PNBK Patriot National Bancorp Inc

Patriot National Bancorp, Inc. (“Patriot,” “Bancorp” or the “Company”) (NASDAQ: PNBK), the parent company of Patriot Bank, N.A. (the “Bank”), today announced a pre-tax loss of $2.29 million, and net loss of $1.66 million, or $0.42 per fully diluted share for the quarter ended June 30, 2019, even as bank assets, loans, deposits and investment in its retail and SBA lending network continues to expand.

The quarterly loss results from an increase in the provision for loan losses of $2.9 million in the quarter and $3.1 million, year-to-date, largely associated with a $2.3 million charge-off on a single non-performing commercial loan.  This resulted in a year-to-date net loss of $1.33 million, or $0.34 per fully diluted share, as compared to a net income of $2.1 million, or $0.54 per fully diluted shares in the prior year.

The second quarter and full-year results also reflect an increase in operating expenses associated with the organic build-up and expansion of the Bank’s SBA lending business, deposit initiatives, and costs incurred in conjunction with strengthened institutional infrastructure, processes, controls and documentation to address regulatory requirements.

During the quarter, loans receivable increased $23.2 million (up 3%) as new loan originations continued at a strong pace, and total deposits increased $14.7 million (up 2%).  Patriot recognized a gain on the sale of SBA loans of $367,000, compared with $456,000 in the prior quarter and $66,000 in the second quarter of 2018.  The Bank continues to maintain strong capital ratios and earnings which are expected to return to normalized levels in future periods.

Richard Muskus, Patriot’s President stated: “The results for the quarter reflect the impact of a single customer credit problem that we have fully charged off.  We have taken a prudent, proactive approach with this non-performing loan at this point and are moving forward to pursue all available options to obtain a recovery on this credit and the assets it is securitized by.”

In 2019 Patriot instituted enhanced governance policies, procedures and practices, invested in strengthened institutional infrastructure, expanded banking locations into the New Haven and Orange, Connecticut markets and made material advancements in building out its SBA business.  These activities are intended to bolster performance in future quarters by investing in the Bank’s future growth.

Mr. Muskus added: “Patriot’s continued retail location expansion into urban centers across southern Connecticut has now resulted in the Bank having a presence in every major community along the busy I-95 corridor, from downtown Greenwich to downtown New Haven, Connecticut, plus a quite dynamic market in the community of Scarsdale, NY.  Patriot’s investment in repositioning and adding to its now 12-retail and four SBA lending locations, better positions the institution to cater to busy, youthful downtown environments and customers who want banking options that match their active lifestyle.”

Growth in loan originations continued, as evidenced by total loans outstanding reaching $812 million, a 3% increase from the prior quarter and 7% higher than the second quarter of 2018.  Contributions from SBA operations were significant for the last two consecutive quarters and new depositor initiatives in the second half are expected to reduce funding costs and strengthen operating performance.

Patriot also announced today the declaration of its ninth consecutive quarterly dividend of $0.01 per share. The record date for this quarterly dividend will be September 3, 2019, with a dividend payment date of September 13, 2019.

Financial Results

As of June 30, 2019, total assets were $977.8 million, as compared to $953.1 million at March 31, 2019 and $930.2 million at June 30, 2018, for a total asset growth of 5% over the past 12 months.  Net loans receivable totaled $803.3 million, up 3% over $780.7 million at March 31, 2019, and up 7% over $750.8 million at June 30, 2018.  Deposits continued to grow to $767.6 million at June 30, 2019, as compared to $752.8 million at March 31, 2019 and $712.3 million at June 30, 2018.

Net interest income was $6.5 million in the second quarter of 2019, an increase of 3% from the prior quarter, and a decline of 7% from the second quarter of 2018.  For the year-to-date period, the net interest income was $12.9 million, a decrease of 9% from the prior year. The recent decline in net interest income was due to higher deposit costs, the impact of non-performing and reduced rate loans, lower loan fees, and the impact of subordinated debt costs raised in June of 2018.

Net interest margin was 2.93% for the second quarter of 2019, as compared to 2.87% in the prior quarter and 3.34% for the second quarter of 2018. 

The provision for loan losses in the second quarter of 2019 was $2.9 million, as compared to $165,000 in the prior quarter and $50,000 for the second quarter of 2018. The year-to-date provision for loan losses was $3.1 million, as compared to $235,000 for the prior year. The increase in provision for loan losses in the second quarter of 2019 was primarily due to a large provision booked in the quarter associated with a single loan stemming from operating cash flow weaknesses and collateral shortfall.

Non-interest income was $829,000 in the second quarter of 2019, 1% higher than the prior quarter, and 115% higher than the second quarter of 2018. The year-to-date non-interest income was $1.7 million in 2019, 133% higher than the prior year. The increase in non-interest income was primarily due to realized gains on the sale of SBA loans.

Non-interest expense was $6.7 million in the second quarter of 2019, 3% higher than the last quarter, and 13% higher than the second quarter of 2018. The year-to-date non-interest expense was $13.2 million, 13% higher than the prior year.

