Patriot National Bancorp Earns $909,000 in First Nine Months of 2012; Restructuring Initiatives Lead to Greater Operating Efficiencies

STAMFORD, Conn.--()--Patriot National Bancorp, Inc. (NASDAQ:PNBK) (“Patriot”), the parent of Patriot National Bank (the “Bank”), today reported it earned $909,000, or $0.02 diluted income per share, for the nine months ended September 30, 2012 compared to a net loss of $15.9 million, or $0.41 diluted loss per share, for the nine months ended September 30, 2011. For the quarter ended September 30, 2012 Patriot earned $18,000 compared to $255,000 for the third quarter a year ago.

“Due to the favorable recent loss history as it relates to our assessment of the adequacy of the allowance for loan losses, a loan loss provision was not recorded during the third quarter, the same as in the third quarter a year ago”

“In the third quarter we reduced operating expenses by 8.6% compared to the preceding quarter and posted our fifth consecutive quarter of profitability,” stated Michael Carrazza, Chairman of the Board. “We are on track to surpass our targeted levels of asset quality improvement by year-end and will continue to implement our core earnings profitability strategies in the fourth quarter.”

Financial Highlights:

  • Total Capital to Risk Weighted Assets was 14.78% for Patriot and 14.45% for the Bank at September 30, 2012. The Tier 1 Leverage Capital Ratio was 9.60% for Patriot and 9.37% for the Bank.
  • Non-interest operating expenses declined 5.0% in the current quarter compared to the same quarter a year ago primarily due to lower salaries and benefits and administrative expenses.
  • The net interest margin was 2.86% in the third quarter of 2012 compared to 2.81% in the prior quarter and 3.40% in the third quarter a year ago.
  • Classified assets were 9.1% of total assets at September 30, 2012, compared to 10.4% at June 30, 2012 and 11.7% in the third quarter a year ago.
  • Non-accrual loans were $30.0 million, or 6.0%, of total loans at September 30, 2012, compared to $17.5 million, or 3.6% of total loans at June 30, 2012, and $21.8 million, or 4.7% of total loans, at September 30, 2011.
  • Non-performing assets, which consist of non-accrual loans and OREO, were $31.3 million, or 5.1% of total assets at September 30, 2012, compared to $19.0 million, or 2.9% of total assets at June 30, 2012 and $26.5 million, or 4.2% of total assets a year ago.

Asset Quality

“Aggressively managing our troubled assets remains a top priority. The increase in delinquencies during the quarter was driven by four loans secured by properties that are being marketed for sale,” said Christopher Maher, President and Chief Executive Officer. “We will remain diligent in our efforts to reduce credit costs as problem asset resolution occurs and the economy continues to recover.”

Four owner-occupied residential real estate loans, of which three were already categorized as substandard, but accruing interest, deteriorated and were moved to non-accrual status during the quarter. Primarily due to this action, total non-accrual loans increased $12.6 million during the third quarter to $30.0 million, or 6.1% of gross loans compared to $17.5 million, or 3.6% of gross loans, three months earlier. Total non-accrual loans were $21.8 million, or 4.7% of gross loans at September 30, 2011. The overall trend, however, was positive as 93.2% of the portfolio remained current as of September 30, 2012.

Other real estate owned (OREO) was $1.3 million at September 30, 2012 compared to $1.5 million at June 30, 2012 and $4.7 million a year ago. Only one property remains in OREO and this property is contracted for sale in the fourth quarter. Non-performing assets, which consist of non-accrual loans and OREO, totaled $31.3 million, or 5.1% of total assets at quarter end, compared to $19.0 million, or 2.9% of total assets, at June 30, 2012, and $26.5 million, or 4.2% of total assets, a year ago.

“Due to the favorable recent loss history as it relates to our assessment of the adequacy of the allowance for loan losses, a loan loss provision was not recorded during the third quarter, the same as in the third quarter a year ago,” said Mr. Maher. In the second quarter of 2012, Patriot released $1.7 million from its allowance for loan losses. The allowance for loan losses totaled $6.7 million, or 1.34% of gross loans, at September 30, 2012 compared to $11.2 million, or 2.40 %, of gross loans a year ago.

Balance Sheet Review

Patriot’s net loans increased 8.8% to $493.1 million at September 30, 2012, compared to $453.1 million a year ago. The year-over-year increase in net loans is primarily attributed to increases in commercial real estate loans, lines of credit and residential real estate loans. At September 30, 2012 the loan pipeline totaled $87.9 million, which reflects Patriot’s increased focus on new loan production, targeted at strengthening the margin and building fee income.

Total assets were $615.3 million at September 30, 2012, compared to $628.4 million at September 30, 2011. Total deposits were $484.0 million at September 30, 2012, compared to $507.7 million at September 30 of the prior year, as the Bank continues to focus on core transaction accounts while reducing the balance sheet by letting higher cost deposits run off. Non-interest bearing deposits increased 4.6% to $59.3 million at September 30, 2012, compared to $56.7 million a year earlier while interest bearing deposits declined 5.8% to $424.6 million at September 30, 2012, compared to $451.0 million a year earlier. Total deposits per branch averaged $34.3 million at September 30, 2012.

