Patriot’s financial condition and results of operation are subject to various risks inherent to its business, including those noted below.
−Removed: Risks Related to the Pandemic
−Removed: Although we do not currently expect the effects of COVID-19 to have material adverse impact on the Company ’ s business and operations going forward, such expectation may be subject to change depending on future development of the pandemic.
−Removed: The national economy has largely recovered from the COVID-19 pandemic, as many health and safety restrictions have been lifted and vaccine distribution has increased.
−Removed: Certain adverse consequences of the pandemic continue to impact the macroeconomic environment and may persist, including labor shortages and disruptions of global supply chains.
−Removed: The growth in economic activity and demand for goods and services, alongside labor shortages and supply chain complications, has contributed to rising inflationary pressures.
−Removed: Since the inception of the COVID-19 pandemic governmental authorities enacted regulations, and protocols, including governmental programs to provide economic relief to businesses and individuals.
−Removed: The application of forbearance and payment deferral policies beyond any statutory requirements has had a minimal impact on the Company’s interest income.
−Removed: Although we do not currently expect the COVID-19 pandemic to have a negative impact on the Company’s operations, the extent to which the consequences of the pandemic may in the future affect the Company’s financial condition, results of operation, and liquidity and capital position will depend on future developments of a number of evolving factors beyond our control, including the severity and duration of any resurgence of COVID-19 variants, their effects and responsive methods taken by governmental authorities.
Risks Related to General Economic and Market Conditions
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Our business and results of operations are affected by the financial markets and general economic conditions in the United States, including factors such as the level and volatility of interest rates, inflation, home prices, unemployment and under-employment levels, bankruptcies, household income, consumer spending, investor confidence and the strength of the U.S.
−Removed: The deterioration of any of these conditions can adversely affect our securities and loan portfolios, our level of charge-offs and provision for loan losses, our capital levels, liquidity and our results of operations.
+Added: The deterioration of any of these conditions can adversely affect our securities and loan portfolios, our level of charge-offs and provision for credit losses, our capital levels, liquidity and our results of operations.
In addition, we are affected by the economic conditions within our Connecticut and New York trade areas.
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In particular:
−Removed: • Less than optimal economic conditions may continue to affect market confidence levels and may cause adverse changes in payment patterns, thereby causing increased delinquencies, which could affect the Bank’s provision for loan losses and charge-off of loans receivable.
+Added: • Less than optimal economic conditions may continue to affect market confidence levels and may cause adverse changes in payment patterns, thereby causing increased delinquencies, which could affect the Bank’s provision for credit losses and charge-off of loans receivable.
• The ability to assess the creditworthiness of the Bank’s customers, or to accurately estimate loan collateral value, may be impaired if the models and approaches the Bank uses becomes less predictive of future behaviors, valuations, assumptions, or estimates due to the unpredictable economic climate.
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Inflationary pressures and rising prices may affect our results of operations and financial condition.
+Added: Inflation risk is the risk that the value of assets or income from investments will be worthless in the future as inflation decreases the value of money.
Inflation has risen sharply since the end of 2021 to levels not seen in more than 40 years.
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As a result, the Bank’s ability to recover on defaulted loans by selling the underlying real estate will be diminished, and the Bank will be more likely to suffer losses on defaulted loans.
−Removed: The Bank ’ s allowance for loan and lease losses may not be adequate to cover actual losses.
−Removed: Like all financial institutions, the Bank maintains an allowance for loan and lease losses to provide for loan defaults and non-performance.
−Removed: The allowance for loan and lease losses is based on an evaluation of the risks associated with the Bank’s loans receivable, as well as the Bank’s prior loss experience.
+Added: The Bank ’ s allowance for credit losses may not be adequate to cover actual losses.
+Added: Like all financial institutions, the Bank maintains an allowance for credit losses to provide for loan defaults and non-performance.
+Added: The allowance for credit losses is based on an evaluation of the risks associated with the Bank’s loans receivable, as well as estimates of the current credit risks and future trends.
Deterioration in general economic conditions and unforeseen risks affecting customers could have an adverse effect on borrowers’ capacity to timely repay their obligations before risk grades could reflect those changing conditions.
