) (45)

Construction (68) (69) —

Total charge-offs (1,828) (358) (1,778)

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Total recoveries 348 179 77

Net (charge-offs) recoveries

(Credit) provision for loan losses

Net charge-offs (1,480) (179) (1,701)

Provision (credit) for loan losses 1,885 (500) 2,170

Balance at end of the period $ 10,310 $ 9,905 $ 10,584

Net (charge-offs) recoveries to average loans

Net charge-offs to average loans (0.18) % (0.03) % (0.22) %

Allowance for loan losses to total loans 1.22 % 1.34 % 1.45 %

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(In thousands) 2022 2021 2020

Allowance for

loans in each

Allowance for

loans in each

Allowance for

loans in each

Allowance for

loans in each

Allowance for

Percent of loans in each category to total loans

Allowance for loan losses Percent of loans in each category to total loans Allowance for loan losses Percent of loans in each category to total loans Allowance for loan losses Percent of loans in each category to total loans

Commercial Real Estate $ 6,966 51.57 % $ 5,063 49.38 % $ 4,485 38.68 %

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Consumer and Other 1,207 16.63 % 253 8.03 % 295 9.26 %

Construction 24 0.58 % 78 2.95 % 739 9.17 %

Construction to permanent - CRE 10 0.23 % 41 1.58 % 162 2.06 %

Unallocated 35 N/A 238 N/A 240 N/A

Total Allowance for loan losses $ 10,310 100.00 % $ 9,905 100.00 % $ 10,584 100.00 %

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The following table presents non-accrual and accruing loans which were past due by over 90 days for the dates indicated:

(In thousands)

(In thousands) December 31,

2022 2021 2020

Non-accruing loans:

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Consumer and Other 49 142 917

Construction — — —

Total non-accruing loans 18,593 23,095 20,005

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Nonperforming loans to total loans, net 2.36 % 3.17 % 2.78 %

Non-accrual loans increased $3.1 million, from $20.0 million at December 31, 2020 to $23.1 million at December 31, 2021.

The $23.1 million of non-accrual loans at December 31, 2021 was comprised of 30 borrowers.

Three TDR loans totaling $9.7 million were included in the non-accrual loans.

For collateral dependent loans, the Bank has obtained appraisal reports from independent licensed appraisal firms and discounted those values based on the Bank’s experience selling OREO properties and for estimated selling costs to determine estimated impairment.

Non-accrual loans decreased $4.5 million, from $23.1 million at December 31, 2021 to $18.6 million at December 31, 2022.

The $18.6 million of non-accrual loans at December 31, 2022 was comprised of 28 borrowers.

Two TDR loans totaling $9.5 million were included in the non-accrual loans.

For cash flow dependent loans, the Bank determined the reserve based on the present value of expected future cash flows discounted at the loan's effective interest rate.

The Bank evaluated the impaired loans individually and established a specific reserve of $6.0 million as of December 31, 2022.

As of December 31, 2020, the $20.0 million of non-accrual loans was comprised of 21 borrowers, for which a specific reserve of $1.4 million had been established.

Six TDR loans of total $11.5 million were included in the non-accrual loans as of December 31, 2020.

As of December 31, 2021, the $23.1 million of non-accrual loans was comprised of thirty borrowers, for which a specific reserve of $2.3 million had been established.

Three TDR loans of total $9.7 million were included in the non-accrual loans as of December 31, 2021.

Loans held for sale

Loans held for sale are made up of SBA loans which totaled $3.1 million and $1.2 million at December 31, 2021 and 2020, respectively.

Loans held for sale are made up of SBA loans which totaled $5.2 million and $3.1 million at December 31, 2022 and 2021, respectively.

Loans made by the Bank under the SBA 7(a) program generally are made to small businesses to provide working capital or to provide funding for the purchase of businesses, real estate, or equipment.

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As a result of the COVID-19 pandemic, in 2021, the SBA increased the guaranteed percentage to 90% during one of the rounds of stimulus.

As of October 1, 2021, he guaranteed percentage reverted back to 75% of the loan.

As of October 1, 2021, the guaranteed percentage reverted back to 75% of the loan.

Patriot sells the guaranteed portion of SBA loans for liquidity purposes and to generate non-interest income.

Loans held for sale represent the guaranteed portion of SBA loans and are reflected at the lower of aggregate cost or market value.

