Most struggling bank companies are clamoring for someone, anyone willing to help, but Patriot National Bancorp Inc. is sizing up its suitors.

The Stamford, Conn., company said Tuesday that it pushed back the closing of a $50 million investment from a group led by Michael Carrazza after it received a better, unsolicited offer from an unnamed party at the last minute. Carrazza is suing the company for breaching its letter of intent.

Industry observers are scratching their heads that the $980 million-asset Patriot was able to find even one willing investor, given its rapid credit-quality deterioration over the past year.

"I am puzzled," said Mike Heller, the president of the bank rating firm Veribanc Inc. "I don't understand how this institution can have not one, but two investors interested, when its problem loans are more than twice its total equity. I don't get it."

Carrazza would not discuss the matter. Patriot said he expressed his interest in acquiring a controlling stake earlier this year and signed a letter of intent with Patriot in late July, after a due diligence period during the "spring and summer."

The company said the $50 million investment would have been enough to keep it well capitalized. At the end of the second quarter, its Patriot National Bank was considered well capitalized, with a total risk-based capital ratio of 10.2%. However, given Patriot's credit quality, experts said the existing capital would likely be gobbled up quickly.

Patriot had nonaccruing loans of $126.1 million at midyear, making up 17.69% of total loans. By comparison, commercial banks of similar size in Connecticut reported 8.06% of their loans as noncurrent.

Patriot's problems are spread out among construction, commercial real estate and mortgages. Though the Northeast has remained stable compared with other regions, Heller said those are still weaker sectors anywhere. "It doesn't matter if they are in Connecticut, those are higher-risk loans."

Charles F. Howell, Patriot's president and chief executive, acknowledged the company's troubles but said they are not as bad as they may appear.

First, Howell said the average loan-to-value ratio of its construction portfolio is 56%, so while prices have dropped 20% to 25%, there is still some protection. Additionally, Patriot did not finance large tract developments. Instead, the company focused on one-off construction loans for high-end homes. "Too often, people are focused on the gross number of nonperformers, rather than the underlying collateral," Howell said.

The company did not charge off a single construction loan from its inception in 1994 until last year. But after the financial meltdown of September 2008, Wall Street bonuses dried up and "we didn't have the same universe of potential buyers," Howell said. The company expects its nonperformers to peak this quarter, he said.

The one positive note that analysts saw was Patriot's deposit base. The bank has strong core funding, with brokered deposits accounting for just 6.5% of total deposits, according to Karen Dorway, the president of the bank rating agency BauerFinancial Inc. Still, her firm gave the bank its lowest rating, as did Heller's firm.

Carrazza is a longtime private-equity manager across various sectors. His recent endeavors include sponsoring the $320 million buyout of AmQuip Corp., a large crane rental business. It is unclear what convinced Carrazza to sign on, but the fact that he did is likely what attracted the other bidder, said Joseph Stieven, the president and founder of Stieven Capital Advisors LP in St. Louis.

"Sometimes, there is an element of high school dating in all of this," Stieven said. "When you don't have a date for the dance, you can't get one. Once you have a date, other people want to go with you."

Bidding wars are rare these days. In June, CNB Financial Corp. in Worcester, Mass., had three banks brawling. Though industry experts considered CNB a strong institution, at least one struggler has also been the object of a bidding war. In June, First Financial Bancorp of Cincinnati increased its bid by nearly a quarter, to $15.5 million, for 17 of Peoples Community Bancorp Inc.'s 19 branches, after the latter also received an unsolicited bid. (Regulators seized Peoples Community, of West Chester, Ohio, in July; First Financial bought the entire bank from the Federal Deposit Insurance Corp.)

Patriot said that on the evening of Sept. 30, the day it was expected to close the investment with Carrazza, another group made an offer for a "considerably higher price." That deal also called for a $50 million investment in return for a large controlling interest, but for fewer shares overall than Carrazza's offer, so the next day the company decided to entertain the second bid. Now it is determining which one is the winner.

Patriot said it views Carrazza's suit, filed with the State of Connecticut Superior Court in Stamford, as a way to discourage other investors, even though the company said it is still open to a transaction with him and his team.

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