Palmetto Bancshares gets major cash infusion

By Dick Hughes  

MAY 27, 2010 9:33 a.m. (0)

A New York investment company has agreed to pump $55 million into Palmetto Bancshares, parent of Palmetto Bank, as part of the bank’s effort to raise $100 million in capital, Palmetto said.

The Greenville financial company also said it has “nonbinding commitments from other potential institutional investors in excess of the $45 million expected to be raised.”

The investors, who will be offered common stock in private placements, will acquire shares at $2.60, a discount almost three times lower than the last listed trade of Palmetto at $7.25 reported on Yahoo Finance.  Palmetto shares are traded publicly but not listed on an exchange.

The infusion of outside capital is necessary to solve Palmetto’s problems with shrinking capital from heavy losses in its commercial real estate portfolio.

Palmetto had fallen below the well-capitalized level regulators deem sufficient and was under pressure to raise money as a hedge against continuing losses.

“We expect that raising capital, combined with an improving economy, will accelerate our road to recover and return to profitability in the post-recession environment,” said Samuel L. Erwin, chief executive officer.

The infusion of cash “will result in the bank’s capital adequacy ratios exceeding the minimum capital levels required to be categorized as ‘well capitalized,’” Palmetto said.

The company said an affiliate of CapGen Financial Partners, a private equity firm based in New York, will purchase $55 million in common shares on condition that Palmetto obtain commitments from other institutional investors to purchase an additional $45 million at the same per share price of $2.60.

Palmetto said it has nonbinding agreements for the remaining investment but did not identify these potential investors.

Once the private placement with institutional investors is complete, Palmetto said, it will offer current shareholders $10 million in common shares at the “same purchase price per share as the institutional investors.”

The stock purchase agreement was approved by the company’s board of directors, and each director and executive offer agreed to vote his or her shares in favor of the private placement when it schedules an election for approval by shareholders.

Shareholders will be asked to approve issuing the necessary additional common shares required for the private sales.   Approval of Washington regulators also is required.

The company said it is postponing its annual shareholder meeting from June 22 until an unspecified date.

In 2009, Palmetto Bank lost $40 million, the first red ink in its 103 years.  Losses continued but lessened into 2010 with a first quarter net loss of $5.3 million.

CapGen is described as a financial services business that focuses on community and regional financial institutions.  The firm was founded by Eugene Ludwig, who previously served as U.S. Comptroller of the Currency and vice chairman of Bankers Trust/Deutsche Bank.

“We are excited to be partnering with CapGen, who is widely respected for their banking expertise,” Erwin said.

“When we adopted our Strategic Project Plan in June 2009, we began plans to raise additional capital given the losses incurred on our loan portfolio, which resulted from the extended recession of the past two years.”