The increase in 2019 was primarily due to an increase in salaries and benefits associated with the build-up of the SBA lending team, the completion of the acquisition of Prime Bank expanding Patriot’s presence in New Haven County, and increased headcount supporting new deposit initiatives and the expansion of credit, finance and compliance support functions.

The income tax benefit was $632,000 in the second quarter of 2019, represented an effective tax rate of 28%.

As of June 30, 2019, shareholders’ equity was $68.3 million, a decrease of $1.4 million as compared to March 31, 2019.  Patriot’s book value per share decreased to $17.41 at June 30, 2019, as compared to $17.77 at March 31, 2019.

The Bank’s capital ratios continue to be strong, as the Bank maintains its “well capitalized” regulatory status. As of June 30, 2019, the Bank’s Tier 1 leverage ratio was 9.61%, Tier 1 risk-based capital ratio was 10.66% and total risk-based capital ratio was 11.65%.

Patriot Bank is headquartered in Stamford and operates 12 locations: in Scarsdale, NY; and Darien, Fairfield, Greenwich, Milford, Norwalk, Orange, Stamford, Westport, with Express Banking locations at Bridgeport/ Housatonic Community College, downtown New Haven and Trumbull at Westfield Mall.  It also maintains SBA lending offices in Atlanta, Jacksonville, Indianapolis, and Stamford.

About the Company

Founded in 1994, and now celebrating its 25th year, 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			June 30,  2019				March 31,  2019				June 30,  2018
Assets
Cash and due from banks:
Noninterest bearing deposits and cash			$	5,578			$	6,661			$	4,839
Interest bearing deposits				45,538				49,971				80,290
		Total cash and cash equivalents		51,116				56,632				85,129
Investment securities:
Available-for-sale securities, at fair value				43,839				40,275				23,982
Other investments, at cost				4,963				4,963				4,962
		Total investment securities		48,802				45,238				28,944
Federal Reserve Bank stock, at cost				2,922				2,892				2,564
Federal Home Loan Bank stock, at cost				4,513				4,513				5,807
Gross loans receivable				811,777				788,536				757,329
Allowance for loan losses				(8,458	)			(7,823	)			(6,525	)
	Net loans receivable			803,319				780,713				750,804
Loans held for sale				4,283				-				-
Accrued interest and dividends receivable				3,678				3,621				3,306
Premises and equipment, net				35,249				35,335				35,715
Other real estate owned				1,954				2,945				991
Deferred tax asset, net				11,132				10,357				11,085
Goodwill				1,107				1,107				2,100
Core deposit intangible, net				661				680				534
Other assets				9,031				9,075				3,256
	Total assets		$	977,767			$	953,108			$	930,235
Liabilities
Deposits:
	Noninterest bearing deposits		$	84,295			$	82,248			$	83,808
	Interest bearing deposits			683,271				670,573				628,504
		Total deposits		767,566				752,821				712,312
Federal Home Loan Bank and correspondent bank borrowings				100,000				90,000				110,000
Senior  notes, net				11,815				11,796				11,740
Subordinated debt, net				9,738				9,731				9,576
Junior subordinated debt owed to unconsolidated trust, net				8,098				8,096				8,090
Note payable				1,291				1,339				1,484
Advances from borrowers for taxes and insurance				3,239				1,922				2,876
Accrued expenses and other liabilities				7,730				7,754				5,796
		Total liabilities		909,477				883,459				861,874
Commitments and Contingencies
Shareholders' equity
Preferred stock				-				-				-
Common stock				40				40				40
Additional paid-in capital				107,198				107,143				106,982
Accumulated deficit				(37,210	)			(35,517	)			(36,808	)
Treasury stock, at cost				(1,179	)			(1,179	)			(1,179	)
Accumulated other comprehensive loss				(559	)			(838	)			(674	)
		Total shareholders' equity		68,290				69,649				68,361
	Total liabilities and shareholders' equity		$	977,767			$	953,108			$	930,235

 

