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 pre­tax income of $35,000 (net income of $27,000), or $0.01 per fully diluted share for the quarter ended September 30, 2019.  The Bank also announced the declaration of its 9th consecutive quarterly dividend of $0.01 per share.  The record date for this quarterly dividend will be December 9, 2019, with a dividend payment date of December 19, 2019.

As of September 30, 2019, the Bank’s total assets were $972.0 million, up 6% as comparable to the same period last year, as both net loans receivable grew to $791.9 million, up 5%, while deposits totaled $762.1 million, an increase of $42.6 million, or 6%, over the same period one year earlier. Patriot continues to maintain strong capital ratio, with earnings expected to return to normalized levels in future periods. 

As reported in its second quarter financials, the Bank had previously taken a charge-off related to a non-performing $2.3 million loan, resulting in a net loss of $1.3 million, or $0.33 per fully diluted share, for the nine months ended September 30, 2019.  This compares to a net income of $2.9 million, or $0.73 per fully diluted shares, in the prior year. The Bank has commenced actions in effort to pursue a recovery of this loan. 

The third quarter and full year results also reflect lower net interest income and a temporary increase in operating expenses associated with the organic build­up of the SBA lending business, expansion of deposit initiatives, and significant costs incurred in conjunction with strengthening institutional infrastructure, processes, controls and documentation to address regulatory requirements and to prepare crossing the $1 billion threshold.

Patriot has prioritized the expansion of its regional retail locations into urban centers across southern Connecticut, resulting in the bank having a presence in every major I­95 corridor community, from downtown Greenwich to downtown New Haven, Connecticut, plus Scarsdale, NY.  Simultaneously it built out a new SBA lending practice, opening offices in Jacksonville, Indianapolis, Stamford, and in Dallas, Texas for a current total of 16 locations.

During the third quarter, loans receivable decreased $11.4 million (1%), and total deposits decreased $5.5 million (1%). The decline in deposits was the result of an $18.1 million drop in wholesale deposit funding, offset by branch deposits growing $12.6 million.  Patriot also recognized a gain on the sale of SBA loans of $188,000, compared with $367,000 in the prior quarter and $3,000 in the third quarter of 2018.

Richard Muskus, Patriot’s President stated: “We continue to gain significant traction and expansion across our SBA lending business and expect to see operating expenses stabilize as the resolution of regulatory matters draws closer to completion. During the last year, Patriot has expanded both our community banking and SBA lending platform into new market locations, instituted enhanced governance policies and procedures and strengthened our institutional infrastructure. We believe this important reinvestment will serve to bolster performance for the long run.”

Mr. Muskus added: “Within the heavily populated 50-mile long New Haven to Greenwich corridor of Interstate 95, Patriot Bank’s continual investment into expanding, repositioning and enhancing its local market presence truly positions the institution well to provide banking customers an array of in-demand, convenient financial products and services.”

Financial Results

As of September 30, 2019, total assets were $972.0 million, as compared to $977.8 million at June 30, 2019 and $915.3 million at September 30, 2018, for a total asset growth of 6% over the past 12 months. Net loans receivable totaled $791.9 million, down 1% from $803.3 million at June 30, 2019, and up 5% over $756.6 million at September 30, 2018. Deposits totaled $762.1 million at September 30, 2019, as compared to $767.6 million at June 30, 2019 and $719.5 million at September 30, 2018, a 5.9% increase over last year.

Net interest income was $6.2 million in the third quarter of 2019, a decrease of 5% from the prior quarter, and a decline of 8% from the third quarter of 2018. For the year-to-date period, the net interest income was $19.2 million, a decrease of 8% from the prior year. This decline was due to higher deposit costs, the impact of non­performing and reduced rate loans, lower loan fees, and the impact of subordinated debt issued in June of 2018.  Higher retail deposit rates are primarily the result of increased rate competition in Patriot’s local retail markets.  The Bank is exploring alternative lower-cost funding sources which, along with a recent decline in market interest rates, is expected to positively impact the aggregate cost of funding in future periods

Net interest margin was 2.70% for the third quarter of 2019, as compared to 2.93% in the prior quarter and 3.11% for the third quarter of 2018.  This decline reflects the higher cost of funding.  The provision for loan losses in the third quarter of 2019 was $100,000, as compared to $2.9 million in the prior quarter and $50,000 for the third quarter of 2018. Year-to-date provision for loan losses was $3.2 million, as compared to $285,000 for the prior year. The 2019 increase was primarily due to a large provision booked in the second quarter of 2019 associated with a single loan relationship.

Non­interest income was $571,000 in the third quarter of 2019, 31% lower than the prior quarter, and 61% higher than the third quarter of 2018. The year-to-date non­interest income was $2.1 million in 2019, 95% higher than the prior year. The increase in non­interest income was due to realized gains on the sale of SBA loans.  Non­interest expense was $6.7 million in the third quarter of 2019, consistent with the last quarter, and 10% higher than the third quarter of 2018. The year-to-date non­interest expense was $19.9 million, 12% higher than the prior year and the income tax provision was $8,000 in the third quarter of 2019, representing an effective tax rate of 23%.

