What changed in this filing

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Item 1. Business

2024-04-01 compared with 2023-03-29 · 24 added, 18 removed, 144 unchanged (23% of the section changed)

18 unchanged sentences

Small Business Administration ("SBA") 7(a) program, and a variety of consumer loans with an emphasis on serving the needs of individuals, small and medium‑sized businesses and professionals.

The Bank’s lending activities are conducted principally in Fairfield and New Haven Counties in Connecticut and Westchester County in New York, although the Bank’s loan business is not necessarily limited to these areas.

The Bank previously had offered loans on residential real estate but discontinued doing so during 2013.

Since 2016, Patriot has purchased residential real estate loans.

During 2023, the Bank began the process of establishing its own national mortgage origination business, with new originations expected to begin in early 2024.

Further information of the purchased residential real estate loans is set forth in Note 4 to the consolidated financial statements.

Consumer and commercial deposit accounts offered include:

checking, interest‑bearing negotiable order of withdrawal (“NOW”), money market, time certificates of deposit, savings, prepaid deposit accounts, on-line national money market accounts, Certificate of Deposit Account Registry Service (“CDARS”), Individual Retirement Accounts (“IRAs”), and Health Savings Accounts (“HSAs”).

Other services offered by the Bank include Automated Clearing House (“ACH”) transfers, lockbox, internet banking, bill paying, remote deposit capture, debit cards, money orders, traveler’s checks, and automatic teller machines (“ATMs”).

In addition, the Bank may in the future offer other financial services.

On July 22, 2020, the Company completed the purchase of prepaid debit card deposits of $50.0 million from a prominent national provider and processor of prepaid debit cards for corporate, consumer and government clients.

Since the time of acquisition, the prepaid deposit balances have grown to approximately $197.3 million as of December 31, 2022 and provide a source of low cost deposits and interchange revenue.

The Bank’s branch office locations are summarized as follows:

13 unchanged sentences

The Bank has entered into a number of arrangements with third-party outside service providers, who provide services such as correspondent banking, check clearing, data processing services, credit card processing and armored car carrier transport.

In addition to traditional retail banking services, the Bank generates deposit balances through its digital payments division (DPD).

The DPD works with fully vetted and approved program managers to serve as their co-partner in processing high-volume payment transactions.

The business is an increasing source of lower cost deposit balances and non-interest income to the Bank.

In the normal course of business, subject to applicable government regulations, the Bank invests a portion of its assets in investment securities, which may include government securities.

2 unchanged sentences

federal government issues comprise the majority of the Bank’s investment portfolio.

Patriot became an approved lender under the SBA program at the end of 2017, enabling it to approve loans to small businesses and entrepreneurs more quickly and efficiently.

Since 2018, Patriot has hired people to support new SBA business development in Stamford, Connecticut, Florida, Georgia, Ohio, along with a Rhode Island operations center.

As of December 31, 2023, Patriot had 117 full-time equivalent employees.

76 unchanged sentences

Financial reform legislation and the implementation of any rules ultimately issued could have adverse implications on the financial industry, the competitive environment, and the Bank’s ability to conduct business.

Capital Requirements

In July 2013, the Fed, the FDIC, and the OCC approved final rules establishing a new comprehensive capital framework for U.S.

6 unchanged sentences

The CARES Act directed the federal banking agencies to issue an interim rule temporarily lowering the CBLR ratio to 8% which the agencies did with a transition back to 9% beginning January 1, 2022.

At September 30, 2021, the Bank elected to adopt the CBLR framework.

In response to disruptions in economic conditions caused by the COVID-19 pandemic, federal and state governments and agencies and government-sponsored enterprises have taken a variety of actions to support people and entities affected by the pandemic, including the passage of the CARES Act in March 2020, the Consolidated Appropriations Act, 2021 in December 2020, and the American Rescue Plan Act of 2021 in March 2021, among others.

For example, the CARES Act established several programs with the Small Business Administration, including the Paycheck Protection Program (the “PPP”), to provide loans to small businesses.

The Bank started participating in the PPP in January 2021.

The CARES Act directed federal banking agencies to adopt interim final rules to lower the threshold under the CBLR from 9% to 8% and to provide a reasonable grace period for a community bank that falls below the threshold to regain compliance, in each case until the earlier of the termination date of the national emergency or December 31, 2020.

In April 2020, the federal bank regulatory agencies issued two interim final rules implementing this directive.

One interim final rule provided that, as of the second quarter 2020, banking organizations with leverage ratios of 8% or greater (and that met the other existing qualifying criteria) could elect to use the CBLR framework.

It also established a two-quarter grace period for qualifying community banking organizations whose leverage ratios fell below the 8% CBLR requirement, so long as the banking organization maintained a leverage ratio of 7% or greater.

The second interim final rule provided a transition from the temporary 8% CBLR requirement to a 9% CBLR requirement.

It establishes a minimum CBLR of 8% for the second through fourth quarters of 2020, 8.5% for 2021, and 9% thereafter, and maintains a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall no more than 100 basis points below the applicable CBLR requirement.

The CARES Act also provided financial institutions with the option to suspend certain GAAP requirements for coronavirus-related loan modifications that would otherwise constitute a TDR and further required the federal banking agencies to defer to financial institutions' determinations in making such suspensions, which was extended by the Consolidated Appropriations Act, 2021 until January 1, 2022.

Subsequent to January 1, 2022, all modifications to loan agreements will be evaluated in accordance with all applicable GAAP requirements.

The Bank adopted the CBLR framework from September 30, 2021 to September 30, 2023.

In the fourth quarter of 2023, the Bank elected to shift to the use the risk-based capital framework.

Under this framework, the Bank reports leverage and risk-based capital ratios and compares those ratios to its own internally designed risk-based capital policy.

Federal regulations require FDIC-insured depository institutions, including national banks, to meet several minimum capital standards:

a common equity Tier 1 capital to risk-based assets ratio of 5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8% and a Tier 1 capital to total assets leverage ratio of 4%.

For purposes of the regulatory capital requirements, common equity Tier 1 capital is generally defined as common stockholders’ equity and retained earnings.

Tier 1 capital is generally defined as common equity Tier 1 and Additional Tier 1 capital.

Additional Tier 1 capital generally includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries.

Total capital includes Tier 1 capital (common equity Tier 1 capital plus Additional Tier 1 capital) and Tier 2 capital.

Tier 2 capital is comprised of capital instruments and related surplus meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt.

Also included in Tier 2 capital is the allowance for credit losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions that have exercised an opt-out election regarding the treatment of Accumulated Other Comprehensive Income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values.

Institutions that have not exercised the AOCI opt-out have AOCI incorporated into common equity Tier 1 capital (including unrealized gains and losses on available-for-sale securities).

The Bank exercised the opt-out regarding the treatment of AOCI.

Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations.

In addition to establishing the minimum regulatory capital requirements, regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.

The capital conservation buffer requirement was fully implemented at 2.5% on January 1, 2019.

At December 31, 2023, the Bank’s capital exceeded all applicable regulatory requirements, the Bank was considered well-capitalized under the prompt corrective action framework, as subsequently discussed, and it had a capital conservation buffer above the applicable requirement.

Recent Developments with Regulators

13 unchanged sentences

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 1. Business