First Niagara Financial Group has priced its $400.1 million stock offering, planning to sell 33.34 million shares of stock to the public at $12 per share.
The Lockport-based bank, which is moving its corporate headquarters to downtown Buffalo, expects to net about $383.8 million from the offering, after subtracting underwriting discounts, commissions and estimated expenses.
However, that doesn't include the potential sale of up to 15 percent additional stock, or 5 million shares equal to about $60 million, under an option granted to the underwriting firms, Keefe Bruyett & Woods and Sandler O'Neill Partners LP.
The transaction, which was announced earlier this week, is expected to close on or about Sept. 30. Shares closed at $12.11 Friday, down 7 cents.
The bank said proceeds will be used for "general corporate purposes" and to boost its financial position, which is already considered "well-capitalized" by regulatory standards. That will also allow for further "opportunistic" growth, the bank said.
President and CEO John R. Koelmel said the bank has "benefited from operating from a position of strength" so far, but said it's "all the more important in today's environment" for the bank to be "super capitalized," even beyond what is required.
He called the regulatory environment "very dynamic and unpredictable," but said the industry expects it will need to "hold even higher levels of capital than have previously been necessary."
Under current banking rules, institutions must have "total risk-based capital ratios" of 10 percent of assets, but regulators were demanding 12 percent a year ago and are now signaling a preference for 14 percent, even for the safest institutions, Koelmel said.
"We want to do our best to stay above and ahead of that," he explained. "Otherwise, we're caught having to play defense like the rest of the world."
Currently, the bank's risk-based capital ratio is over 18 percent, but it will fall to over 14 percent after its pending purchase of Harleysville National Corp., assuming it also completes the stock offering, officials said. That means the extra capital is designed to keep the bank just above the minimums.
Still, Koelmel characterized the capital raise as "clearly offensive" for the bank, saying it will enable the bank to expand further. "If we didn't envision additional future opportunities, we wouldn't raise another $1 of capital," he said. "This is all about leveraging it for future growth. We want to be sure we can stay above the fray and continue to play offense."
Following the completion earlier this month of its purchase of 57 branches from National City Bank in Western Pennsylvania, First Niagara now has $13.2 billion in assets and 170 branches in two states.
It's also in the process of acquiring Harleysville, with 83 branches and $5.6 billion in assets in the Philadelphia area. That deal is expected to close in February, if regulators and shareholders agree.
Koelmel has spoken frequently of his expectation that more small banks are likely to decide to sell in the coming months and years, allowing the bank to expand further in the two states, or even to push into New Jersey and New England.
He wouldn't say if he had anything in particular in mind now, but he said the bank would "inevitably" raise capital again if it does another deal. "It'd be real tough to continue to acquire and not raise capital," he said.
But he also criticized regulators for their stance, which he called "in conflict" with everyone's long-term interests.
"You can't keep raising capital levels, and raising the bar on the industry, which makes it harder for all of us, and makes it harder to stimulate the economy, let alone provide returns to shareholders," he said. "Washington and the regulatory world are going to have to reconcile it. It's a real key fundamental issue for the industry and the regulatory groups."