Loans held for sale at December 31, 2021, consisted of $2.6 million SBA commercial and industrial loans and $562,000 SBA commercial real estate, respectively.

SBA loans held for sale at December 31, 2020, consisted entirely of $1.2 million SBA commercial and industrial loans.

The Company sold $14.3 million SBA loans during the year ended December 31, 2021, compared to $6.6 million for the year ended December 31, 2020.

During 2021, no loans held for investment were transferred to loans held for sale.

In September 2020, one commercial and industrial loan of $5.0 million was reclassed from loans held for investment to loans held for sale.

Loans held for sale at December 31, 2022 consisted of $3.1 million SBA commercial and industrial loans and $2.1 million SBA commercial real estate, respectively.

SBA loans held for sale at December 31, 2021, consisted of $2.6 million SBA commercial and industrial loans and $562,000 SBA commercial real estate, respectively.

The Company sold $21.6 million SBA loans during the year ended December 31, 2022, compared to $14.3 million for the year ended December 31, 2021.

During 2022 and 2021, no loans held for investment were transferred to loans held for sale.

In September 2020, one commercial and industrial loan of $5.0 million was reclassified from loans held for investment to loans held for sale.

The loan was sold in October 2020 which resulted in proceeds of $5.0 million.

Premises and equipment

As of December 31, 2021 and 2020, Patriot recorded premises and equipment, net of $31.5 million and $33.4 million, respectively.

The decrease was primarily due to a sale of the Bank owned building in New Haven, Connecticut.

The Bank recognized proceeds from the sale of $1.5 million in December 2021.

Other decreases in premises and equipment were normal depreciation of the active premises and equipment during the year ended December 31, 2021.

As of December 31, 2022 and 2021, Patriot recorded premises and equipment, net, of $30.6 million and $31.5 million, respectively.

The decreases in premises and equipment were normal depreciation of the active premises and equipment during the year ended December 31, 2022.

In 2021, the Bank sold a building in New Haven, Connecticut, and recognized proceeds from the sale of $1.5 million for the year ended December 31, 2021.

The Bank did not sell any property and equipment in 2022.

Management continuously reviews its branch locations and corporate offices evaluating operating efficiencies and market share as well as effective customer service and delivery.

Other Real Estate Owned ( “

OREO ”

As of December 31, 2020, Patriot recorded OREO of $1.9 million on the consolidated balance sheet.

In 2021, Patriot sold the OREO of $1.9 million and recognized a gain of $2,000.

In 2020, Patriot sold one OREO of $425,000 and recognized a loss of $69,000.

Patriot did not have any OREO as of December 31, 2021.

The Company completed its acquisition of Prime Bank in May 2018, and recorded $1.1 million of goodwill after adjustments as of May 10, 2019.

In December 2020, a purchase price adjustment of $556,000 was recognized to project expenses on the consolidated statements of operations.

The charge represented an adjustment to the earlier estimate of the final purchase price upon preliminary settlement of the litigation related to a dispute over the final purchase price in 2020.

No further adjustment to goodwill was made as of December 31, 2021.

The Company performed its annual review of goodwill as of December 31, 2021 and determined that there was no impairment of goodwill.

Core deposit intangible ( “

Core deposit intangible (“CDI”) was recorded as part of the Prime Bank business combination in May 2018.

Other Real Estate Owned ( “ OREO ” )

In 2021, Patriot sold the last OREO of $1.9 million and recognized a gain of $2,000.

Therefore, no OREO balance was record on the balance sheet as of December 31, 2022 and 2021.

As of December 31, 2022 and 2021, the Company's goodwill was recorded unchanged at $1.1 million, which resulted from the acquisition of Prime Bank in May 2018.

The Company performed its annual review of goodwill as of October 31, 2022 and determined that there was no impairment of goodwill.

Core deposit intangible ( “ CDI ” )

Core deposit intangible (“CDI”) was recorded as part of the Prime Bank business combination in May 2018.

The CDI is amortized over a 10-year period using the straight-line method.

In 2020, an impairment charge of $206,000 was recorded for the year ended December 31, 2020, due to the decline in interest rates in 2020.

The Company performed a review of the CDI as of October 31, 2021 and determined that there was no impairment of the CDI as of December 31, 2021.

The decrease in CDI of $47,000 from $343,000 at December 31, 2020 to $296,000 at December 31, 2021, was solely due to the amortization of the CDI for the year ended December 31, 2021.

