Jhe 20 million dollars in capital which West Shore Bank Corp. raised towards the end of 2021 will be used to support commercial loan growth.
In closing the subordinated debt offering in mid-November, Ludington-based West Shore Bank joined a number of Michigan community banks that have raised additional capital over the past year amid rising interest rates. interest to maintain regulatory capital ratios as lending volumes increased.
Chuck Christmas, Bradley Howes, Bill Hufnagel, Eric Seifert
“It was just about taking advantage of the market opportunity. We have good prospects for loan growth,” said West Shore Bank CFO Bradley Howes.
The bank currently has a “strong” commercial lending pipeline and “significant opportunity” in the Traverse City market where it recently built a new downtown office, Howes said.
“Having capital at an attractive price to increase our capital ratios and support growth over the next three to five years – there has never been a better time to do this than now,” he said.
West Shore Bank — which has nine banking offices in Mason, Oceana, Manistee and Grand Traverse counties, a loan office in Muskegon, and total assets of $702.1 million — was among several community banks in Michigan with recent capital increases.
Based in Grand Rapids Mercantile Bank Corp. closed in mid-December on a $75 million debt placement involving 36 investors, according to a filing with the U.S. Securities and Exchange Commission.
“As we went through the first three quarters, we saw what was happening in the fourth quarter and looked at our pipelines, which gives us a good forecast for at least the first half of 2022. We just had huge loan growth, so we needed to raise additional capital,” Mercantile CFO Chuck Christmas said. “We’ve just seen really solid growth, and we think that’s going to continue.”
When reporting third-quarter results in October, Mercantile Bank said core commercial lending grew by $162 million between July and September, at an annualized rate of 25%. In the first nine months of 2021, the bank’s commercial lending grew by $298 million, or at an annualized rate of about 16%.
Every dollar raised in additional capital can support $10 of asset growth, or $750 million for Mercantile Bank, Christmas said.
“The key to capital is to leverage it, and for a bank that means growing the balance sheet, which for us means growing our commercial lending. That’s where we’ve had a lot of success,” a- “Throughout 2021, our pipelines were very strong and they remain very strong. We have a strong economic environment,” he said.
Solid lending environment
The need for banks to raise capital to maintain regulatory ratios and support growth reflects a strong lending environment and “pretty robust” demand for credit, said Eric Seifert, director of Muskegon. Left Coast Capital Resources LLC.
That bodes well for small businesses with future credit needs, Seifert said. He sees strong demand for commercial loans continuing through 2022, even with expected interest rate increases this year.
“Banks are still lending quite aggressively, although they are careful to look at the industry and see how it has been impacted and continues to be impacted by COVID and try to look at the crystal ball to see what might be their next churn,” said Seifert, who works with small businesses seeking credit and capital.
AT Dart Financial Corp., the parent company of Dart bank based in Mason, the need to raise additional capital stems from both loan and deposit growth. Many banks saw growth in deposits from small businesses that received federal Paycheck Protection Program loans in 2020 and 2021, CEO Bill Hufnagel said.
Like many community banks, Dart has attracted and retained new customers outside of the PPP, Hufnagel said. Mergers and acquisitions in the Michigan market also generated new business, Hufnagel said.
“If you want to grow, you have to make sure you’re well capitalized to take advantage of the opportunities that arise,” he said. “In today’s market there are different opportunities for growth, and we have also seen our balance sheet grow during the pandemic in the form of deposits that have come into the market.”
Earlier this month, Dart Financial closed a $15 million debt offering with 13 investors. Dart Bank, with total assets of $702.1 million as of the third quarter of 2021, has four branches in Eaton and Ingham counties, as well as seven loan origination offices, including in Ada.
The additional capital will support “the growth we have already seen and the growth we will continue to see and hopefully have the opportunity to build on as we continue to move forward,” Hufnagel said.
Recent fundraising by other West Michigan-based banks totaled $114.6 million. These include:
- Based in Sparta ChoiceOne Financial Services Inc. — the parent company of ChoiceOne Bank which has 34 offices in West and East Michigan and total assets of $2.27 billion as of September 30 – raised $32.5 million through a private debt placement that closed in September .
- Union Financial Corp., which is based in Lake Odessa and is building a new headquarters in Grand Rapids, closed a $6 million debt offering with 12 investors this month.
- Lake Financial Corp., Baldwin’s parent company Lake Osceola State Bank, raised $15 million mid-year in a debt offering involving 25 investors.
- Based in Mount Pleasant Isabella Bank Corp., with $2 billion in assets and 31 offices in the center of the Lower Peninsula, closed in early June on a $30 million debt offering.
- At Coldwater, Southern Michigan Bancorp Inc., the parent company of Southern Michigan Bank and Trust, completed a private placement of subordinated notes in April that raised $30 million to support organic growth.
- Honor Bancorp Inc., based near Frankfurt, raised nearly $1.1 million in March through a stock offering.
Capital raises last year by southeast Michigan banks include a $75 million debt placement in December by Arbor Bancorp Inc. in Ann Arbor, Oxford Bank Corp.the $16 million stock offering in October, and based in Detroit First Independence Corp.of $4.5 million shares issued in December.
Placing subordinated debt with today’s low interest rates is the cheapest way to raise capital, Christmas said. Additionally, the investor market for subordinated notes remains strong, he said.
“There’s a huge appetite for subordinated bank debt,” Christmas said. “So there’s really been no problem selling it and finding investors there.”