Income Statement Review

Patriot’s third quarter net interest income was $4.2 million, compared to $4.9 million in the third quarter a year ago. Interest income decreased 13.4% compared to the third quarter a year ago as a result of the lower interest rate environment’s impact on loans that re-priced, loan payoffs, and the overall loan mix. Interest expense decreased 10.7% compared to the third quarter a year ago due to the reduction in interest bearing deposits and the increase in non-interest bearing deposits. In the first nine months of 2012, net interest income was $19.5 million compared to $21.4 million in the first nine months of 2011. The decline compared to the first nine months of the prior year was due to the overall lower rate environment and the change in the balance sheet mix.

The lower interest rate environment held Patriot’s net interest margin flat during the third quarter. The net interest margin in the third quarter of 2012 was 2.86%, compared to 2.81% in the second quarter of 2012 and 3.40% in the third quarter a year ago. In the first nine months of the year the net interest margin was 2.98% compared to 3.12% in the first nine months of 2011.

Third quarter non-interest income increased 13.7% to $1.5 million compared to $1.3 million in the third quarter of 2011, in part due to a net increase of $145,000 in the gain on sale of investment securities and a $31,000 gain on sale of loans. In the first nine months of the year, non-interest income improved modestly to $2.7 million compared to $2.6 million in the same period a year ago.

Non-interest expenses declined 5.0% to $5.7 million in the third quarter of 2012, compared to $6.0 million in the third quarter a year ago. Year-to-date, non-interest expenses decreased 27.5% to $18.1 million compared to $24.9 million in the same period a year earlier as a result of a significant reduction in salaries and benefits, restructuring charges, other real estate operations and professional services. “We closed our West End branch in June and closed three more branches during the first week of October. These branch closures will continue the significant reduction in our operating expenses going forward,” said Mr. Maher.

Capital

The capital ratios at September 30, 2012 for Patriot National Bancorp, Inc. and Patriot National Bank were:

          Patriot National           Patriot National           Well Capitalized
Bancorp, Inc. Bank Requirement
 
Total Capital (to Risk Weighted Assets) 14.78% 14.45% 10.00%
Tier 1 Capital (to Risk Weighted Assets) 13.52% 13.19% 6.00%
Tier 1 Capital (to Average Assets) 9.60% 9.37% 5.00%
 

About the Company

Patriot National Bank is headquartered in Stamford, Connecticut and currently has 11 full service branches, 9 in Connecticut and two in New York. It also has a loan production office in Stamford, CT.

Statements in this earnings release that are not historical facts are considered to be forward-looking statements. Such statements include, but are not limited to, statements regarding management beliefs and expectations, based upon information available at the time the statements are made, regarding future plans, objectives and performance. All forward-looking statements are subject to risks and uncertainties, many of which are beyond management’s control and actual results and performance may differ significantly from those contained in forward-looking statements. Bancorp intends any forward-looking statement to be covered by the Litigation Reform Act of 1995 and is including this statement for purposes of said safe harbor provisions. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this news release. Bancorp undertakes no obligation to update any forward-looking statements to reflect events or circumstances that occur after the date as of which such statements are made. A discussion of certain risks and uncertainties that could cause actual results to differ materially from those contained in forward-looking statements is included in Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2011.

                                           
PATRIOT NATIONAL BANCORP, INC.
STATEMENTS OF OPERATIONS
(unaudited) Three Months Ended Nine Months Ended
Dollars in thousands, except per share data

Sep. 30, 2012

  Jun. 30, 2012   Sep. 30, 2011   Sep. 30, 2012   Sep. 30, 2011
 
Interest and dividend income
Interest and fees on loans $ 5,533 $ 5,811 $ 6,185 $ 18,011 $ 19,680
Interest on investment securities 396 427 665 1,300 1,425
Dividends on investment securities 32 32 56 97 207
Interest on federal funds sold - - - - 7
Other interest income   22   40     2     72     122  
Total interest and dividend income   5,983   6,310     6,908     19,480     21,441  
 
Interest expense
Interest on deposits 1,240 1,421 1,385 4,178 4,804
Interest on Federal Home Loan Bank borrowings 358 354 428 1,069 1,270
Interest on subordinated debt 75 75 71 226 212
Interest on other borrowings   78   77     78     232     231  
Total interest expense   1,751   1,927     1,962     5,705     6,517  
 
Net interest income 4,232 4,383 4,946 13,775 14,924
 
Provision for loan losses   -   (1,713 )   -     (2,559 )   8,464  
 

Net interest income after provision for loan losses

  4,232   6,096     4,946     16,334     6,459  
 
Non-interest income
Mortgage brokerage referral fees 35 22 14 69 28
Loan application, inspection and processing fees 29 16 21 59 61
Deposit fees and service charges 215 227 207 671 736
Gain on sale of loans 31 - - 295 80

Gain on sale of investment securities

924 - 780 916 780
Earnings on cash surrender value of life insurance 122 120 170 385 491
Other income   101   70     90     267     398  
Total non-interest income   1,457   455     1,282     2,662     2,574  
 
