PNBK Patriot National Bancorp Inc

Patriot National Bancorp, Inc. (“Patriot”, “Bancorp”) (NASDAQ: PNBK), the parent company of Patriot Bank, N.A. (the “Bank”), today announced that assets for the fourth quarter of 2018 increased by 12% from the end of 2017, deposits grew by 17% and pre-tax income was $216,000, with net income at $172,000, or $0.04 per fully diluted share.  Excluding the recovery from the prior year and the special project costs in the current year, pre-tax earnings in 2018 grew materially year over year as the result of strong loan growth stemming from over $230 million of new loans funded and committed, and higher non-interest income resulting from the Bank’s SBA lending initiative. Pre-tax earnings reported for the year 2018 included significant, non-recurring transaction expenses of $2.1 million.  

Fourth quarter net income includes an addition of $1.0 million to the Bank’s provision for loan losses, and $330,000 of expenses, primarily related to costs associated with the acquisition of Prime Bank and Hana Small Business Lending (“Hana SBL”).

The increase to provision for loan losses was primarily due to a single credit experiencing cash flow difficulty.  As a result of the higher provisions and project costs, the fourth quarter net income was lower than the $769,000 and $600,000 reported in the third quarter and the same quarter last year, respectively.  For the year ended December 31, 2018, net income was $3.0 million, or $0.78 per fully diluted share, as compared with $4.1 million, or $1.06 per fully diluted share, for the year ended December 31, 2017.

The year-to-date net income is not comparable to the same period in the prior year due to a $2.8 million credit recovery that was recognized in the first quarter of 2017 and $2.1 million of non-recurring acquisition-related expenses recognized in 2018.

On May 10, 2018 Patriot completed its acquisition of Prime Bank. The closing of the transaction added a new Patriot branch located in the Town of Orange, New Haven County, Connecticut. 

CEO Michael Carrazza stated: “2018 was a productive year for Patriot. Core performance and assets grew steadily, the acquisition of Prime Bank was completed, and the Bank’s SBA loan division has made significant strides.  In February 2018, Patriot entered in to a transaction with Hana Small Busines Lending, which remains subject to regulatory approvals.  Value-creating activities have led to a significant increase in regulatory oversight from prior years. The Bank continues to maintain strong capital and sustained growth in its core operations.”

Patriot became an approved SBA lender at the end of 2017 and was designated a “preferred lender” by the SBA earlier in this year, enabling it to approve loans to small businesses and entrepreneurs more quickly and efficiently.  Patriot has now opened four new SBA Business Development offices.

Richard Muskus, Patriot’s President, added: “The year 2018 was very encouraging for Patriot, as we have seen growth and development on a number of key initiatives that we expect to yield strong performance into 2019 and beyond.  We continued to demonstrate impressive trajectory in our core competency of loan originations, with approximately $230 million in new loans funded and committed in 2018.  Further, we have significantly advanced the national footprint and platform, expanding our national SBA business into Atlanta, Indianapolis and Jacksonville.  We have also established a platform for new deposit gathering initiatives in 2019 that are expected to reduce funding costs and materially strengthen ongoing Bank operating performance.”

Regarding the previously announced November 20, 2018 Formal Agreement with the OCC, Mr. Muskus added:  “We have made  progress, addressing each of the items in accordance with our commitment under the agreement, and we continue to respond and address any enhancements requested by the OCC.”  

Patriot also announced today the declaration of its seventh consecutive quarterly dividend of $0.01 per share. The record date for this quarterly dividend will be March 11, 2019 with a dividend payment date of March 18, 2019.

Financial Results

As of December 31, 2018, total assets were $951.5 million, as compared to $915.3 million at September 30, 2018 and $852.1 million at December 31, 2017, for a total asset growth of 12% in the one-year period.  Net loans receivable totaled $772.8 million, up 2% over $756.6 million at September 30, 2018, and up 8% over $713.4 million at December 31, 2017. Deposits continued to grow to $743.3 million at December 31, 2018, as compared to $719.5 million at September 30, 2018 and $637.4 million at December 31, 2017.

Net interest income was $7.1 million in the quarter, increased 5% and 2% from the prior quarter and the corresponding 2017 period, respectively. The year-to-date net interest income of $28.0 million was 8% higher than the $25.9 million in the year ended December 31, 2017.

