Patriot National Bancorp (Patriot) has signed a definitive merger agreement to acquire American Challenger through a reverse subsidiary merger for $119m.

Under the agreement, for each common American Challenger common share held, shareholders will receive 4,092 shares of Patriot common stock.

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On the other hand, American Challenger preferred shareholders will receive $75,413.22 in cash along with any accrued and unpaid dividends in cash for each share held.

Meanwhile, Patriot has also entered into a separate investment agreement for raising $540m, which is part of the $890m merger recapitalisation plan.

Following the merger, which is expected to close in the first quarter of 2022, former American Challenger shareholders and existing Patriot shareholders will collectively own approximately 13.8% and 8.2% of the combined company, respectively.

As a result of the recapitalisation, the participating investors will collectively own 71.8% of Patriot, the parent company of Patriot Bank.

Patriot Bank will use American Challenger’s proprietary technology platform and will operate as two divisions.

Patriot chairman Michael Carrazza said: “We are excited to have engineered this industry-disrupting merger. The combination transforms Patriot into what will become the largest digital bank in the US. Customers will benefit from an expanded array of services and a tech-savvy banking experience, while shareholders should benefit from the compelling value that will be created.”

American Challenger board member and CEO Raymond Quinlan will serve as CEO of the combined entity.

Quinlan said: “We are building a digital bank that will leverage the best in technology and operational excellence to serve our customers and communities. This will be evident in the design and pricing of our banking products, in our delivery of superior personal service and our clear commitment to corporate social responsibility.”