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Stamford-based Patriot Bank has found itself in hot water with federal regulators and now must revise the terms of an acquisition that it announced earlier this year.
The U.S. Office of the Comptroller of the Currency said today that it has entered into a formal agreement with Patriot Bank, requiring the company to take a number of steps to get itself back into good standing before it can finish a potentially revised deal with Hana Small Business Lending.
Patriot Bank disclosed the agreement with the OCC in a regulatory filing in November.
The agreement stipulates that Patriot Bank is now considered to be in “troubled condition,” which is a term the OCC uses to describe any bank that is subject to any type of enforcement action. The bank must take several corrective steps including updating policies and conditions, creating new executive compensation and conflict of interest policies, creating a strategic capital plan and reviewing the bank’s commercial loan division, among a host of other provisions. Most of these steps must be completed before the end of the year.
“We have completed a large percentage of the things they [the OCC] are asking us to do. We have them coming back to review the status of those items in January, relatively quickly, which we are encouraged by,” Joseph Perillo, CFO of Patriot Bank, told The Commercial Record. “What I would say is when regulators looked at the transaction with Hana, they said, ‘This is an unusual transaction for a community bank in Connecticut.'”
The bank announced in February that it would be acquiring Hana Small Business Lending, a company that specializes in originating loans in partnership with the U.S. Small Business Administration. Hana has originated nearly $1 billion of SBA 7(a) loans since its inception in 2006.
The deal seemed to be moving along, as the company in July announced that it had completed a $10 million private placement offering, a portion of which was supposed to be used to complete the deal. Banks that are allowed to make acquisitions and mergers are usually deemed to be in good standing with regulators.
After incurring close to $1 million in acquisition-related expenses, Patriot Bank on Oct. 29 withdrew its initial application to the OCC requesting approval of the acquisition. Shortly after, the bank entered into the agreement with the OCC.
The agreement states that Patriot Bank must establish a Compliance Committee consisting of at least three directors that would be deemed responsible for monitoring and coordinating the bank’s adherence to the agreement.
The agreement also required the bank to develop and implement a comprehensive conflict of interest policy applicable to the bank’s directors, principal shareholders, executive officers, affiliates and employees.
Additionally, the bank was told to develop and implement formalized standards governing the performance and compensation of all senior executives and executive management, including that of the CEO.
Other provisions in the agreement require the bank to provide the OCC with a written, three-year strategic and capital plan for the bank, and revise and submit a written program to the OCC to improve the bank’s commercial loan administration, leveraged lending policies and maintenance of adequate allowance for loan and lease losses.
Despite the order, Perillo said the bank had a “clean bill of health” when it came to the Community Reinvestment Act and is well-capitalized, although he added that there could be further discussion with regulators when it came to the maintenance of capital levels in conjunction with the acquisition of Hana.
The company’s allowance for loan losses at the end of the third quarter was still only 0.87 percent of total loans. Non-performing assets as a percentage of total assets was only 0.82 percent.
Perillo said the bank is still negotiating the deal with Hana and that the new deal would be scaled down. But, he added, the bank still believes the acquisition will add value and, if current negotiations are successful, could close sometime in the first quarter of 2019.