An increase in non-interest expense in 2019 was primarily related to new staff salaries and benefits to support new deposit, credit, finance initiatives, including the expansion into New Haven County, SBA lending across five national markets and added compliance support professionals. 

As of September 30, 2019, shareholders’ equity was $68.2 million, a decrease of $111,000 as compared to June 30, 2019. Patriot’s book value per share decreased to $17.37 at September 30, 2019, as compared to $17.41 at June 30, 2019.  The Bank’s capital ratios continue to be strong, maintaining its “well capitalized” regulatory status. As of September 30, 2019, the Bank’s Tier 1 leverage ratio was 9.47%, Tier 1 risk-based capital ratio was 10.82% and total risk-based capital ratio was 11.81%.

Patriot Bank is headquartered in Stamford and operates 16 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. The Bank also maintains SBA lending offices in Jacksonville, Indianapolis, Stamford and now Dallas.

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 non­banks 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, and (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.

Contracts:
Patriot Bank, N.A.900 Bedford StreetStamford, CT 06901www.BankPatriot.com		Richard MuskusPresident203-252-5939		Joseph PerilloChief Financial Officer203-252-5954		Michael CarrazzaCEO and Chairman203-251-8230

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except share data)	September 30, 2019				June 30, 2019				September 30, 2018
Cash and due from banks:
Noninterest bearing deposits and cash	$	3,157			$	5,578			$	5,846
Interest bearing deposits		46,844				45,538				42,873
Total cash and cash equivalents		50,001				51,116				48,719
Investment securities:
Available-for-sale securities, at fair value		50,057				43,839				40,264
Other investments, at cost		4,963				4,963				4,963
Total investment securities		55,020				48,802				45,227
Federal Reserve Bank stock, at cost		2,889				2,922				2,833
Federal Home Loan Bank stock, at cost		4,477				4,513				4,928
Gross loans receivable		800,314				811,777				763,254
Allowance for loan losses		(8,405	)			(8,458	)			(6,605	)
Net loans receivable		791,909				803,319				756,649
SBA loans held for sale		4,103				4,283				-
Accrued interest and dividends receivable		3,538				3,678				3,612
Premises and equipment, net		34,883				35,249				35,487
Other real estate owned		2,400				1,954				991
Deferred tax asset, net		11,495				11,132				10,907
Goodwill		1,107				1,107				1,944
Core deposit intangible, net		642				661				717
Other assets		9,521				9,031				3,272
Total assets	$	971,985			$	977,767			$	915,286
Liabilities
Deposits:
Noninterest bearing deposits	$	80,772			$	84,295			$	81,687
Interest bearing deposits		681,284				683,271				637,845
Total deposits		762,056				767,566				719,532
Federal Home Loan Bank and correspondent bank borrowings		100,000				100,000				90,000
Senior notes, net		11,834				11,815				11,759
Subordinated debt, net		9,745				9,738				9,720
Junior subordinated debt owed to unconsolidated trust, net		8,100				8,098				8,092
Note payable		1,242				1,291				1,436
Advances from borrowers for taxes and insurance		2,182				3,239				1,659
Accrued expenses and other liabilities		8,647				7,730				4,167
Total liabilities		903,806				909,477				846,365
Commitments and Contingencies		-				-				-
Shareholders' equity
Preferred stock		-				-				-
Common stock		106,118				106,059				105,899
Accumulated deficit		(37,222	)			(37,210	)			(36,078	)
Accumulated other comprehensive loss		(717	)			(559	)			(900	)
Total shareholders' equity		68,179				68,290				68,921
Total liabilities and shareholders' equity	$	971,985			$	977,767			$	915,286

