By Scott Van Voorhis
Patriot National Bank was as troubled a bank as they come, weighed down under a mountain of suspect real estate loans. But where others may have seen just another bank ready to fold amid the epic downturn in home prices and sales, private equity investor Michael Carrazza saw an opportunity. After all, despite its many problems, the bank also has some things going for it, not the least being location. Based in Stamford, Conn., Patriot is in the middle of one of the world’s most affluent suburban clusters.
Twelve months and a $50 million investment by Carrazza, and the rest is history, with the bank turning its first profit after several quarters of red ink and Carrazza (who has take the chairman's post) and bank executives now looking optimistically at the future. “My view is that the turnaround is complete,” Carrazza said. “Phase two is the growth phase. Now it’s all about growth.”
Getting there has not been easy. Founder and chief executive of New York-based Solaia Capital, Carrazza thought he had a deal to buy a controlling share back in the fall of 2009, only to have Patriot back off the deal in favor of a higher offer. Carrazza and his team managed to fend off their rivals, but it was not until a year later that they took control of Patriot.
With ownership of the bank settled, then came the turnaround.
Patriot’s problems were no secret, with the bank having ridden the once-hot residential market when prices were soaring. But when the real estate bubble burst in New York’s wealthy suburbs like Stamford, the bank found itself with a whole bunch of loans to single-family home builders who were struggling to get the prices they had banked on.
When Carrazza and his team took control of the bank on Oct. 15, 2010, the magnitude of the challenge ahead became even clearer. The number of nonperforming loans had hit “outrageous levels,” Carrazza said, noting they had risen well above 20 percent before peaking last year. Moreover, the bank was bleeding money, having failed to turn a profit for several quarters.
“I think this transaction had to happen,” Carrazza said. “I don’t think the bank would have survived.”
In a matter of ten months, Carrazza and his new team of managers and directors have overseen a series of sweeping changes at Patriot. There is a whole new board of directors, while the bank, under new management, has slashed its operational costs. The bank shut four branches, bring the total down to 15 – 12 in Connecticut and three in New York City. That is expected to save $1.7 million annually, according to a statement filed by the bank with the Securities and Exchange Commission. Patriot also cut 20 jobs, for savings of another $1.3 million, according to the SEC filing.
Meanwhile, the bank shrunk its overall balance sheet, once well over $900 million, down to $671 million as of last May, and took steps to reign in troubled loans. The number of nonperforming assets dropped to $22 million by the end of the third quarter, down from $106 million at the end of 2010.
Validation has not been long in coming, with the bank reporting a small but very significant profit of $250,000 at the end of the third quarter on Sept. 30. That was Patriot’s first profit in roughly three years.
“Going into the last crisis, the bank had grown very rapidly,” noted Christopher Maher, Patriot’s chief executive and a veteran banker who was brought in to oversee the day-to-day operations. “We tried to right-size the bank’s infrastructure.”
Looking ahead, both Carrazza and Maher see big things for the newly revamped Patriot Bank. For starters, the bank’s footprint, which extends from wealthy Fairfield County down into New York itself, couldn’t be better, Maher said.
“In other geographies, we might not have been quite as interested,” he said, adding the “spread of customers in both New York and Connecticut” was an attraction. “It is a very affluent and stable market.”
And both executives see great potential for ramping up the bank’s small business lending. While lending on residential developments is still important, Patriot is now hoping to expand its portfolio of commercial loans at an even faster pace.
“We are going to increase commercial and industrial lending at a much higher rate so residential becomes a much smaller piece of the pie,” Carrazza said.
Still, competition for commercial loans, especially if they involve real estate, is fierce, with major lenders also forced to look hard for good loans in a sluggish economy, according to Maher. Patriot has managed to hold its own by going after niche areas, such as full-fledged commercial lending without a real estate element, which other banks don’t have the time or staff to pursue. For example, the bank is lending to a regional trucking company, an operator of car washes and couple of local restaurateurs with long track records, Maher said.
As Patriot’s balance sheet continues to heal, the bank might even take a look at acquiring other local lenders, Carrazza said.
"There is no sale of the bank on the drawing board right now and strategic acquisitions are part of the longer-term plan."
CORRECTION: The original version of this story misidentified a member of the takeover team, and mispelled Solaia Capital.