Net interest margin was 3.20% for the fourth quarter of 2018, as compared to 3.11% in the prior quarter and 3.51% for the fourth quarter of 2017.  For the full year period, net interest margin declined from 3.58% to 3.29%.  The decline in net interest margin in the year reflects the impact of subordinated debt added on June 29, 2018 and increasing deposit costs associated with higher rates paid on retail deposits and an increased reliance on more expensive wholesale funding sources.

The provision for loan losses in the quarter was $1.0 million, as compared to $87,000 in the fourth quarter of 2017. The year-to-date provision for loan losses was $1.3 million, as compared to a net credit for loan losses of $857,000, which reflected the previously noted recovery. The increase of the provision for loan losses in the fourth quarter of 2018 was primarily due to a large provision booked in December 2018 associated with one loan stemming from operating cash flow weaknesses and a collateral shortfall.

Non-interest income was $565,000 in the fourth quarter of 2018, 60% higher than the prior quarter.  Year-to-date non-interest income in 2018 of $1.6 million was 13% higher than the prior year, primarily due to realized gains on the sale of SBA loans.

Non-interest expense increased $389,000 over the third quarter of 2018 and increased $194,000 over the fourth quarter of 2017. The comparison to the prior quarter expenses were primarily impacted by increase in salaries and benefits due in part to the timing of the recognition of incentive accruals partially offset by reduction of non-recurring project costs. The non-recurring project costs totaled $330,000 and $2.1 million for the fourth quarter of 2018 and year-to-date period, respectively.  Excluding project costs, full year 2018 operating expense increased 8% reflecting investments in the organic SBA business and deposit gathering initiatives.

The income tax provision of $44,000 in the fourth quarter of 2018 represented an effective tax rate of 20% and reflects the positive impact of the tax rate changes enacted in the fourth quarter of 2017, and adoption of ASU 2018-02, Reclassification of certain tax effects from accumulated other comprehensive income.

As of December 31, 2018, shareholders’ equity was $69.2 million, an increase of $2.4 million from a year ago.  Patriot’s book value per share increased to $17.69 at December 31, 2018, as compared to $17.12 a year ago.

The Bank’s capital ratios continue to be strong, as the Bank maintained its “well capitalized” regulatory status.  The capital ratios improved from the first quarter of 2018 as the result of the subordinated debt issuance completed at the end of the quarter.  A material amount of the proceeds from the debt issuance were down-streamed to the Bank.  As of December 31, 2018, the Bank Tier 1 leverage ratio was 9.82%, Tier 1 risk-based capital was 10.61% and total risk-based capital was 11.49%.

About the Company 

Founded in 1994, Patriot National Bancorp, Inc. (“Patriot” or “Bancorp”) is the parent holding company of Patriot Bank N.A. (“Bank”), a nationally chartered bank headquartered in Stamford, CT.  Patriot operates with full service branches in Connecticut and New York and provides lending products and services nationally. Patriot’s mission is to serve its local community and nationwide customer base by providing a growing array of banking solutions to meet the needs of individuals and small businesses owners. Patriot places great value in the integrity of its people and how it conducts business.  An emphasis on building strong client relationships and community involvement are cornerstones of our philosophy as we seek to maximize shareholder value.

“Safe Harbor” Statement Under Private Securities Litigation Reform Act of 1995 Certain statements contained in Bancorp’s public statements, including this one, may be forward looking and subject to a variety of risks and uncertainties. These factors include, but are not limited to, (1) changes in prevailing interest rates which would affect the interest earned on Bancorp’s interest earning assets and the interest paid on its interest bearing liabilities, (2) the timing of repricing of Bancorp’s interest earning assets and interest bearing liabilities, (3) the effect of changes in governmental monetary policy, (4) the components of Bancorp’s periodic earnings and assets, (5) the fact that certain of the income recognized by Bancorp in any quarter may not be repeated in future periods, (6) the effect of changes in regulations applicable to Bancorp and the Bank and the conduct of its business, (7) changes in competition among financial service companies, including possible further encroachment of non-banks on services traditionally provided by banks, (8) the ability of competitors that are larger than Bancorp to provide products and services which it is impracticable for Bancorp to provide, (9) the state of the economy and real estate values in Bancorp’s market areas, and the consequent effect on the quality of Bancorp’s loans, (10) recent governmental initiatives that are expected to have a profound effect on the financial services industry and could dramatically change the competitive environment of the Bancorp, (11) other legislative or regulatory changes, including those related to residential mortgages, changes in accounting standards, and Federal Deposit Insurance Corporation (“FDIC”) premiums that may adversely affect Bancorp, (12) the application of generally accepted accounting principles, consistently applied,  (13) the fact that one period of reported results may not be indicative of future periods,  (14)  the state of the economy in the greater New York metropolitan area and its particular effect on Bancorp customers, vendors and communities and other such factors, including risk factors, as may be described in Bancorp’s other filings with the SEC.