−Removed: Maintaining the adequacy of the Bank’s allowance for loan and lease losses may require that the Bank make significant and unanticipated increases in the provision for loan losses, which would materially affect the results of operations and capital adequacy.
+Added: Maintaining the adequacy of the Bank’s allowance for credit losses may require that the Bank make significant and unanticipated increases in the provision for credit losses, which would materially affect the results of operations and capital adequacy.
The dollar amount of future losses is susceptible to changes in economic, operating, and other conditions including changes in interest rates that may be beyond the Bank’s control and which losses may exceed current allowance estimates.
Although the current economic environment has improved, conditions remain uncertain and may result in additional risk of loan losses.
−Removed: Federal regulatory agencies, as an integral part of their examination process, review the Bank’s loan portfolio and assess the adequacy of the allowance for loan and lease losses.
−Removed: The regulatory agencies may require the Bank to change classifications or grades on loans, increase the allowance for loan and lease losses by recognizing additional loan loss provisions, or to recognize further loan charge-offs based upon their judgments, which may differ from the Bank’s.
−Removed: Any increase in the allowance for loan and lease losses required by these regulatory agencies could have a negative effect on the Bank’s results of operations and financial condition.
−Removed: While management believes that the allowance for loan and lease losses is currently adequate to cover inherent losses, further loan deterioration could occur, and therefore, management cannot assure shareholders that there will not be a need to increase the allowance for loan and lease losses, or that the regulators will not require management to increase this allowance.
+Added: Federal regulatory agencies, as an integral part of their examination process, review the Bank’s loan portfolio and assess the adequacy of the allowance for credit losses.
+Added: The regulatory agencies may require the Bank to change classifications or grades on loans, increase the allowance for credit losses by recognizing additional loan loss provisions, or to recognize further loan charge-offs based upon their judgments, which may differ from the Bank’s.
+Added: Any increase in the allowance for credit losses required by these regulatory agencies could have a negative effect on the Bank’s results of operations and financial condition.
+Added: While management believes that the allowance for credit losses is currently adequate to cover inherent losses, further loan deterioration could occur, and therefore, management cannot assure shareholders that there will not be a need to increase the allowance for credit losses, or that the regulators will not require management to increase this allowance.
Either of these occurrences could materially and adversely affect Patriot’s earnings and profitability.
−Removed: The implementation of Current Expected Credit Loss (“CECL”), which we expect will result in an increase our allowance for loan losses, could have a material adverse effect on our financial condition and results of operation.
−Removed: In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments-Credit Losses:
−Removed: Measurement of Credit Losses on Financial Instruments .
−Removed: The ASU changes the methodology for measuring credit losses on financial instruments measured at amortized cost to a current expected loss (“CECL”) model.
−Removed: The new accounting standard is effective for the Company as of January 1, 2023.
−Removed: CECL requires financial institutions 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.
−Removed: This will change our current method of providing allowance for loan losses that are probable and we expect to record an allowance for credit losses as of January 1, 2023 in excess of our existing allowance for loan losses.
−Removed: CECL also greatly increases the data we need to collect and review to determine the appropriate level of the allowance for credit losses.
−Removed: Although we expect the Bank and the Company will continue to meet all applicable capital adequacy requirements following recording of the impact of adoption to shareholders’ equity, future provisioning for expected credit losses under CECL may have a material adverse effect on our financial condition and results of operations.
Risks Related to Our Business Operations
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There is no assurance that Company will pay dividends in the future.
−Removed: Uncertainty relating to the LIBOR determination process and LIBOR discontinuance may adversely affect our results of operations.
−Removed: London Interbank Offered Rate (“LIBOR”) is used extensively in the United States as a benchmark for various commercial and financial contracts, including adjustable rate mortgages, corporate debt, interest rate swaps and other derivatives.
−Removed: LIBOR is set based on interest rate information reported by certain banks.
−Removed: The United Kingdom Financial Conduct Authority (“FCA”), which regulates the process for establishing LIBOR, announced in July 2017 that the sustainability of LIBOR cannot be guaranteed.
