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PN

PATRIOT NATIONAL BANCORP INC (PNBK)·Q2 2022 Earnings Summary

Executive Summary

  • Q2 2022 delivered net income of $1.265 million and $0.32 EPS, up from $0.20 in Q1 and $0.26 in Q2 2021 as net interest income rose 30% year over year on strong loan growth and margin expansion .
  • Net interest margin improved to 3.27% in Q2 (3.17% for 1H22), aided by low-cost prepaid deposit funding that reached $166.7 million; loans grew 11.1% QoQ and deposits 8.6% QoQ .
  • Shareholders’ equity and book value per share fell (BVPS to $15.11) due to negative AOCI from the investment portfolio amid rising rates—an industry-wide headwind .
  • Strategic catalyst: the American Challenger merger was terminated (July 20), despite conditional OCC approval (June 30); management is in “active discussions” on a modified transaction, creating an overhang and potential optionality .

What Went Well and What Went Wrong

What Went Well

  • Strong core growth: net interest income up 30% YoY; loan balances rose to $859.1 million and total deposits to $846.8 million by quarter-end .
  • Margin expansion and funding mix: NIM of 3.27% in Q2 (3.17% 1H22), supported by prepaid deposits that “tripled in size to $166.7 million” since July 2020; management emphasized “strong financial performance and quality asset generation” .
  • Commercial momentum: gains on SBA loan sales ($301k in Q2; $509k YTD) and higher non-interest income YTD from the prepaid card program .

Management quote: “The Bank continued its path of strong financial performance and quality asset generation during the second quarter of 2022. Our net interest margin remained solid at 3.17%.” — Robert Russell, President & CEO .

What Went Wrong

  • Expense pressure: non-interest expense rose to $6.5 million vs $5.3 million in Q2 2021, reflecting higher salaries/benefits and the absence of the 2021 ERC benefit (Q2 2021 included $1.1 million ERC; 1H21 had $2.0 million ERC) .
  • Provision reintroduced: a $275k loan loss provision in Q2 (none in Q1 2022 and Q2 2021), modestly tempering pre-tax profit expansion .
  • Capital/AOCI headwind: shareholders’ equity fell to $59.8 million and BVPS to $15.11, “attributable to a decline in the market value of the Bank’s investment portfolio…with rising…interest rates,” pressuring reported capital metrics .

Financial Results

Income Statement Summary ($USD Thousands, except per-share)

(oldest → newest)

MetricQ4 2021Q1 2022Q2 2022
Total Interest & Dividend Income8,513 8,320 9,687
Net Interest Income6,907 6,726 7,720
Non-Interest Income2,305 814 798
Non-Interest Expense8,779 6,429 6,502
Income Before Taxes633 1,111 1,741
Net Income1,895 800 1,265
Basic EPS ($)0.48 0.20 0.32
Diluted EPS ($)0.48 0.20 0.32

Margins and Efficiency

(oldest → newest)

MetricQ4 2021Q1 2022Q2 2022
Net Interest Margin (%)3.05% 3.06% 3.27%
Return on Avg Assets (%)0.79% 0.34% 0.50%
Return on Avg Equity (%)11.21% 4.88% 8.20%
Efficiency Ratio (%)95.30% 85.27% 76.33%

Balance Sheet Snapshot ($USD Thousands, period-end)

(oldest → newest)

MetricQ4 2021Q1 2022Q2 2022
Total Assets948,481 975,504 1,049,180
Net Loans Receivable729,583 763,602 849,178
Total Deposits748,562 779,849 846,783
Shareholders’ Equity67,344 62,683 59,802
Book Value per Share ($)17.02 15.84 15.11

Asset Quality and Growth KPIs

(oldest → newest)

MetricQ4 2021Q1 2022Q2 2022
Nonaccrual Loans ($000)23,095 23,466 23,324
Nonaccrual Loans / Loans (%)3.12% 3.03% 2.71%
Nonperforming Assets / Assets (%)2.43% 2.41% 2.22%
Allowance for Loan Losses ($000)9,905 9,737 9,929
Allowance / Loans (%)1.34% 1.26% 1.16%
Allowance / Nonaccrual Loans (%)42.89% 41.49% 42.57%
Net Charge-Offs ($000)(25) 168 83
Loan Growth QoQ (%)3.49% 4.58% 11.09%
Deposit Growth QoQ (%)3.38% 4.18% 8.58%
Prepaid Deposits ($000)150,383 146,760 166,736

Revenue Composition ($USD Thousands)

(oldest → newest)

ComponentQ4 2021Q1 2022Q2 2022
Interest & Fees on Loans7,916 7,664 9,044
Interest on Investment Securities502 570 510
Dividends on Investment Securities73 65 65
Other Interest Income22 21 68
Total Interest & Dividend Income8,513 8,320 9,687
Gains on Sale of Loans1,534 208 301
Other Non-Interest Income771 606 497
Total Non-Interest Income2,305 814 798

Guidance Changes

No formal numerical guidance (revenue, margins, OpEx, tax rate, segment) was provided in the Q2 2022 earnings press release or related filings .

