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Sunday, 29 September 2013 22:00

Local banks turn to the market for additional capital

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Four and a half years after opening its first office in suburban Grand Rapids, the parent corporation of Grand River Bank wants to raise new capital — and it’s not alone among community banks in West Michigan.

The Grandville-based company is one of several banks in the region, including Independent Bank, Chemical Bank and Edgewater Bank, that have completed or have planned new offerings as a way to access more funds, although their motives vary.

Grand River Commerce Inc. is planning an equity offering to raise $10 million in capital, according to a filing with the U.S. Securities and Exchange Commission.

The corporation initiated the process as Grand River Bank continues to grow steadily through its single location in Grandville and as the company nears profitability.

Robert Bilotti, Chairman and CEO at Grand River Commerce, declined to comment on the filing, citing present SEC regulations that prohibit promoting a general solicitation.

Rob Bondy, a partner at Plante Moran in Grand Rapids who focuses his practice on financial services, said young banks typically return to the market for additional capital within three or four years after starting. They usually do so through a secondary stock offering to shareholders, he said.

“You need capital to grow and the regulators expect you to have capital on hand before you grow,” Bondy said. “It isn’t, ‘Hey, let’s grow and raise more capital.’ It’s, ‘Raise the capital and then you can grow.’”

Since opening in April 2009 after it raised $12.7 million in startup capital, Grand River Bank has grown steadily to assets of $108.1 million as of June 30 and total deposits of $93.3 million, according to a quarterly financial report filed with the FDIC. Net loans stood at $95.9 million as of midyear.

That compares to assets of $99.7 million and deposits of $88.5 million at the end of 2012, and $79.5 million in assets and $69.4 million in deposits to end 2011.

“In a highly competitive industry and market area, the company continues to expand its asset base,” Grand River Commerce reported earlier this year in its annual report to shareholders. “Activity in the bank remains steady, supported, in part, by continued improvement in the West Michigan economy.”

On the bottom line, the bank continues to narrow losses. The bank recorded a net loss of $112,000 as of midyear and lost $496,000 in all of 2012, according to financial reports. The net loss for 2011 was $577,000.

The holding company reported net losses of $719,000 for 2012 and $765,000 for 2011.

Grand River Commerce is one of four West Michigan banks to initiate a capital raise this year.

Ionia-based Independent Bank Corp. in September completed a successful public offering of 11.5 million shares of common stock that raised $89.1 million before expenses. Independent Bank used the proceeds to repay the U.S. Department of Treasury $81.0 million for its preferred stock and warrant that it received as part of the Troubled Asset Relief Program.

The move will allow Independent to realize $4.6 million in annualized savings.

Completing the offering and paying off TARP will also make Independent Bank, with its 71 offices across the Lower Peninsula and assets of $2.1 billion, a stronger competitor.

“Independent Bank is going to become a force again now that they’ve recapitalized,” said John C. Donnelly, managing partner of financial institutions at Donnelly Penman & Partners in Grosse Pointe.

Bondy of Plante Moran noted that the Independent Bank offering occurred in just four days and was oversubscribed. That indicates that investors are perhaps looking more favorably again at community banks as they recover from the effects of the recession and have reported improved results in the last several quarters.

“I think that was a big signal,” Bondy said. “The appetite for investors is that they are seeing a renewed interest in community banks.”

Another opportunity for those investors comes through Midland-based Chemical Financial Corp. Following up on a May shelf registration, Chemical Financial this month quickly completed a $50 million public stock offering involving 2.2 million shares.

“The market has shown receptivity to capital raises at this point in time,” Chemical Financial Chairman, President and CEO David Ramaker told MiBiz.

The parent company of Chemical Bank, which has $5.80 billion in assets and 156 bank branches in 39 counties across the Lower Peninsula, said it planned to use the proceeds from the stock sale for “general corporate purposes, which may include funding loan growth and long-term strategic opportunities that may arise in the future,” such as acquisitions.

Chemical Financial three years ago acquired OAK Financial Corp., the parent company of the former Byron Bank, and in 2012 acquired 21 former Independent Bank branches. It has indicated an appetite for further deals.

“We happen to believe there are opportunities for growth out there and we want to be prepared for them,” Ramaker said. “We wanted to be sure we’re well-positioned to take advantage of growth opportunities, both organically and from an acquisition perspective.”

Completing the stock offering in less than a week could indicate that as investors again look more favorably at the stock market, fund managers are more apt to steer their clients’ money toward bank stocks, Ramaker said.

“They have opportunities and they have to invest those dollars,” he said. “It’s a good market.”

In St. Joseph, Edgewater Bank plans to convert from a federal savings and loan association to a stock corporation to raise capital needed to drive growth.

The newly formed Edgewater Bancorp intends to offer between 714,000 and 966,000 shares to eligible depositors and employees at $10 per share. Any remaining shares will go on sale to the public, according to a prospectus filed with the SEC.

The bank, which has six offices in the Southwest Michigan area but plans to sell a Decatur location by year’s end, indicated in its filing that the conversion coincides with a change in business strategy that calls for a greater focus on commercial and industrial lending and “significantly increasing” its mortgage lending. In commercial lending, the bank would target potential borrowers with revenues of $1.0 million to $15.0 million, according to the prospectus.

“We intend to focus on relationship-based banking, rather than simply generating loan originations, and customer service, and will continue to hire additional personnel with residential, commercial and consumer lending experience, which we expect will allow us to develop a broader, more flexible array of residential, commercial and industrial and consumer loan products specifically suited to the customers and potential customers in our market area,” the corporation’s prospectus states. “In addition, we intend to develop and offer additional financial products targeted at business and individual customers who desire full service, ‘high touch’ banking and a full complement of efficient electronic banking services.”

Edgewater’s C&I lending as of June 30 accounted for 4.8 percent, or $4.1 million, of the bank’s $85.2 million in total loans.

Edgewater Bank directors approved the conversion plan Sept. 3. It still needs the approval of eligible depositors.

As of June 30, Edgewater Bank had assets of $120.7 million and deposits of $107.7 million. The bank recorded a net loss of $498,000 through the first six months of 2013 and a net loss of $769,000 for all of 2012.

Elsewhere, Monarch Community Bank in Coldwater in May said it had hired two investment banks to lead a private placement of $16.5 million in shares. The proceeds would recapitalize the bank and enable Monarch to retire preferred shares the Department of Treasury acquired under its Capital Purchase Program.

Read 3078 times Last modified on Saturday, 28 September 2013 17:14

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