PATRIOT NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
	Three Months Ended											Nine Months Ended
(In thousands, except per share amounts)	September 30, 2019			June 30, 2019				September 30, 2018				September 30, 2019				September 30, 2018
Interest and Dividend Income
Interest and fees on loans	$	10,245		$	10,274			$	9,413			$	30,345			$	27,388
Interest on investment securities		430			398				364				1,207				921
Dividends on investment securities		112			114				125				344				374
Other interest income		225			237				342				795				763
Total interest and dividend income		11,012			11,023				10,244				32,691				29,446
Interest Expense
Interest on deposits		3,655			3,533				2,457				10,452				6,111
Interest on Federal Home Loan Bank borrowings		602			426				486				1,467				1,245
Interest on senior debt		229			228				229				686				686
Interest on subordinated debt		277			279				278				845				489
Interest on note payable and other		6			8				6				20				23
Total interest expense		4,769			4,474				3,456				13,470				8,554
Net interest income		6,243			6,549				6,788				19,221				20,892
Provision for Loan Losses		100			2,937				50				3,202				285
Net interest income after provision for loan losses		6,143			3,612				6,738				16,019				20,607
Non-interest Income
Loan application, inspection and processing fees		32			28				16				74				36
Deposit fees and service charges		123			116				126				366				392
Gains on sale of loans		188			367				3				864				69
Rental income		137			192				115				459				282
Other income		91			126				94				312				283
Total non-interest income		571			829				354				2,075				1,062
Non-interest Expense
Salaries and benefits		3,480			3,608				2,794				10,272				8,417
Occupancy and equipment expenses		937			744				829				2,598				2,346
Data processing expenses		357			361				333				1,088				972
Professional and other outside services		721			803				565				2,233				1,594
Project expenses, net		212			(15	)			653				277				1,768
Advertising and promotional expenses		63			77				57				255				194
Loan administration and processing expenses		44			43				25				101				68
Regulatory assessments		152			395				275				862				825
Insurance expenses (income)		65			54				(56	)			160				52
Communications, stationary and supplies		118			131				146				383				369
Other operating expenses		530			527				426				1,626				1,194
Total non-interest expense		6,679			6,728				6,047				19,855				17,799
Income (loss) before income taxes		35			(2,287	)			1,045				(1,761	)			3,870
Provision (benefit) for Income Taxes		8			(632	)			276				(456	)			1,000
Net income (loss)	$	27		$	(1,655	)		$	769			$	(1,305	)		$	2,870
Basic earnings (loss) per share	$	0.01		$	(0.42	)		$	0.20			$	(0.33	)		$	0.74
Diluted earnings (loss) per share	$	0.01		$	(0.42	)		$	0.20			$	(0.33	)		$	0.73

FINANCIAL RATIOS AND OTHER DATA
					Three Months Ended								Nine Months Ended
(Dollars in thousands)	September 30, 2019				June 30, 2019				September 30, 2018				September 30, 2019				September 30, 2018
Quarterly Performance Data:
Net income (loss)	$	27			$	(1,655	)		$	769			$	(1,305	)		$	2,870
Return on Average Assets		0.01	%			-0.69	%			0.33	%			-0.18	%			0.43	%
Return on Average Equity		0.16	%			-9.44	%			4.40	%			-2.50	%			5.60	%
Net Interest Margin		2.70	%			2.93	%			3.11	%			2.85	%			3.33	%
Efficiency Ratio		98.00	%			91.19	%			84.67	%			93.24	%			81.07	%
Efficiency Ratio excluding project costs		94.86	%			91.39	%			75.53	%			91.94	%			73.02	%
% increase (decrease) loans		-1.41	%			2.95	%			0.78	%			2.55	%			6.06	%
% increase (decrease) deposits		-0.72	%			1.96	%			1.00	%			2.53	%			12.88	%
Asset Quality:
Nonaccrual loans	$	19,183			$	19,405			$	6,479			$	19,183			$	6,479
Other real estate owned	$	2,400			$	1,954			$	991			$	2,400			$	991
Total nonperforming assets	$	21,583			$	21,359			$	7,470			$	21,583			$	7,470
Nonaccrual loans / loans		2.40	%			2.39	%			0.85	%			2.40	%			0.85	%
Nonperforming assets / assets		2.22	%			2.18	%			0.82	%			2.22	%			0.82	%
Allowance for loan losses	$	8,405			$	8,458			$	6,605			$	8,405			$	6,605
Valuation reserve	$	1,252			$	1,416			$	1,684			$	1,252			$	1,684
Allowance for loan losses with valuation reserve	$	9,657			$	9,874			$	8,289			$	9,657			$	8,289
Allowance for loan losses / loans		1.05	%			1.04	%			0.87	%			1.05	%			0.87	%
Allowance / nonaccrual loans		43.81	%			43.59	%			101.94	%			43.81	%			101.94	%
Allowance for loan losses and valuation reserve / loans		1.20	%			1.21	%			1.09	%			1.20	%			1.09	%
Allowance for loan losses and valuation reserve / nonaccrual loans		50.34	%			50.88	%			127.94	%			50.34	%			127.94	%
Gross loan charge-offs	$	282			$	2,307			$	5			$	2,589			$	19
Gross loan (recoveries)	$	(129	)		$	(5	)		$	(35	)		$	(183	)		$	(42	)
Net loan charge-offs (recoveries)	$	153			$	2,302			$	(30	)		$	2,406			$	(23	)
Capital Data and Capital Ratios
Book value per share (1)	$	17.37			$	17.41			$	17.64			$	17.37			$	17.64
Shares outstanding		3,925,002				3,922,610				3,906,966				3,925,002				3,906,966
Bank Capital Ratios:
Leverage Ratio		9.47	%			9.61	%			9.92	%			9.47	%			9.92	%
Tier 1 Capital		10.82	%			10.66	%			10.61	%			10.82	%			10.61	%
Total Risk Based Capital		11.81	%			11.65	%			11.38	%			11.81	%			11.38	%

(1) Book value per share represents shareholders' equity divided by outstanding shares.