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue/Margins/OpEx/TaxFY/Q3N/AN/ANo formal guidance

Regulatory/strategic disclosures: Conditional OCC approval for merger (June 30) later followed by mutual termination (July 18/20); management noted “active discussions” regarding a modified transaction .

Earnings Call Themes & Trends

No Q2 2022 earnings call transcript was available in the document catalog; themes below reflect press releases and 8-Ks [ListDocuments: earnings-call-transcript returned none].

TopicPrevious Mentions (Q4 2021 & Q1 2022)Current Period (Q2 2022)Trend
Digital-forward strategy / American ChallengerAnnounced transformational merger; significant project expenses in Q4; management positive on trajectory Conditional OCC approval (June 30) but merger terminated (July 20); “active discussions” on modified transaction Strategic uncertainty; potential optionality but near-term overhang
Funding mix / Prepaid depositsPrepaid deposits $150.4m; improving funding costs Prepaid deposits $146.8m (Q1); continued low-cost source Prepaid deposits $166.7m (Q2); supportive to NIM
Interest rates / AOCI & BVPSBVPS $17.02; AOCI modest BVPS $15.84; AOCI loss widened BVPS $15.11; equity down due to market value decline of investments amid rising rates
Asset qualityNonaccruals ~23.1m; allowance ~1.34% of loans Nonaccruals 23.5m; allowance 1.26% Nonaccruals 23.3m; allowance 1.16%; coverage ~42.6%
Efficiency & expensesQ4 efficiency 95.3% (project costs elevated) Efficiency 85.27%; no ERC recognized in 2022 Efficiency 76.33%; salaries/benefits up YoY; absent ERC

Management Commentary

  • “The Bank continued its path of strong financial performance and quality asset generation during the second quarter of 2022. Our net interest margin remained solid at 3.17%.” — Robert Russell, President & CEO .
  • “Patriot is on a strong earnings trajectory…supportive toward the pending merger transaction with American Challenger…” — Michael Carrazza, Chairman (Q1 commentary) .
  • “The receipt of OCC approval is a significant…milestone…to create one of the largest digital-forward banks in the country.” — Michael Carrazza (July 6) .
  • “The parties remain in active discussions regarding the potential for a modified transaction.” — Robert Russell (Q2 press release) .

Q&A Highlights

No Q2 2022 earnings call transcript or Q&A was available in the catalog; no additional call-based guidance clarifications to report [ListDocuments: earnings-call-transcript returned none].

Estimates Context

  • Wall Street consensus (S&P Global) for Q2 2022 EPS and revenue was unavailable via the S&P Global API at the time of analysis; therefore, we cannot provide beat/miss vs estimates for this quarter. Values retrieved from S&P Global were unavailable.
  • Given stronger net interest income and NIM expansion, absent ERC tailwinds, sell-side models may need to reflect improved core NII trajectory and higher run-rate expenses; however, we cannot quantify revisions without consensus data .

Key Takeaways for Investors

  • Core earnings strengthening: Q2 net income rose to $1.265 million and EPS to $0.32 on 11% QoQ loan growth and 3.27% NIM, with deposit growth of 8.6% QoQ—supportive for near-term NII momentum .
  • Funding advantage: prepaid deposits at $166.7 million continue to lower cost of funds and bolster NIM, a structural tailwind in a rising rate environment .
  • Watch capital/AOCI: BVPS declined to $15.11 and equity to $59.8 million due to negative AOCI from rising rates; equity sensitivity to securities marks remains a key risk factor .
  • Expense normalization: YoY expense comparisons are difficult due to 2021 ERC; 2022 operating expenses reflect true run-rate (salaries/benefits higher), implying less non-recurring support near term .
  • Credit steady but provision resumed: modest $275k provision and stable nonaccruals/NPA ratios suggest prudence as growth accelerates; monitor allowance ratio drift lower vs NPL coverage .
  • Strategic overhang/optionality: OCC conditional approval was positive, but merger termination creates uncertainty; “active discussions” on a modified transaction represent potential future catalysts (positive or negative) .
  • Tactical angle: absent consensus data, traders should focus on rate path, margin trajectory, and any updates on strategic transactions; near-term sentiment is likely sensitive to capital/mark-to-market and strategic clarity .