Merchants looking to raise $50M for expansion

Carmel-based Merchant's Bancorp, one of Indiana's largest privately-held banks, is looking to raise $50 million in equity capital, according to a recent U.S. Securities and Exchange Commission filing.

If successful, the capital raise could bring up as many as 500 new shareholders to a bank that only had 10 shares outstanding in December 2013, according to public filings. Bank officials couldn't be reached for questions about the motive and those with the firm representing Merchants, City Securities Corp., declined to comment. But a former adviser said he understands the funds are aimed at organic growth.

"Because of their ability to grow their balance sheet — asset balances and deposit balances — they've got to have certain levels of equity to support that growth," said Carmel-based banking consultant Mike Renninger, who's familiar with but not involved in this offering.

"The banking industry is heavily regulated, and they need to keep certain capital levels to satisfy regulators," Renninger said.

Merchants has seen rapid growth in the past few years, Renninger said, tripling assets to $1.8 billion since 2011. The company had $5.1 million in net income in 2008, a figure that grew to just under $39 million in 2013, according to a February 2014 proxy statement. Over that same period, deposits grew from $102 million to $1 billion.

At a time when low interest rates that have put a squeeze on banks' interest income, he said, Merchants' mortgage unit P/R Mortgage & Investment Co. has been a boon because of the robust non-interest income it generates. The mortgage division is a heavyweight in apartment- and health-care-facility financing.

Using the new equity capital for a bank acquisition isn't out of the question, Renninger said, but the money will likely be used to beef up internal operations first. This time last year Merchants seemed well on its way to acquiring Mooresville-based CITBA Financial Corp., parent of Citizens Bank, but the deal fell through in the spring.
Neither company shed light on what derailed the transaction.

Renninger said the $50 million private placement is fairly large, and it should add liquidity to ownership that is, for now, restricted to two families. Michael Petrie and Randall Rogers are Merchants two principal shareholders.

Asked about the potential for an initial public offering, Renninger said: "I don't think Merchants is in a hurry to become a public company. My personal opinion is that they might do it someday in concert with an acquisition."

The Dec. 29 SEC filing said Merchants began selling stakes on Dec. 12 and had about $7 million raised at the time of the filing. The minimum investment amount is $100,000, which means up to 500 investors could grab a stake. Renninger said he expects a couple hundred investors to take part.

Petrie and Rogers, alumni of the former Merchants National Bank, started P/R Mortgage in 1990, a year before that bank was acquired by Cleveland-based National City Corp. They decided to revive the Merchants moniker in 2009 after acquiring Greensfork Township State Bank of Lynn and Symphony Bank of Indianapolis.

Today, Merchants has three branches in Marion and Randolph counties.