Patriot Bank, American Challenger merging to create nation’s largest digital bank

Patriot National Bancorp Inc., the parent company of Patriot Bank, and American Challenger Development Corp. have entered into a definitive reverse subsidiary merger which will result in what they say will create the nation”™s largest digital challenger bank.

Under the agreement, Patriot, which is headquartered in Stamford, will acquire American Challenger, based in Purchase, in a merger whose implied total transaction value is approximately $119 million. At the same time, Patriot is entering into separate agreements with investors consisting of a private placement in an aggregate principal amount of approximately $540 million as part of its $890 million merger recapitalization.

A “digital challenger bank” is an app-based provider of financial services with no physical locations. Patriot Bank will maintain its branches in Fairfield, Westchester and New Haven counties, according to a spokesperson.

American Challenger will become a wholly-owned subsidiary of Patriot. Pursuant to the terms of the merger agreement, at the effective time of the merger, American Challenger common stockholders will receive shares of Patriot common stock as consideration and American Challenger preferred stockholders will receive cash. 

Following the merger, Patriot Bank will operate as two divisions: the Patriot Bank division, which will continue to operate Patriot Bank’s existing business, and the American Challenger digital division.

As soon as practicable following the closing of the proposed deal, Patriot Bank will adopt American Challenger”™s proprietary technology platform for its operations. That is expected to allow Patriot Bank to operate with a technology cost structure that is largely fixed, in contrast to the typical, more variable cost structure at most banks. 

Patriot Bank said it expects that cost structure to drive efficiencies and allow it to share the benefits with customers by offering competitive rates on its products and a differentiated, premium customer experience. That will include connecting with customers via video, account opening and funding initiation in less than a minute, as well as mortgages that close in as little as 20 days.

The proposed transactions have been approved by the boards of directors of Patriot and American Challenger and are expected to close in the first quarter of 2022, subject to the satisfaction of customary closing conditions, including receipt of required regulatory approvals and approval by Patriot’s shareholders.

American Challenger Founder, Chairman and President Felix Scherzer, formerly the global head of Financial Institutions M&A at Credit Suisse, will become chairman of the new entity, while Patriot Bank Chairman Michael Carrazza will remain as vice chairman.

Raymond J. Quinlan, Board Member and CEO of American Challenger, will serve as CEO of the combined entity. 

Also on the board will be former E*Trade CEO Karl A. Roessner as lead independent director and vice chairman.

Carrazza, describing the deal as an “industry-disrupting merger,” said that the combination will transform Patriot into the largest digital bank in the U.S. “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.  Patriot”™s team will remain intact and will be complemented by American Challenger”™s team and digital platform capabilities.”