While many banks around the country were feeling squeezed for deposits, Patriot National Bancorp in Stamford, Connecticut, enjoyed a substantial influx of demand deposits in 2022 and expects the trend to continue into 2023.
The $1 billion-asset Patriot is getting a major boost from prepaid corporate debit cards,
Patriot expects a "nice improvement" in profitability in 2023, due in no small part to the prepaid business, Chief Financial Officer Joseph Perillo said in an interview.
"The meshing of the growth of that business with the higher-rate environment — there's real value there, no doubt," Perillo said. "You see a lot of the industry struggling, having to pay up for deposits. [The prepaid program] gives us a nice avenue for lower-cost funding that has helped on margins quite a bit."
Patriot is forecasting additional prepaid growth in the first quarter, according to CEO Robert Russell. "We think that is going to happen," Russell said.
Ben Jackson, chief operating officer at the Waltham, Massachusetts-based Innovative Payments Association, said Patriot laid the groundwork for its prepaid success with a great deal of research and due diligence before the decision to enter the space.
"I give Patriot credit for kind of doing this in a slow, methodical manner. They did a lot of background research," Jackson said. "They took their time and figured things out."
While competition in the prepaid market is likely to increase as banks scour the marketplace for affordable funding sources, Perillo expressed confidence that the company will be able to maintain its clients.
"There's a lot of work involved in getting the program managers in place — many months' worth of work to establish the relationships, establish the connectivity," Perillo said. "Once we get the relationships, they stay."
Generally, the companies Patriot serves are looking for a partner that can disburse funds for business uses, according to Jackson.
"Nobody is looking to earn interest," Jackson said. "They're looking for a reliable distribution partner. Experience is going to help [Patriot]. Reputation is going to help them."
Patriot, which made its fourth-quarter and full-year results public last week, reported annual net income of $6.1 million, up 21% year over year. The increase was driven by "nice healthy" loan growth, along with the influx of low-cost prepaid deposits that helped Patriot expand its full-year net interest margin by 54 basis points to 3.46%.
Loans of $838 million were up 15% year over year. Patriot also reported 15% annual growth in deposits, which totaled $860.4 million on Dec. 31. Included in the total were $151 million in noninterest deposits linked to prepaid corporate debit cards.
Patriot is also "aggressively" pursuing what Chairman Michael Carrazza termed a "transformational event" that would boost the $1 billion-asset company's size and its digital capabilities.
"Strategic discussions are actively underway," Carrazza said in a press release. "Such events will be coupled with the organic rollout of initiatives on the digital-deposit-gathering and asset-generating sides of the balance sheet."
Carrazza's comments come eight months after Patriot, the holding company for 28-year-old Patriot National Bank,
American Challenger had sought a de novo charter but concluded that merging with Patriot would enable it to get to market quicker. American Challenger Chairman Felix Scherzer was set to serve as chairman of the merged company, while Raymond Quinlan, American Challenger's CEO, was in line to be chief executive.
The transaction fell through when it became clear some of the closing conditions wouldn't be satisfied. In August 2022, American Challenger sued Credit Suisse for reneging on a deal to sell a $650 million commercial loan portfolio that the fintech said figured prominently in negotiations with Patriot.
The suit is ongoing, with a preliminary hearing scheduled for March 27 before New York State Supreme Court Judge Barry Ostrager.