The Company performed a review of the CDI as of October 31, 2022 and determined that there was no impairment of the CDI as of December 31, 2022.

The decrease in CDI of $47,000 from $296,000 at December 31, 2021 to $249,000 at December 31, 2022, was solely due to the amortization of the CDI for the year ended December 31, 2022.

Deferred Taxes

As of December 31, 2021, Patriot had available approximately $17.2 million of Federal net operating loss carryforwards (“NOL”) that are offset by $15.5 million in Internal Revenue Code §382 limitations.

Of the NOL of $17.2 million, approximately $15.8 million will expire between 2030 and 2033 and $1.4 million does not expire.

For the year ended December 31, 2021 and 2020, the Bank did not record any uncertain tax position (“UTP”) related to the utilization of certain federal net operating losses

Additionally, Patriot has approximately $53.5 million of NOLs available for Connecticut tax purposes at December 31, 2021, which may be used to offset up to 50% of taxable income in any year.

As of December 31, 2022, Patriot had available approximately $15.8 million of Federal net operating loss carryforwards (“NOL”) that are offset by $15.5 million in Internal Revenue Code §382 limitations.

After applying the limitation, at December 31, 2022, Patriot has post-change net operating loss carry-forwards of approximately $0.3 million which do not expire.

For the years ended December 31, 2022 and 2021, the Bank did not record any uncertain tax position (“UTP”) related to the utilization of certain federal net operating losses.

Additionally, Patriot has approximately $52.8 million of NOLs available for Connecticut tax purposes at December 31, 2022, which may be used to offset up to 50% of taxable income in any year.

The NOLs expire between 2030 and 2040.

As of December 31, 2021, Patriot had a $12.1 million deferred tax asset, comprised of multiple temporary differences, in addition to the previously aforementioned NOLs.

As of December 31, 2022, Patriot had a $15.5 million deferred tax asset, comprised of multiple temporary differences, in addition to the previously aforementioned NOLs.

The assessment of the potential realizability of the deferred tax assets is based on observation of the condition and future of the Bank, including:

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• Forecasted taxable income for 2023 and future periods;

Historical average pre-tax income over the last four years adjusted for a fraud loss and other non-recurring expenses relating to merger and acquisition activity, Employee Retention Credits recognized in 2021, and a reduced cost of funds now reflected in its most recent results;

• Historical average pre-tax income over the last four years adjusted for a fraud loss and other non-recurring expenses relating to merger and acquisition activity, and a reduced cost of funds now reflected in its most recent results;

• Improvements in operations and cost management;

• Net operating loss carry-forwards that do not begin to expire until 2030.

As of December 31, 2021, after weighing both positive and negative evidence, Patriot fully reversed the valuation allowance of $1.9 million recorded in 2020.

Patriot evaluates its ability to realize its net deferred tax assets on a quarterly basis.

In doing so, management considers all available evidence, both positive and negative, to determine whether it is more likely than not that the deferred tax assets will be realized.

In 2022, management noted improvements in the results of operations, forecasted future period taxable income, the overall quality of the loan portfolio, continued efforts to reduce and control operating expenses, and net operating loss carryforwards that do not begin to expire until the year 2030.

Based upon this evidence, management concluded there was no need for a valuation allowance as of December 31, 2022.

Patriot will continue to evaluate its ability to realize its net deferred tax assets.

If future evidence suggests that it is more likely than not that a portion of the deferred tax assets will not be realized, a valuation allowance will be established.

On March 27, 2020, the CARES Act was signed into law.

The CARES Act includes provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback periods, and modifications to the net interest deduction limitations.

While the Company continues to evaluate the impact of the CARES Act, it does not currently believe it will have a material impact on the Company’s income taxes or related disclosures.

Patriot had entered into four interest rate swaps (“swaps”) in 2018 and 2019.

As of December 31, 2022, Patriot had entered into four interest rate swaps (“swaps”).

Two swaps are with a loan customer to provide a facility to mitigate the fluctuations in the variable rate on the respective loan.

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The swaps are reported at fair value in other assets or other liabilities on the consolidated balance sheets.

Patriot’s swaps are derivatives, but are not designated as hedging instruments, thus any net gain or loss resulting from changes in the fair value is recognized in other noninterest income.