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)			Three Months Ended										Six Months Ended
Dollars in thousands, except per share data			June 30, 2019				March 31, 2019			June 30, 2018			June 30, 2019				June 30, 2018
Interest and Dividend Income
	Interest and fees on  loans		$	10,274			$	9,741		$	9,201		$	20,015			$	17,975
	Interest on investment securities			398				379			291			777				557
	Dividends on investment securities			114				118			128			232				249
	Other interest income			237				333			270			570				421
		Total interest and dividend income		11,023				10,571			9,890			21,594				19,202
Interest Expense
	Interest on deposits			3,533				3,264			1,997			6,797				3,654
	Interest on Federal Home Loan Bank borrowings			426				439			502			865				759
	Interest on senior debt			228				229			228			457				457
	Interest on subordinated debt			279				289			112			568				211
	Interest on note payable and other			8				6			10			14				17
		Total interest expense		4,474				4,227			2,849			8,701				5,098
		Net interest income		6,549				6,344			7,041			12,893				14,104
Provision for loan losses				2,937				165			50			3,102				235
		Net interest income after provision for loan losses		3,612				6,179			6,991			9,791				13,869
Non-interest Income
	Loan application, inspection and processing fees			28				14			12			42				20
	Deposit fees and service charges			116				127			132			243				266
	Gains on sale of loans			367				456			66			823				66
	Rental income			192				130			83			322				167
	Other income			126				95			93			221				189
		Total non-interest income		829				822			386			1,651				708
Non-interest Expense
	Salaries and benefits			3,608				3,184			2,854			6,792				5,623
	Occupancy and equipment expenses			744				917			776			1,661				1,517
	Data processing expenses			361				370			322			731				639
	Professional and other outside services			803				771			457			1,574				1,029
	Project Expenses			(15	)			80			592			65				1,115
	Advertising and promotional expenses			77				115			59			192				137
	Loan administration and processing expenses			43				14			30			57				43
	Regulatory assessments			395				315			298			710				550
	Insurance expenses			54				41			53			95				108
	Material and communications			131				134			110			265				223
	Other operating expenses			527				569			410			1,096				768
		Total non-interest expense		6,728				6,510			5,961			13,238				11,752
		(Loss) income before income taxes		(2,287	)			491			1,416			(1,796	)			2,825
(Benefit) provision for Income Taxes				(632	)			168			380			(464	)			724
		Net (loss) income	$	(1,655	)		$	323		$	1,036		$	(1,332	)		$	2,101
		Basic (loss) earnings per share	$	(0.42	)		$	0.08		$	0.27		$	(0.34	)		$	0.54
		Diluted (loss) earnings per share	$	(0.42	)		$	0.08		$	0.26		$	(0.34	)		$	0.54

 

FINANCIAL RATIOS AND OTHER DATA
					Three Months Ended												Six Months Ended
					June 30,  2019				March 31,  2019				June 30,  2018				June 30,  2019				June 30,  2018
Quarterly Performance Data:
		Net (loss) income			$	(1,655	)		$	323			$	1,036			$	(1,332	)		$	2,101
		Return on average assets				-0.69	%			0.14	%			0.46	%			-0.28	%			0.48	%
		Return on average equity				-9.44	%			1.87	%			6.06	%			-3.82	%			6.21	%
		Net interest margin				2.93	%			2.87	%			3.34	%			2.90	%			3.44	%
		Efficiency ratio				91.19	%			90.85	%			80.27	%			91.02	%			79.34	%
		Efficiency ratio excluding project costs				91.39	%			89.73	%			72.30	%			90.57	%			71.81	%
		% increase loans				2.95	%			1.05	%			4.52	%			4.02	%			5.24	%
		% increase deposits				1.96	%			1.28	%			8.72	%			3.27	%			11.76	%
Asset Quality:
		Nonaccrual loans			$	19,405			$	28,029			$	6,464			$	19,405			$	6,464
		Other real estate owned			$	1,954			$	2,945			$	991			$	1,954			$	991
		Total nonperforming assets			$	21,359			$	30,974			$	7,455			$	21,359			$	7,455
		Nonaccrual loans / loans				2.39	%			3.55	%			0.85	%			2.39	%			0.85	%
		Nonperforming assets / assets				2.18	%			3.25	%			0.80	%			2.18	%			0.80	%
		Allowance for loan losses			$	8,458			$	7,823			$	6,525			$	8,458			$	6,525
		Valuation reserve			$	1,416			$	1,384			$	1,702			$	1,416			$	1,702
		Allowance for loan losses with valuation reserve			$	9,874			$	9,207			$	8,227			$	9,874			$	8,227
		Allowance for loan losses / loans				1.04	%			0.99	%			0.86	%			1.04	%			0.86	%
		Allowance / nonaccrual loans				43.59	%			27.91	%			100.94	%			43.59	%			100.94	%
		Allowance for loan losses and valuation reserve / loans				1.21	%			1.17	%			1.08	%			1.21	%			1.08	%
		Allowance for loan losses and valuation reserve / nonaccrual loans				50.88	%			32.85	%			127.27	%			50.88	%			127.27	%
		Gross loan charge-offs			$	2,307			$	-			$	13			$	2,307			$	13
		Gross loan (recoveries)			$	(5	)		$	(49	)		$	(3	)		$	(54	)		$	(6	)
		Net loan charge-offs (recoveries)			$	2,302			$	(49	)		$	10			$	2,253			$	7
Capital Data and Capital Ratios
		Book value per share (1)			$	17.41			$	17.77			$	17.51			$	17.41			$	17.51
		Shares outstanding				3,922,610				3,919,610				3,904,578				3,922,610				3,904,578
Bank Capital Ratios:
		Leverage ratio				9.61	%			9.79	%			10.03	%			9.61	%			10.03	%
		Tier 1 capital				10.66	%			10.99	%			11.05	%			10.66	%			11.05	%
		Total risk based capital				11.65	%			11.91	%			11.85	%			11.65	%			11.85	%
(1)  Book value per share represents shareholders' equity divided by outstanding shares.