Patriot National Bancorp had a lofty mandate and a tight deadline: Raise at least $40 million in capital quickly — or likely fail.
The Stamford, Connecticut-based bank lost $27 million in the third quarter of last year and warned of another loss for the fourth quarter. (It has yet to post earnings for that quarter.) Its equity capital fell below the level deemed adequate by regulators. The Office of the Comptroller of the Currency in January said Patriot was in “troubled condition.”
The $974 million-asset Patriot threw a “Hail Mary” pass of sorts. Just before the OCC warning came down, the bank asked potential investor Steven Sugarman to do more than just put his money into the bank’s turnaround. It recruited him to join the holding company as its president and lead an
Sugarman told American Banker that Patriot struggled with high deposit costs and credit-quality issues, but it had a robust technology platform and a highly attractive footprint. The Greenwich, Connecticut, and greater New York areas where the bank operates are among the few in the country flush with private wealth management firms and ultra-high net worth investors who need treasury management and deposit services. These same customers are the reliable, large-scale depositors that banks covet.
In Patriot’s case, many of these same clients divide their time with another market with similar characteristics: South Florida. This added another appealing dimension and not only attracted Sugarman’s eye but several other investors, many of them would-be Patriot customers.
“You can count these kinds of markets on your two hands,” Sugarman said. “We have a challenge in front of us that is solved by really good deposit relationships and solid blocking and tackling.”
This means keeping expenses in check while also bringing in new leadership, likely to include a chief risk officer. Sugarman signed a deal to help lead the bank through 2029, though his precise role had yet to be determined.
Last week, the company announced the pending departure of CEO David Lowery on April 15. In a regulatory filing late Wednesday, it said Chief Financial Officer David Finn would step down on May 15.
The capital raise was done at a discount — 75 cents per share versus the roughly $1 level at which it traded earlier this month, according to the filing.
Normally, such a discount would require shareholder approval, but because Patriot’s equity capital had dropped dangerously low, it was granted an emergency waiver by Nasdaq stock exchange officials to bypass that step. Without the capital raise, the bank could have failed, wiping out shareholders.
A capital raise “is dilutive, but dilution is better than extinction,” said Robert Bolton, president of Iron Bay Capital. He said the Nasdaq waiver, while not unheard of, was “extraordinary.” He said the bank’s regulators must have been convinced that it “has a very solid plan. That’s speculation, but it’s based on common sense.”
Patriot ultimately raised $57.75 million — more than enough to return the company to well-capitalized status and give it a fighting chance. Its stock closed above $1.50 on Wednesday, though that was still far from its 52-week high around $4.
In addition to salvaging value for existing shareholders, the urgent capital infusion may have saved the Federal Deposit Insurance Corp. from managing a costly failure and existing customers from disruption in their banking.
Now, Sugarman said, it’s a matter of execution. He said the bank’s first-quarter earnings would likely look “noisy” because of costs tied to the capital raise. But beyond that, there is potential for steady improvement, he said.
“I think this bank has a really good opportunity over the next 18 to 24 months to be one of the best performing banks out there,” Sugarman said. “We’ve done a lot of due diligence here, and we feel comfortable.”
Patriot’s capital raise followed a rough run for the bank in the post-pandemic era, including the
The combination was called off after the two companies determined they could not “satisfy certain of the closing conditions to the merger and recapitalization,” according to a press release from American Challenger at the time.
Patriot reported a $4.2 million loss for 2023. It lost $30 million over the nine months ended Sept. 30, 2024.