The Company recognized $30,000 gain on the swaps for the year ended December 31, 2019.

No gain on the swaps was recognized for the year ended December 31, 2021 and 2020.

In April 2021, Patriot entered into a receive fixed/pay variable interest rate swap, intended to reduce the Company’s exposure to interest rate movements.

Patriot’s swaps are derivatives, but are not designated as hedging instruments, thus any net gain or loss resulting from changes in the fair value is recognized in other non-interest income.

No gain on the swaps was recognized for the year ended December 31, 2022, 2021 and 2020.

In April 2021, Patriot entered into a receive fixed/pay variable interest rate swap, intended to reduce the Company’s exposure to interest rate movements.

This contractual agreement was designated as a cash flow hedge.

Under the term of the swap contract, the Company hedged the cashflows associated with a pool of 1-month LIBOR floating rate loans by converting a $50 million portion of that pool of loans into fixed rates with the swap.

Under the term of the swap contract, the Company hedged the cash flows associated with a pool of 1-month LIBOR floating rate loans by converting a $50 million portion of that pool of loans into fixed rates with the swap.

The Bank received fixed and paid float swap for a 7-year rolling period beginning April 29, 2021.

In August 2021, the cash flow hedge interest rate swap contract was terminated.

The Company did not recognize any unrealized and realized gain or loss for the year ended December 31, 2022.

During the year ended December 31, 2021, the Company recognized $149,000 of accumulated other comprehensive income that was reclassified into interest income.

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Further discussion of the final derivatives is set forth in Note 11 and Note 21 to the consolidated financial statements.

The following table is a summary of the Company’s deposits at the dates shown:

(In thousands)

The following table is a summary of the Company’s deposits at the dates shown:

(In thousands) December 31,

2022 2021 2020

Non-interest bearing:

Non-interest bearing $ 118,541 $ 140,384 $ 99,344

Prepaid DDA 151,095 86,329 59,332

Total non-interest bearing 269,636 226,713 158,676

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Negotiable order of withdrawal accounts 34,440 34,741 30,529

Savings 71,002 109,744 98,635

Money market 164,827 111,957 131,378

Money market - prepaid deposits 46,173 52,561 15,011

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The Bank has substantially improved its deposit and funding mix over the past year, while reducing its aggregate cost of funds.

As of December 31, 2021, total deposits increased $62.9 million, primarily due to growth in prepaid deposits of $64.5 million, which was partially offset by decline of $38.6 million in brokered deposits and certificates of deposits.

Excluding brokered deposits, total deposits increased 13.5% during 2021.

As of December 31, 2021 and 2020, total borrowings were $120.7 million and $120.8 million, respectively.

Borrowings consist of Federal Home Loan Bank (“FHLB”) advances, senior notes, junior subordinated debentures, and a note payable to the seller from whom the Fairfield branch building was purchased in 2015.

Shareholders’

Equity increased $4.1 million from $63.2 million at December 31, 2020 to $67.3 million at December 31, 2021.

The increase was primarily due to $5.1 million of net income for the year ended December 31, 2021 and $150,000 of equity compensation, which was partially offset by $1.1 million unrealized loss in investment portfolio for the year ended December 31, 2021.

Average Balances

The following table presents average balance sheets, interest income, interest expense and the corresponding yields earned, and rates paid for each of the years in the three-year period ended December 31, 2021.

(In thousands)

Year ended December 31,

As of December 31, 2022, total deposits increased $111.9 million, primarily due to growth in prepaid DDA and Money market deposits of $58.4 million and a $61.5 million increase in brokered deposits and certificates of deposits.

As of December 31, 2022 and 2021, total borrowings were $115.2 million and $120.7 million, respectively.

Shareholders’ Equity

Equity decreased $7.8 million from $67.3 million at December 31, 2021 to $59.6 million at December 31, 2022.

The decrease was primarily due to $14.0 million unrealized loss in investment portfolio for the year ended December 31, 2022, which was partially offset by $6.2 million of net income for the year ended December 31, 2022.

