Patriot National Bancorp in Stamford, Conn., will recognize a one-time gain of $16.6 million in third quarter profits, due to the partial reversal of its valuation allowance for deferred tax assets.
The $552 million-asset Patriot National said in a press release Wednesday that the accounting change is a sign of its improving financial condition. Auditors only allow the reversal of such valuation allowances when companies can demonstrate sustainable profits.
"The reversal of the valuation allowance is a direct result of our profitability and earnings growth," said Michael Carrazza, the bank's chairman, in the release.
The bank plans to use the deferred tax assets to lower income tax payments in future quarters. The company could have as much as $1 million in the valuation allowance. At June 30, the company reported that its valuation allowance against its deferred tax assets was $17.6 million.
Patriot National's loan portfolio was deeply wounded by the economic downturn of 2008. Carrazza invested $50 million in the company in 2010, but the company struggled to remain profitable as it worked through its portfolio.
Its condition appears to be improving, however. It has been profitable since the fourth quarter 2013 and last month the Office of the Comptroller of the Currency terminated a 2009 agreement, which required it the bank to reduce substandard assets and adhere to a capital plan.
The company remains under a written agreement with the Federal Reserve, which prohibits it from paying dividends or incurring debt.