Non-interest expense
Salaries and benefits 2,620 2,725 2,840 8,237 9,244
Occupancy and equipment expense 1,127 1,135 1,039 3,386 3,685
Data processing 379 346 316 1,070 980

Professional and other outside services

510 854 546 1,979 2,662
Advertising and promotional expenses 15 8 92 41 522
Loan administration and processing expenses 35 46 88 89 174
Regulatory assessments 439 462 432 1,311 1,671
Insurance expense 109 109 227 387 687
Other real estate operations 22 16 (26 ) (111 ) 1,019
Material and communications 106 133 163 370 527
Restructuring charges and asset disposals 8 127 - 503 2,986
Other operating expenses   301   245     256     825     779  
Total non-interest expenses   5,671   6,206     5,973     18,087     24,936  
 
Income (loss) before income taxes 18 345 255 909 (15,903 )
 
Provision for income taxes   -   -     -     -     -  
Net income (loss) $ 18 $ 345   $ 255   $ 909   $ (15,903 )
 
Basic and diluted income (loss) per share   0.00 $ 0.01   $ 0.01   $ 0.02   $ (0.41 )
 
                         
(Dollars in thousands, except per share data) Sep. 30, 2012 Jun. 30, 2012 Sep. 30, 2011
(Unaudited)
 

Assets

Cash and due from banks $ 43,831 $ 62,177 $ 39,982
Federal funds sold - - -
Short-term investments   710     710     3,206  
Total cash and cash equivalents 44,541 62,887 43,188
 
Securities-available for sale 18,315 56,343 88,529
Other investments 3,500 3,500 3,500
FRB & FHLB stock   6,088     6,063     6,215  
Total securities 27,903 65,906 98,244
 
Gross loans 499,801 490,532 464,291
Allowance for loan losses   (6,692 )   (6,674 )   (11,158 )
Net loans 493,109 483,858 453,133
 
Real estate loans held for sale 1,950 - 250
Accrued interest and dividend receivable 1,979 2,289 2,321
Premise and equipment, net 4,656 4,713 4,181
Cash surrender value of life insurance 21,369 21,248 20,840
Other real estate owned 1,252 1,518 4,732
Deferred tax asset, net (1) - - -
Other assets   18,589     1,848     1,538  
Total assets $ 615,348   $ 644,267   $ 628,427  
 

Liabilities and Shareholders' Equity

 
Deposits
Non interest bearing deposits $ 59,309 $ 71,722 $ 56,699
Interest bearing deposits   424,644     450,373     451,024  
483,953 522,095 507,723
 
FHLB advances and repurchase agreements 67,000 57,000 57,000
Subordinated debt 8,248 8,248 8,248
Accrued expenses and other liabilities   5,015     5,165     4,786  
Total Liabilities 564,216 592,508 577,757
 
Common stock 385 385 384
Treasury stock (160 ) (160 ) (160 )
Additional paid-in capital 105,285 105,183 105,050
Accumulated deficit (53,950 ) (53,968 ) (55,302 )
Accumulated other comprehensive income   (428 )   319     698  
Total shareholders' equity   51,132     51,759     50,670  
 
Total liabilities and shareholders' equity $ 615,348   $ 644,267   $ 628,427  
 
(1) Includes the deferred tax asset and a full valuation allowance of $13.7 million, $13.5 million and $16.1 million, respectively.
 
                             

Financial Ratios and Other Data

(Dollars in thousands, except per share data)
(Unaudited) Sep. 30,

Jun. 30,

Sep. 30,
  2012     2012     2011  
Asset Quality:
Nonaccrual loans $ 30,020 $ 17,452 $ 21,776
Other real estate owned   1,252     1,518     4,732  
Total nonperforming assets $ 31,272   $ 18,970   $ 26,508  
 
 
Nonaccrual loans / portfolio loans 6.01 % 3.56 % 4.69 %
Nonperforming assets / assets 5.08 % 2.94 % 4.22 %
Allowance for loan losses $ 6,692 $ 6,674 $ 11,158
Allowance for loan losses / portfolio loans 1.34 % 1.36 % 2.40 %
Allowance / nonaccrual loans 22.92 % 38.24 % 51.24 %
Gross loan charge-offs for the quarter $ 4 $ 91 $ 218
Gross loan recoveries for the quarter $ 22 $ 17 $ 16
Net loan charge-offs for the quarter $ (18 ) $ 74 $ 202
 
Capital Data:
Book value per share (1) $ 1.33 $ 1.35 $ 1.32
Tangible book value per share (2) $ 1.33 $ 1.35 $ 1.32
Shares outstanding 38,467,073 38,467,073 38,362,727
 
(1) Book value per share represents shareholders’ equity divided by outstanding shares.
(2) Tangible book value per share represents shareholders’ equity less intangible assets divided by outstanding shares.

Contacts

Patriot National Bancorp, Inc.
Christopher D. Maher, 203-251-8265
President & CEO
or
Robert F. O’Connell, 203-252-5926
Sr. EVP & CFO

Patriot National Bancorp, Inc.