(In thousands) Year Ended December 31,

2022 2021 2020

Average Balance Interest Yield Average Balance Interest Yield Average Balance Interest Yield

Interest Earning Assets:

Loans $ 831,634 $ 40,823 4.91 % $ 705,353 $ 30,115 4.27 % $ 791,626 $ 35,835 4.51 %

Investments 96,770 2,691 2.78 % 102,466 2,147 2.10 % 59,668 1,859 3.12 %

Cash equivalents and other 32,229 498 1.55 % 57,753 89 0.15 % 49,071 209 0.42 %

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Allowance for loan losses (9,762) (10,384) (10,896)

OREO — 893 2,259

Other assets 66,440 61,182 62,086

Total Assets $ 1,025,402 $ 921,279 $ 956,171

Interest bearing liabilities:

Deposits $ 572,295 $ 5,300 0.93 % $ 525,537 $ 2,243 0.43 % $ 641,981 $ 9,154 1.42 %

Borrowings 105,333 3,475 3.30 % 94,511 2,986 3.16 % 92,469 2,671 2.88 %

Senior notes 12,002 866 7.22 % 11,963 913 7.63 % 11,888 915 7.70 %

Subordinated debt 17,947 1,066 5.94 % 17,910 933 5.21 % 17,872 991 5.53 %

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Interest spread 3.06 % 2.65 % 2.41 %

The following table presents the change in interest-earning assets and interest-bearing liabilities by major category and the related change in the interest income earned and interest expense incurred thereon attributable to the change in transactional volume in the financial instruments and the rates of interest applicable thereto, comparing the years ended December 31, 2021 to 2020 and December 31, 2020 to 2019.

Year ended December 31,

2021 compared to 2020

2020 compared to 2019

(In thousands)

Increase/(Decrease)

2022 compared to 2021 2021 compared to 2020

(In thousands) Increase/(Decrease) Increase/(Decrease)

Volume Rate Total Volume Rate Total

Interest Earning Assets:

Loans $ 5,063 $ 5,645 $ 10,708 $ (3,816) $ (1,904) $ (5,720)

Investments (115) 659 544 1,252 (964) 288

Cash equivalents and other (42) 451 409 36 (156) (120)

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Interest bearing liabilities:

Deposit 463 2,594 3,057 (2,762) (4,149) (6,911)

Borrowings 342 147 489 58 257 315

Senior notes 3 (50) (47) (2) — (2)

Subordinated debt 2 131 133 — (58) (58)

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Comparison of Results of Operations for the years 2022 and 2021

For the year ended December 31, 2021, the Company recorded net income of $5.1 million ($1.29 basic and diluted earnings per share) compared to net loss of $3.8 million ($0.97 basic and diluted loss per share) for the year ended December 31, 2020.

Pre-tax income was $5.0 million for the year ended December 31, 2021, compared to pre-tax loss of $4.2 million for the year ended December 31, 2020.

For the year ended December 31, 2022, the Company recorded net income of $6.2 million ($1.56 basic and diluted earnings per share) compared to net income of $5.1 million ($1.29 basic and diluted loss per share) for the year ended December 31, 2021.

Pre-tax income was $7.8 million for the year ended December 31, 2022, compared to pre-tax income of $5.0 million for the year ended December 31, 2021.

Significant variances are summarized below and discussed in detail subsequently:

Interest and dividend income decreased $5.5 million;

Interest expense decreased $6.7 million;

• Interest and dividend income increased $11.7 million;

• Interest expense increased $3.7 million;

• Net interest income increased $8.0 million;

Provision for loan losses decreased $2.7 million;

Non-interest income increased $2.4 million;

Non-interest expense decreased $2.9 million.

• Provision for loan losses increased $2.4 million;

• Non-interest income decreased $818,000;

• Non-interest expense increased $2.1 million.

Net interest income

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Net interest income depends on the relative amounts of interest earning assets and interest-bearing liabilities and the interest rates earned or paid on them, respectively.

For the year ended December 31, 2021, interest income decreased to $32.4 million, as compared to $37.9 million for the year ended December 31, 2020, which was primarily attributable to a decrease of $86.3 million in average loan balances, along with a decline in rates earned on loans reflecting the decline in interest rates during 2021.

For the year ended December 31, 2021, total interest expense decreased to $7.1 million, as compared to $13.8 million for the year ended December 31, 2020, primarily due to a decrease in average deposits balance of $116.4 million.

The decline in deposit interest expense reflects a change in the composition of deposits as higher cost brokered deposits were allowed to mature without replacement to match the overall decline in average earning assets.

In addition, retail deposit rates declined as market rates declined nationally as well as in Patriot’s local retail deposit market.