Contacts:
Patriot Bank, N.A.	Richard Muskus	Joseph Perillo	Michael Carrazza
900 Bedford Street	President	Chief Financial Officer	CEO and Chairman
Stamford, CT 06901	203-252-5939	203-252-5954	203-251-8230
www.BankPatriot.com

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
Dollars in thousands	December 31,  2018				September 30,  2018				December 31,  2017
Assets
Noninterest bearing deposits and cash	$	7,381			$	5,596			$	3,582
Interest bearing deposits		59,569				43,636				45,659
Total cash and cash equivalents		66,950				49,232				49,241
Available-for-sale securities, at fair value		39,496				40,264				25,576
Other investments, at cost		4,450				4,450				4,450
Total investment securities		43,946				44,714				30,026
FRB & FHLB stock, at cost		7,794				7,761				8,391
Gross loans receivable		780,376				763,254				719,647
Allowance for loan losses		(7,609	)			(6,605	)			(6,297	)
Net loans receivable		772,767				756,649				713,350
Accrued interest and dividends receivable		3,766				3,612				3,496
Premises and equipment, net		35,435				35,487				35,358
Other real estate owned		2,945				991				-
Deferred tax asset, net		10,697				10,907				10,397
Goodwill		1,728				1,944				-
Core deposit intangible, net		698				717				-
Other assets		4,816				3,272				1,821
Total assets	$	951,542			$	915,286			$	852,080
Liabilities and Shareholders' Equity
Deposits
Noninterest bearing deposits	$	84,471			$	81,687			$	81,197
Interest bearing deposits		658,810				637,845				556,242
		743,281				719,532				637,439
Federal Home Loan Bank and correspondent bank borrowings		100,000				90,000				120,000
Senior  notes, net		11,778				11,759				11,703
Subordinated debt, net		9,723				9,720				-
Junior subordinated debt owed to unconsolidated trust, net		8,094				8,092				8,086
Note payable		1,388				1,436				1,580
Advances from borrowers for taxes and insurance		2,926				1,659				2,829
Accrued expenses and other liabilities		5,166				4,167				3,694
Total liabilities		882,356				846,365				785,331
Preferred Stock		-				-				-
Common stock		40				40				40
Additional paid-in capital		107,095				107,038				106,875
Accumulated deficit		(35,944	)			(36,078	)			(38,832	)
Treasury stock, at cost		(1,179	)			(1,179	)			(1,179	)
Accumulated other comprehensive loss		(826	)			(900	)			(155	)
Total Shareholders' Equity		69,186				68,921				66,749
Total Liabilities and Shareholders' Equity	$	951,542			$	915,286			$	852,080

 

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)	Three Months Ended										Year Ended
Dollars in thousands, except per share data	December 31, 2018			September 30, 2018				December 31, 2017			December 31, 2018			December 31, 2017
Interest and Dividend Income
Interest and fees on  loans	$	10,158		$	9,413			$	8,550		$	37,546		$	31,270
Interest on investment securities		385			364				294			1,306			982
Dividends on investment securities		116			125				103			490			383
Other interest income		270			342				66			1,033			214
Total interest and dividend income		10,929			10,244				9,013			40,375			32,849
Interest Expense
Interest on deposits		2,913			2,457				1,491			9,024			4,948
Interest on Federal Home Loan Bank borrowings		389			486				193			1,634			702
Interest on senior debt		229			229				229			915			915
Interest on subordinated debt		278			278				94			767			360
Interest on note payable		15			6				7			38			31
Total interest expense		3,824			3,456				2,014			12,378			6,956
Net interest income		7,105			6,788				6,999			27,997			25,893
Provision (credit) for loan losses		1,018			50				87			1,303			(857	)
Net interest income after provision (credit) for loan losses		6,087			6,738				6,912			26,694			26,750
Non-interest Income
Loan application, inspection and processing fees		15			16				12			51			73
Deposit fees and service charges		132			126				146			524			590
Gains on sale of loans		93			3				4			162			4
Rental income		131			115				97			413			399
Other income		194			94				173			477			378
Total non-interest income		565			354				432			1,627			1,444
Non-interest Expense
Salaries and benefits		3,324			2,794				3,247			11,741			10,915
Occupancy and equipment expense		813			829				755			3,159			3,133
Data processing expense		341			333				353			1,313			1,139
Professional and other outside services		583			565				438			2,177			2,050
Merger/tax initiative project expenses		330			653				601			2,098			640
Advertising and promotional expenses		64			57				56			258			322
Loan administration and processing expenses		25			25				18			93			63
Regulatory assessments		317			275				272			1,142			844
Insurance (income) expenses		38			(56	)			52			90			233
Material and communications		134			146				94			503			381
Other operating expenses		467			426				356			1,661			1,452
Total non-interest expense		6,436			6,047				6,242			24,235			21,172
Income before income taxes		216			1,045				1,102			4,086			7,022
Provision for Income Taxes		44			276				502			1,044			2,875
Net income	$	172		$	769			$	600		$	3,042		$	4,147
Basic earnings per share	$	0.04		$	0.20			$	0.15		$	0.78		$	1.06
Diluted earnings per share	$	0.04		$	0.20			$	0.15		$	0.78		$	1.06

