Dive Brief:
- Stamford, Connecticut-based Patriot National Bancorp will pay $119 million in cash and stock to buy American Challenger Development Corp., a neobank that had been pursuing a de novo charter with an eye toward becoming a digital-first national bank, the companies said Monday in a joint press release.
- After the merger, which is expected to close during the first quarter of 2022, the combined entity will encompass two business units: a legacy Patriot Bank division operating nine branches in Connecticut and New York and a sizable Small Business Administration (SBA) lending presence, and the American Challenger division centered on the online consumer bank. That unit is expected to unveil a new brand shortly after the deal is complete.
- Under the deal, Felix Scherzer, American Challenger's chairman, would become chairman of the combined entity. Raymond Quinlan, the former chief executive of Sallie Mae who now serves as American Challenger's CEO, would become the combined company's CEO. Patriot Bank Chairman Michael Carrazza will serve as a vice chairman on the combined company's board. Patriot Bank CEO Robert Russell will continue to lead the company's Patriot Bank division after the merger.
Dive Insight:
Monday’s deal marks an acceleration point in American Challenger's two-year journey. Combining with Patriot will give the company faster access to a banking license. American Challenger applied for federal deposit insurance in November 2020.
Under the tie-up, Patriot will adopt American Challenger’s proprietary software, which will allow customers to connect with employees via video chat, and open accounts and initiate funds in less than a minute. Mortgages can close in as few as 20 days, according to Monday’s press release.
"Customers will benefit from an expanded array of services and a tech-savvy banking experience, while shareholders should benefit from the compelling value that will be created," Carrazza said.
Amid the merger, the companies announced two other transactions. American Challenger said Monday it signed a multiyear agreement to buy $1.75 billion in loans from Sunlight Financial, a platform focused on boosting solar and other clean-energy adoption in U.S. homes.
"As a responsible, full-service digital bank, we will be focused on lending in ways that help communities and the planet, with the intent of investing over half of its assets in support of sustainability, local community, and good health," Scherzer said.
Meanwhile, Patriot said it has entered a recapitalization plan encompassing $890 million. Under the deal, select investors including Oaktree Capital Management and Angelo, Gordon & Co. — which each would gain the right to nominate a director to Patriot’s board — would provide $540 million toward newly issued Patriot stock. Patriot plans to raise the remaining $350 million.
Counting the new shares issued in the recapitalization, former American Challenger shareholders will own roughly 13.8% of the combined entity after the merger closes. Current Patriot shareholders would own about 8.2%. Institutional investors would own 78% of the combined company.
If it appears the deal has many moving parts, mergers and acquisitions are a specialty for Scherzer. Before leading American Challenger, he managed M&A groups at Credit Suisse, Morgan Stanley and Citi, according to his LinkedIn profile.
Patriot, meanwhile, has seen somewhat of a second wind over the past decade. It nearly failed during the 2007-08 financial crisis, but Carrazza led a group that gave it a $50 million capital infusion in October 2010, according to American Banker. Patriot acquired Prime Bank, a fellow Connecticut-based institution, in May 2018. But later that year, the Office of the Comptroller of the Currency (OCC) ordered it to strengthen its board oversight and enhance its loan-loss auditing. The regulator terminated that order in September.
In Monday's release, Carrazza said Patriot’s "team will remain intact and will be complemented by American Challenger’s team and digital platform capabilities."