Net interest income for the years ended December 31, 2021 and 2020 was $25.3 million and $24.2 million, respectively.

The Bank’s net interest margin showed improvement, which increased to 2.9% for the year ended December 31, 2021, compared with 2.7% for the year ended December 31, 2020.

(Credit) Provision for loan losses

For the year ended December 31, 2021, the Bank recorded a credit for loan losses of $500,000 as a result of the improvements in the economy and in classified loans in 2021.

For the year ended December 31, 2020, a provision for loan losses of $2.2 million was recorded.

The provision for loan losses in 2020 was primarily due to a $900,000 loan charge-off on a single borrower and additional reserves attributable to the COVID-19 pandemic.

For the year ended December 31, 2022, interest income increased to $44.0 million, as compared to $32.4 million for the year ended December 31, 2021, which was primarily attributable to an increase of $126.3 million in average loan balances, along with an increase in rates earned on loans reflecting the increase in interest rates during 2022.

For the year ended December 31, 2022, total interest expense increased to $10.8 million, as compared to $7.1 million for the year ended December 31, 2021, primarily due to an increase in average deposits balance of $46.8 million.

The increase in deposit interest expense reflects higher deposit balances and higher market interest rates.

Net interest income for the years ended December 31, 2022 and 2021 was $33.3 million and $25.3 million, respectively.

The Bank’s net interest margin showed improvement, and increased to 3.5% for the year ended December 31, 2022, compared with 2.9% for the year ended December 31, 2021.

The higher net interest margin was due to effective monitoring of the Bank’s interest sensitivity position during the rising interest rate environment, higher loan balances and the increase in deposit balances resulting from the addition of $58.4 million of low-cost prepaid deposits in 2022.

Provision (Credit) for loan losses

For the year ended December 31, 2022, the Bank recorded a provision for loan losses of $1.9 million reflecting the increased loan balance and higher charge-offs associated with a purchased consumer loan portfolio.

For the year ended December 31, 2021, a credit for loan losses of $500,000 was recorded as a result of improvements in the economy and in classified loan balances.

Non-interest income

For the year ended December 31, 2021, non-interest income increased to $4.4 million, as compared to $2.0 million in 2020.

The increase was primarily attributable to net realized gains on sale of SBA loans totaled $1.8 million.

For the year ended December 31, 2022, non-interest income decreased to $3.6 million, as compared to $4.4 million in 2021.

The decrease was primarily attributable to lower net realized gains on sale of SBA loans as premiums available in the SBA secondary market declined during the year.

Non-interest expense

For the year ended December 31, 2021, non-interest expense decreased to $25.2 million, as compared to $28.1 million for 2020.

The decrease in non-interest expenses was primarily driven by the Employee Retention Credits of $2.9 million recognized during 2021.

In the fourth quarter of 2021, the Company recorded material, non-recurring project expenses of $1.9 million in connection with the proposed merger transaction with American Challenger.

Pending acquisition

On November 14, 2021, the Company and American Challenger entered into a merger agreement, which was subsequently amended on January 28, 2022 and February 28, 2022, under which American Challenger will merge with and into PNBK.

Following the Merger, Patriot Bank will adopt a consolidated business plan and will operate as one company with two divisions.

The Patriot Division will continue to operate under the existing business model.

The American Challenger Division will execute the high-growth component of the business plan.

In connection with the Merger, the Company incurred $1.9 million of project expenses for the year ended December 31, 2021.

The pending acquisition is subject to several material conditions including obtaining regulatory and shareholder approval.

For the year ended December 31, 2022, non-interest expense increased to $27.2 million, as compared to $25.2 million for 2021.

The increase was primarily attributable to an Employee Retention Credits of $2.9 million recognized in 2021, which was partially offset by a non-recurring project expenses of $1.9 million in connection with the proposed merger transaction with American Challenger in 2021.

Termination of Pending acquisition

On November 14, 2021, the Company and American Challenger entered into a merger agreement, which was subsequently amended on January 28, 2022 and February 28, 2022.

On July 18, 2022, the merger agreement was terminated by the parties due to mutual determination that not all closing conditions of the merger agreement could be satisfied.

In connection with the proposed merger, the Company has previously recognized expenses of $1.9 million for the full year ended December 31, 2021 and $112,000 for the year ended December 31, 2022.

