Bankers share stories about raising capital

Lawrence Kelley is president and CEO of Standard Bank, Hickory Hills, Ill., a $2.2 billion privately-held bank. Standard Bank raised $140 million in capital in 2013..Corey Chambas is president and CEO of First Business Bank and CEO of the bank's holding company, First Business Financial Services. Both are based in Madison, Wis. First Business Financial Services is a $1.6 billion, publicly traded, three-bank holding company; it is traded on the NASDAQ under the symbol FBIZ. The company has completed multiple retail capital raises as well as capital raises from institutional investors..Both bankers shared their experiences in February at the American Bankers Association's National Conference for Community Bankers in Boca Raton, Fla..Kelley:.Until we did our capital raise, we were a locally owned and locally managed bank. Our board of directors controlled about 85 percent of the bank. The Gallagher and Henry families were the majority owners; they controlled 65 percent of the bank..One of our niches over the years has been construction and land development loans. We had a concentration in that category. Gallager and Henry Builders was one of the largest home builders in the Chicago area. The owners were very comfortable with their industry and as a result we did a lot of those types of loans. As the Great Recession began we started to have loan issues which shortly thereafter became severe loan losses..When TARP came out, we decided to apply. There was no appetite at the board level to put additional capital into the bank. We received $60 million through TARP. We also had a $20 million loan through our holding company from Bank of America..We received TARP in 2009; by 2010 we had $120 million in nonperforming loans. Bank of America decided it wanted its $20 million back. It was Bank of America that suggested we raise some capital. We decided that was probably a good idea since there was no interest locally. We thought we would raise $40 million: $20 million to pay off Bank of America and $20 million to set aside for the loan loss reserve..But when we started interviewing investment bankers, they all told us the exact same thing: $40 million was a non-starter. Private equity firms were looking to write big checks. We needed to raise at least $100 million if we thought we were going to be successful in the marketplace. The issue was that if we raised $100 million, the majority owners would no longer be so. That was a real issue for them and took them a while to get their heads around it..We ended up hiring Stifel Financial Corp., the investment banking firm based in St. Louis. They coached us and we started making presentations in October of 2010. We set out to raise $100 million. We ended up raising $140 million..The process took a lot longer than we anticipated because we couldn't have a change in control on our first trip to New York. For tax reasons, we were limited to a lead investor who could own 24.9 percent of the bank and a second who could own 8 percent. Everyone else had to own less than 5 percent. That limited us to $10 million pieces for most investors. It took as much brain power to raise $10 million as it did to raise $50 million. And, investors were more interested in writing a $50 million check than a $10 million check..We found investors were very cordial at introductory, onsite meetings. Some wanted us to give a prepared presentation. Others had read our presentation and wanted to ask questions. The meetings generally went about 30 minutes to an hour and a half. They ask very direct questions and you need to be prepared for that..We finally made it in February of 2013. We raised $130 million from private equity and $9 million from officers, friends and family. Our lead investor and other investors were very patient. As time passed, and loan quality improved, it was good they came in when the bank was a cheaper buy. They got a good deal..Last year we had a return on assets of 0.76 percent. Our budget in 2015 is for 0.85 percent ROA. We raised enough money to have a clean, debt-free balance sheet and 11 percent plus tangible capital. Our credit quality issues continue to improve; nonperforming assets finished the year at less than 3 percent. We think we will finish 2015 below 2 percent. We are thankful we got it done. The biggest benefit to us is being back in the banking business. It is good for our employees, it is good for our management and our shareholders..Chambas:.The time and effort it takes to raise capital from the general public, family and friends is generally greater than is needed to raise capital from institutional investors. A few years ago, we did a $6 million retail offering to friends, clients and the community. We also did a $15 million capital raise through an investment banker that involved a few institutional investors. It took one phone call to raise the $15 million..When we raised the $6 million, however, we had what I call a "deep pockets but tight pants situation." People who know you believe your story, they say they are willing to invest but it still takes convincing when it comes down to it..We did a "net road show" where we created recordings of presentations from our actual road show so people could watch at any time online. We also allowed people to listen in to our live road show. There were several significant institutional investors who came in because of our net road show. It happened that those investors were the ones we wanted most but couldn't meet with during our road show..Our road show was a lot less glamourous than you might expect. We didn't go around in a limo in New York and sit in fancy rooms. We spent a lot of time in small, unglamorous rooms on conference calls with potential investors..We were told to have a thick skin and to expect investors to be critical of us. Our stock had been trading for a while but with a small amount of activity. We had 500 shareholders from multiple retail capital raises but those stockholders don't trade our stock; they are all friends, family and customers. We were looking to bring on institutional investors to increase our stock's trading activity. It turned out investors understood our model well..On our road show it was sometimes hard to remember on back-to-back calls if we were covering all the information well. We did it for two days and were able to raise what we wanted. If you do a similar road show, go in with a very clear head.