Patriot Bank Reports Full Year 2018 Net Income Of $3 Million

The Stamford-based bank’s loans and deposits continue to expand and assets are up year over year.

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%

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