Other financial measures and ratios:

As of and for the year ended December 31,

2022 2021 2020

Return on average assets 0.60 % 0.55 % (0.40) %

2 unchanged sentences

We derived the selected balance sheet measures as of December 31, 2022, 2021 and 2020 and the selected statement of income measures for the years ended December 31, 2022, 2021 and 2020 from our audited consolidated financial statements included elsewhere in this annual report.

Average balances have been computed using daily averages. 

Selected Quarterly Financial Data:

The following tables present the summarized quarterly results of operations (unaudited) to the Consolidated Financial Statements for the calendar years 2021 and 2020:

(In thousands, except per share amounts)

Interest and dividend income

Interest expense

Net interest income

Provision for loan losses

Non-interest income

Non-interest expense

Income before income taxes

Provision (benefit) for income taxes

Earnings per share

Weighted average shares outstanding - Basic

Weighted average shares outstanding - Diluted

During the fourth quarter of 2021, the increase in non-interest income was primarily attributable to gains from sales of SBA loans totaled $1.5 million.

During the fourth quarter of 2021, Patriot announced a merger transaction with American Challenger.

As a result of the proposed merger transaction, material, non-recurring acquisition-related expenses of $1.9 million were incurred for the quarter ended December 31, 2021.

The increase in project expenses had the effect of reducing pre-tax income for the fourth quarter of 2021 from $2.5 million to $633,000.

In the fourth quarter of 2021, the benefit for income taxes includes a full reversal of valuation allowance for deferred tax assets of $1.9 million recorded in 2020, which reduced the provision for income tax of $1.9 million.

Due to significant changes above, the net income was increased from $1.8 million to $1.9 million for the fourth quarter of 2021.

The sum of Earnings (loss) per share - Basic and Diluted of each of the quarters in the year ended December 31, 2021 does not agree to the amount of Basic and Diluted earnings per share presented on the Consolidated Statement of Operations for the year ended December 31, 2021, due to the impact of rounding to the nearest cent on the amount of Earnings per share - Basic and Diluted for the three months ended December 31, 2021 (i.e., the "Fourth Quarter").

(In thousands, except per share amounts)

Interest and Dividend Income

Interest expense

Net Interest Income

Provision for loan losses

Non-interest income

Non-interest expense

Income before income taxes

(Benefit) provision for income taxes

Earnings per share

Weighted average shares outstanding - Basic

Weighted average shares outstanding - Diluted

The sum of Earnings (loss) per share - Basic and Diluted of each of the quarters in the year ended December 31, 2020 does not agree to the amount of Basic and Diluted earnings per share presented on the Consolidated Statement of Operations for the year ended December 31, 2020, due to the impact of rounding to the nearest cent on the amount of Earnings per share - Basic and Diluted for the three months ended December 31, 2020 (i.e., the "Fourth Quarter").

The weighted average diluted shares outstanding did not include 10,112, 15,587, 13,093, and 5,721 anti-dilutive restricted common shares as of March 31, 2020, June 30, 2020, September 30, 2020 and December 31, 2020, respectively.

Average balances have been computed using daily averages.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2021, the Company’s balance sheet liquidity was $108.4 million, which was 11.4% to total assets of $948.5 million.

At December 31, 2020, the balance sheet liquidity was $79.5 million, which was 9.0% to total assets of $880.7 million.

Liquidity including readily available off-balance sheet funding sources was 21.7% at December 31, 2021 compared to 21.7% at December 31, 2020.

As of December 31, 2022, the Company’s balance sheet liquidity was $97.4 million, which was 9.3% of total assets of $1.0 billion.

At December 31, 2021, the balance sheet liquidity was $108.4 million, which was 11.4% of total assets of $948.5 million.

Liquidity including readily available off-balance sheet funding sources was 18.0% at December 31, 2022 compared to 21.7% at December 31, 2021.

The following categories of assets are considered balance sheet liquidity:

cash and due from banks, federal funds sold (if any), short-term investments (if any), unpledged available-for-sale securities, and loans held for sale.

In addition, off-balance sheet funding sources include collateral based borrowing available from the FHLB, and correspondent bank borrowing lines.

Liquidity is a measure of the Company’s ability to generate adequate cash to meet its financial obligations.

In addition, off-balance sheet funding sources include collateral based borrowing available from the FHLB, correspondent bank borrowing lines, and advised borrowing lines through an interbank borrowing network.

