A community bank started by the local carpenters union is turning to Wall Street for help as it struggles to comply with new regulations put in place since the financial crisis.
The Boston institution formerly known as First Trade Union Bank is expected to launch its initial public offering this week, a move aimed at getting the bank’s primary owners, the New England and New York carpenters’ pension funds, out of the banking business.
The stock offering is expected to raise about $64 million, with more than three-quarters of the proceeds going to the New England Carpenters pension and annuity funds and the Empire State Carpenters Pension Fund.
The remainder of the proceeds would be invested in the bank.
The bank has also changed its name to Radius Bank. It will maintain two branches — one in Boston, one in New York — while providing most of its services online.
The transformation of the 30-year-old institution was triggered by financial reforms designed to curb the speculative investments by banks that contributed to the recent economic crisis. The Dodd-Frank Act requires a firewall between an institution’s traditional banking practice and its trading and investment activities.
Since the New England and New York carpenters’ pension funds own a majority stake in the bank, they are barred from engaging in investments that are common among pension funds, such as in private equity and real estate, said Mark Erlich, executive secretary for the New England Regional Council of Carpenters and chairman of the pension fund.
“The last bank that Dodd-Frank was designed to impact was First Trade Union Bank,” Erlich said. “As is always the case in any kind of legislation, there are unintended consequences.”
The Massachusetts carpenters union started the bank in 1987, using its pension funds, with the expectation the bank would help finance projects that used union labor. The bank also holds the deposits of pension funds and counts carpenter union members as its customers.
At the bank’s opening, carpenters walked out with T-shirts that boasted “Be nice to me I own a bank.”
“It was a source of a lot of pride for a lot of carpenters,” Erlich said.
But the $703 million bank has struggled in recent years. It was heavily invested in commercial real estate when the economic crisis hit and property values dropped.
The bank has closed at least three branches in recent years. The two left are in Boston’s Seaport district and New Hyde Park, N.Y.
But Radius has invested in mobile payments, including LevelUp, which was launched by a Cambridge start-up. The bank sees potential to grow by appealing to young adults, who are more familiar with mobile technology, Mike Butler, Radius’s president, told potential investors recently.
Radius also plans to expand its niche lending, such as providing financing for luxury yacht owners, Butler said.
“We believe that low-cost infrastructure without the burden of branches and without the requirement to build branches in the future creates the model for community banking in the future,” he said.
With the improving economy, 2014 has turned out to be a busy year for public offerings of stock by banks, with 14 so far, more than triple last year’s count, said Kathleen Smith, a principal with the IPO fund manager Renaissance Capital. Citizens Bank recently raised $3 billion in an IPO that sold about a quarter of the bank’s shares to the public, the first round of stock offerings as Citizens’ British parent, Royal Bank of Scotland, spins off its US subsidiary.
Still, many bank shares have sold at a discount, in part because investors are not certain when basement-low interest rates will rise, which would help boost banks’ profit margins, Smith said. Citizens, for example, priced its IPO at $21.50 a share, down from the expected $23 to $25.
Radius is expected to sell at $11.75 to $13.75 a share, according to its regulatory filings.Deirdre Fernandes
can be reached at firstname.lastname@example.org. Follow her on Twitter @fernandesglobe.