 

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
FINANCIAL RATIOS AND OTHER DATA
(Unaudited)
Dollars in thousands, except shares outstanding and per share data
				Quarter Ended												Year Ended
				December 31,  2018				September 30, 2018				December 31,  2017				December 31, 2018				December 31, 2017
Quarterly Performance Data:
		Net Income		$	172			$	769			$	600			$	3,042			$	4,147
		Return on Average Assets			0.07	%			0.33	%			0.29	%			0.34	%			0.54	%
		Return on Average Equity			0.98	%			4.40	%			3.65	%			4.42	%			6.32	%
		Net Interest Margin			3.20	%			3.11	%			3.51	%			3.29	%			3.58	%
		Efficiency Ratio			84	%			85	%			84	%			82	%			77	%
		Efficiency Ratio excluding project costs			80	%			76	%			76	%			75	%			75	%
		% increase loans			2	%			1	%			1	%			8	%			24	%
		% increase deposits			3	%			1	%			5	%			17	%			20	%
Asset Quality:
		Nonaccrual loans		$	8,263			$	6,479			$	3,778			$	8,263			$	3,778
		Other real estate owned			2,945				991				-				2,945				-
			Total nonperforming assets	$	11,208			$	7,470			$	3,778			$	11,208			$	3,778
		Nonaccrual loans / loans			1.06	%			0.85	%			0.52	%			1.06	%			0.52	%
		Nonperforming assets / assets			1.18	%			0.82	%			0.44	%			1.18	%			0.44	%
		Allowance for loan losses		$	7,609			$	6,605			$	6,297			$	7,609			$	6,297
		Valuation reserve		$	1,712			$	1,684			$	-			$	1,712			$	-
		Allowance for loan losses with valuation reserve		$	9,321			$	8,289			$	6,297			$	9,321			$	6,297
		Allowance for loan losses / loans			0.98	%			0.87	%			0.88	%			0.98	%			0.88	%
		Allowance / nonaccrual loans			92.09	%			101.94	%			166.68	%			92.09	%			166.68	%
		Allowance for loan losses and valuation reserve / loans			1.19	%			1.09	%			0.88	%			1.19	%			0.88	%
		Allowance for loan losses and valuation reserve / nonaccrual loans			112.80	%			127.94	%			166.68	%			112.80	%			166.68	%
		Gross loan charge-offs		$	16			$	5			$	17			$	35			$	305
		Gross loan (recoveries)		$	(2	)		$	(35	)		$	(4	)		$	(45	)		$	(2,783	)
		Net loan charge-offs (recoveries)		$	14			$	(30	)		$	13			$	(10	)		$	(2,478	)
Capital Data and Capital Ratios
		Book value per share (1)		$	17.69			$	17.64			$	17.12			$	17.69			$	17.12
		Shares outstanding			3,910,674				3,906,966				3,899,675				3,910,674				3,899,675
Bank Capital Ratios:
		Leverage Ratio			9.82	%			9.92	%			9.36	%			9.82	%			9.36	%
		Tier 1 Capital			10.61	%			10.61	%			10.55	%			10.61	%			10.55	%
		Total Risk Based Capital			11.49	%			11.38	%			11.41	%			11.49	%			11.41	%
(1)  Book value per share represents shareholders' equity divided by outstanding shares.