Patriot, neobank American Challenger terminate merger

Dive Brief:

Patriot National Bank and the neobank American Challenger Development Corp. have terminated their merger agreement, the companies said in separate statements this week.
The companies “remain in active discussions regarding a modified transaction,” but “it is uncertain whether a new agreement can be reached,” Patriot said in its release Wednesday night.
Both companies’ boards of directors unanimously approved the termination, Patriot said. American Challenger, in its release Thursday, cited “the parties’ expected inability to satisfy certain of the closing conditions to the merger and recapitalization.”

Dive Insight:

Unlike in a number of recent unconsummated deals in the banking sphere, a regulatory roadblock appeared not to be to blame. Patriot Bank received conditional approval June 30 from the Office of the Comptroller of the Currency (OCC) to implement American Challenger’s business plan.

That plan, however, would have required Patriot’s holding company to execute a capital raise of at least $875 million, American Challenger said. Under the deal the companies announced in November, investors including Oaktree Capital Management and Angelo, Gordon & Co. would have provided $540 million toward newly issued Patriot stock in exchange for the right to nominate a director to Patriot’s board. Patriot had planned to raise the remainder.

In its statement Thursday, American Challenger emphasized its on-the-market status, saying it is exploring a sale of the company and has hired Citi to advise. It also teased its “fully developed” brand identity, Cache — complete with a marketing and launch plan. That may represent the new brand American Challenger said it expected to unveil for its online consumer bank after the Patriot deal’s closing. American Challenger on Thursday described itself as a “turn-key digital bank technology and operations platform ready to launch a national retail deposit, lending and commercial operation.”

Patriot and American Challenger join a growing list of companies that have called off their pending tie-ups over the past year. Jacksonville, Florida-based VyStar Credit Union and Georgia-based Heritage Southeast Bank terminated their proposed $195.7 million tie-up in June after three delays, when it became clear that all required regulatory approvals would not be obtained in a timely manner. At the time of the first delay, the deal lacked sign-off from the Federal Deposit Insurance Corp. (FDIC), the National Credit Union Administration (NCUA), the Georgia Department of Banking and Finance and the Florida Office of Financial Regulation.

Virginia-based Blue Ridge Bank and FVCB terminated their planned merger in January, two months after the OCC found “certain regulatory concerns with Blue Ridge Bank.” Neither bank said whether the regulator’s misgivings led the deal to fall apart.

Green Dot in October 2021 backed out of its proposed $165 million acquisition of Republic Bank’s tax refund processing unit after the prepaid card company-turned-bank failed to get the Federal Reserve’s approval or non-objection. The pullout spurred Republic to sue, and Green Dot paid $13 million in June, in addition to an earlier $5 million termination fee, to settle the matter.

Sometimes deals fall apart even with regulatory approval. The Fed approved the proposed merger between Georgia-based First Century Bank and Indiana-based First Internet Bank one day before the April 30 deadline to which the banks initially agreed. But First Century and First Internet terminated the deal May 1, when they couldn’t agree on extension terms that would cover statutory waiting periods.

Still other banks have gone so far as to propose changes to their charter to keep a deal alive. New York Community Bank and Flagstar Bank in April proposed tweaking their structure so the surviving bank would operate under a national bank charter — under the purview of the OCC — rather than a state one that would require the FDIC’s sign-off.

Under November’s Patriot-American Challenger deal, Patriot agreed to pay $119 million in cash and stock to buy American Challenger. American Challenger received the OCC’s conditional approval to launch a de novo in December 2020 but sought to speed the launch process by partnering with an existing bank that was looking to make a digital pivot.

Patriot and American Challenger “have agreed to release each other from any claims relating to or arising out of the merger agreement or the transactions contemplated thereby,” Patriot said in its Wednesday statement.