−Removed: The administrator for LIBOR announced on March 5, 2021 that it would permanently cease to publish most LIBOR settings beginning on January 1, 2022 and will cease to publish the overnight, one-month, three-month, six-month and 12-month USD LIBOR settings on July 1, 2023.
−Removed: Accordingly, the FCA has stated that it does not intend to persuade or compel banks to submit to LIBOR after such respective dates.
−Removed: Until such time, however, FCA panel banks have agreed to continue to support LIBOR.
−Removed: In October 2021, the federal bank regulatory agencies issued a Joint Statement on Managing the LIBOR Transition.
−Removed: In that guidance, the agencies offered their regulatory expectations and outlined potential supervisory and enforcement consequences for banks that fail to adequately plan for and implement the transition away from LIBOR.
−Removed: The failure to properly transition away from LIBOR may result in increased supervisory scrutiny.
−Removed: The discontinuance of LIBOR may result in uncertainty or differences in the calculation of the applicable interest rate or payment amount depending on the terms of the governing instruments and may also increase operational and other risks to the Company and the industry.
−Removed: We have derivative contracts and limited loan exposure tied to LIBOR.
−Removed: Although we are not yet able to assess what the ultimate impact of the transition from LIBOR will be, failure to adequately manage the transition could have a material adverse effect on our business, financial condition and results of operations.
Technology Risks
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"Liquidity" refers to Patriot’s ability to generate sufficient cash flows to support its operations and fulfill its obligations, including commitments by the Bank to originate loans, to repay its wholesale borrowings and other liabilities, and to satisfy the withdrawal of deposits by its customers.
−Removed: Patriot’s primary sources of liquidity are the deposits the Bank acquires organically through its branch network and through the brokered deposit market, borrowed funds, primarily in the form of collateralized borrowings from the Federal Home Loan Bank, and the cash flows generated through the collection of loan payments and on mortgage-related securities.
+Added: Patriot’s primary sources of liquidity are the deposits the Bank acquires organically through its branch network and through the activities of its Digital Payments Division.
+Added: Funds are also acquired through the brokered deposit market, borrowed funds, primarily in the form of collateralized borrowings from the Federal Reserve Bank and the Federal Home Loan Bank, and the cash flows generated through the collection of loan payments and on mortgage-related securities.
In addition, depending on current market conditions, Patriot may have the ability to access the capital markets.
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and competition for deposits and loans in the markets served.
−Removed: Prepaid deposits coming through the Payments Division will fluctuate on a daily basis based on standard business activity in the underlying customer accounts.
+Added: Deposits coming through the Payments Division will fluctuate on a daily basis based on standard business activity in the underlying customer accounts.
Furthermore, changes to the underwriting guidelines for wholesale borrowings, or lending policies may limit or restrict Patriot’s ability to borrow, and could therefore have a significant adverse impact on its liquidity.
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• Changes or volatility in global financial markets and economies, general market conditions, interest or foreign exchange rates, stock, commodity, credit, or asset valuations.
−Removed: Unresolved Staff Comments
+Added: Risks Related to Environmental and Other Global Matters
+Added: Concerns over the long-term impacts of climate change have led and will continue to lead to governmental efforts around the world to mitigate those impacts.
+Added: Consumers and businesses also may change their behavior on their own as a result of these concerns.
+Added: We and our customers will need to respond to new laws and regulations as well as consumer and business preferences resulting from climate change concerns.
+Added: We and our customers may face cost increases, asset value reductions, operating process changes and other issues.
+Added: The impact on our customers will likely vary depending on their specific attributes, including reliance on or role in carbon intensive activities.
+Added: Among the impacts to us could be a drop in demand for our products and services, particularly in certain sectors.
+Added: In addition, we could face reductions in creditworthiness on the part of some customers or in the value of assets securing loans.
+Added: Our efforts to take these risks into account in making lending and other decisions, including by increasing our business with climate-focused companies, may not be effective in protecting us from the negative impact of new laws and regulations or changes in consumer or business behavior.
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.