Before it could get a much-needed capital infusion, PVF Capital Corp. needed new blood.
Late last month the Solon, Ohio, company raised $30 million, even though it is operating under a regulatory enforcement order. Of that, $25.7 million came from a rights offering to the $870 million-asset PVF's existing shareholders. An affiliate of CapitalWorks LLC, a Cleveland private-equity group, supplied the rest.
Charles Crowley, a managing director at the investment bank Stifel, Nicolaus & Co. Inc. who worked with PVF to raise capital, said shareholders were persuaded to double down because the new chief executive plans to transform the thrift company into a major player in the disrupted Cleveland market.
"In many cases, a management team has become the prerequisite to getting new capital to flow in," Crowley said. "Capital is still hard to come by, but I think for those who can demonstrate that there is a new story, there are now opportunities that weren't there a year ago."
Across the country, community banks are grappling with how to raise capital in order to fund expansion or satisfy regulators. PVF aims to do both, though it must accomplish the latter first.
The $30 million puts PVF's thrift in excess of heightened capital ratios demanded by the Office of Thrift Supervision last year.
Robert J. King Jr., PVF's new president and CEO, took charge in September. King is respected for his experience — he was a senior managing director at the private-equity firm FSI Group Inc., and spent three decades at Fifth Third Bancorp, retiring in 2004 as the president and CEO for the northeastern Ohio market.
The private-equity investors said the new leadership sealed the deal for them.
"The caliber of the management team is what attracted us," said Dick Hollington, CapitalWorks' president.
"They have a clear vision of what they have to do and what the opportunities are that exist in the future."
With National City Corp.'s takeover by PNC Financial Services Group Inc. as well as the failure of AmTrust Bank last year, analysts have described Cleveland as one of the most disrupted banking markets in the country.
King acknowledged that before PVF can take advantage of that opportunity, it must address the problems that have been plaguing it.
"Clearly, we have to fix our issues, but a real opportunity exists here to establish a very significant community bank," he said. "This fresh capital ensures that we will be well positioned to grow when we do come out from under the regulatory order."
For PVF, the additional capital will put its Park View Federal Savings Bank above thresholds laid out in a cease-and-desist order in September.
The order called for the thrift to have a leverage ratio of 8% and a total risk-based capital ratio of 12% by Dec. 31.
It fell short of those targets with a leverage ratio of 7.15% and a total risk-based capital ratio of 10.74%.
At Dec. 31, nonperforming loans totaled $73.3 million, or 11.17% of total loans, more than double the amount it had a year earlier. Bad loans were down slightly from Sept. 30.
"They have a lot of problem loans to work out," said Mike Heller, the president of the rating firm Veribanc Inc. in Woonsocket, R.I. "And the problems have ballooned from a year earlier, but that $30 million is exactly what they needed to raise."
King said PVF plans to work through the problem assets, rather than try to sell them at a discount, a strategy that other recently recapitalized companies have used.
"This certainly gives us the insulation to take some hits if we need to, but we didn't contemplate spending all the capital on credit," he said.
Once the order is lifted and the thrift's growth prospects are no longer limited, King said he will try to make Park View more like a commercial bank.
That would include seeking to write more commercial and industrial loans (focusing on small and midsize businesses) and adding services like private banking.
King would not give his target asset size, but said given the management team he has amassed — largely bankers from major Midwest regionals — the company is not thinking small.
"We don't anticipate staying an $850 million thrift," King said.
Wesley A. Brown, managing director at the Denver investment bank St. Charles Capital LLC, said he does not think it's necessary to bring in a new management team to raise capital from investors, but it certainly can help — as illustrated by PVF.
"New blood that has a new strategy is going to bring in new relationships," Brown said.