Liquidity is a measure of the Company’s ability to generate adequate cash to meet its financial obligations.

The principal cash requirements of a financial institution are to cover downward fluctuations in deposit accounts.

Management believes the Company’s liquid assets provide sufficient coverage to satisfy loan demand, cover potential fluctuations in deposit accounts, and to meet other anticipated operational cash requirements for next 12 months and beyond.

The Company is a member of the Federal Home Loan Bank of Boston ("FHLB-B").

At December 31, 2021, the outstanding advances from the FHLB-B aggregated $90.0 million.

The additional borrowing capacity available from FHLB-B is $75.6 million, which is comprised of $73.6 million of advances and a $2.0 million overnight line of credit.

Additionally, the Bank retains a collateralized borrowing line with the Federal Reserve Bank which totaled $25.1 million at December 31, 2021.

As of December 31, 2021, the maturities of Patriot’s contractual obligations are as follows:

(In thousands)

Contractual Obligations Due

Contractual Obligation Category

At December 31, 2022, the outstanding advances from the FHLB-B aggregated $85.0 million.

The additional borrowing capacity available from FHLB-B was $69.2 million, which is comprised of $67.2 million of advances and a $2.0 million overnight line of credit.

Additionally, the Bank retains a collateralized borrowing line with the Federal Reserve Bank which totaled $20.4 million at December 31, 2022 and correspondent bank borrowing lines totaling $24.5 million at December 31, 2022.

As of December 31, 2022, the maturities of Patriot’s contractual obligations are as follows:

(In thousands) Contractual Obligations Due

Contractual Obligation Category Less than One Year One to Three Years Three to Five Years Over Five Years Total

Certificates of deposit $ 169,088 $ 43,876 $ 12,706 $ — $ 225,670

1 unchanged sentence

Federal Home Loan Bank borrowings 55,000 30,000 — — 85,000

Senior notes — — 12,000 — 12,000

Subordinated debt — — — 10,000 10,000

Junior subordinated debt — — — 8,248 8,248

Note payable 210 375 — — 585

Operating lease obligations 583 775 551 830 2,739

1 unchanged sentence

Management manages its capital resources by seeking to maintain a capital structure that will ensure an adequate level of capital to support anticipated asset growth and absorb potential losses while effectively leveraging capital to enhance profitability and return to shareholders.

Due to prior year losses, dividends have not been paid to shareholders over the most recent three year period, but may resume in future periods with a return to consistent profitability.

The primary source of liquidity at the Company is returns of capital from the Bank.

Due to prior year losses, dividends have not been paid to shareholders over the most recent three-year period but may resume in future periods.

The primary source of liquidity at the Company as a stand-alone parent company is return of capital from the Bank.

These capital returns are subject to OCC approval and are needed periodically to provide funds needed to service debt payments at the Company.

Return of Capital payments from the Bank to the Company totaled $500,000 for the year ended December 31, 2021, $2.0 million for the year ended December 31, 2020, and none for the year ended December 31, 2019.

Return of Capital payments from the Bank to the Company totaled $900,000 for the year ended December 31, 2022, $500,000 for the year ended December 31, 2021, and $2.0 million for the year ended December 31, 2020.

OFF-BALANCE SHEET ARRANGEMENTS

The Bank’s off-balance sheet commitments 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 or are contingent upon the customer adhering to the terms of the agreements, the total commitment amounts do not necessarily represent future cash requirements.

As of December 31, 2021 and 2020, the Bank’s off-balance sheet commitments were $127.0 million and $122.4 million, respectively.

As of December 31, 2022 and 2021, the Bank’s off-balance sheet commitments were $154.3 million and $127.0 million, respectively.

REGULATORY CAPITAL REQUIREMENTS

3 unchanged sentences

In September 2021, the Bank adopted the CBLR framework.

The Bank’s Tier 1 leverage ratio as of December 31, 2021 and 2020 was 9.9% and 9.8%, respectively, which is above the well-capitalized required level of 9.0%.

Management continuously assesses the adequacy of the Bank’s capital with the goal to maintain a “well capitalized”

classification.

The Bank’s Tier 1 leverage ratio as of December 31, 2022 and 2021 was 9.3% and 9.9%, respectively, which is above the well-capitalized required level of 9.0%.

Management continuously assesses the adequacy of the Bank’s capital with the goal to maintain a “well capitalized” classification.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity