While stock sales by large publicly traded banks have been in the spotlight this year, smaller banks have also been on a capital-raising binge.

So far in 2009, 35 smaller banks have completed follow-on stock offerings, selling more shares into the public market. They range from Middleburg Financial Corp.'s $18 million share sale in July to Synovus Financial Corp.'s $600 million raised on Wednesday, according to data from Dealogic. That compares with a total of seven follow-on offerings in 2008, seven in 2007 and 14 in 2006.

A year ago, as the financial crisis peaked, banks large and small were effectively shut out of the capital markets. Now the sudden rush of new equity into smaller banks shows how far the financial markets have come in recovering.

More of that new equity may be needed in coming quarters to offset losses as high unemployment continues to lead to defaults on loans extended when the economy was more buoyant. Some banks have definitely said they won't need to raise more capital, but those claims could be tested if unemployment and housing declines become more severe than most economists expect and drive loan losses higher still.

Typically, buyers in these stock sales are underweight on financial shares and looking for buying opportunities; follow-on offerings this year have been priced at a discount to current market prices. Small-cap growth and value funds, as well as sector-focused funds, are common participants.

The pattern of smaller banks' stock-selling is in step with that seen at their larger brethren: The first wave was in May, just as investors became more confident in the U.S. stock market's upturn and banks' ability to survive the crisis intact. During that month, a barrage of massive stock sales took place, with Wells Fargo & Co. selling $7.5 billion and Bank of America Corp. raising $13.5 billion.

Many of the larger banks rushed to tap the markets after the Federal Reserve told them to boost their Tier 1 common equity ratios, or to pay back funds from the government's Troubled Asset Relief Program.

Smaller banks grabbed their chance to raise capital as the markets reopened, says Lisa Carnoy, global head of equity capital markets for Bank of America Merrill Lynch. "It's the same factors" affecting both big and small banks, she said.

Since May, smaller banks' stock sales have held to a fairly steady pattern, according to Dealogic. There were six follow-on offerings in August, and seven so far in September.

Dave Ellison, the manager of FBR Large Cap Financial Fund and FBR Small Cap Financial Fund, says the capital raises can be evidence that managers are responding assertively to concerns by shareholders.

On Friday, Huntington Bancshares Inc., a Columbus, Ohio, regional bank with more than 600 offices in six states, said it will raise at least $400 million in new equity through a sale of common shares. The bank raised capital earlier this year, in part by converting some of its preferred shares into common shares in order to strengthen its capital base.

Donald Kimble, the company's chief financial officer, says he's seen strong interest from investors.

"For the last few quarters, investors have been under-weighted financials," he says, "They're seeing this as an opportunity to bring that back to previous levels."

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