Consider the stories of two banks that went public recently.
1. Citizens National Bank of Texas went public because the $370 million-assets bank's board and management had decided to grow by buying other community banks. This expansion program, plus the desire to provide more liquidity for the bank's nearly 500 shareholders, says Ralph Williams, president and CEO, was enough to convince everyone that the time was ripe.
The bank's IPO, handled by Legg Mason Wood Walker Inc., went off well, pricing at $10.50. The company's shares hit a high of $17 not long after, but then fell during the slump that hit smaller bank stock prices last year. Since then, the shares, which trade under the symbol CNBT on NASDAQ, levelled off at between $10 and $11.
What's more, while extra liquidity, and new capital resulted from the offer, the original plan for using the capital fell by the wayside, because asking prices for target banks were higher than anticipated. The bank has since shifted its strategy, using the additional capital raised to site and build de novo branches in new markets. Meanwhile, Williams says going public brought more rules and more audits. "I'm still glad we did it," he says, "but I'm not as glad as I was in the beginning."
2. In February, the IPO of CNB, Inc., Lake City, Fla., closed. The community banking company, seeing opportunities in the Jacksonville market resulting from the merger of large banks, planned to use the proceeds of its offering to relocate headquarters to Jacksonville, and to expand operations into markets contiguous to its original sites.
G. Thomas Frankland, chief financial officer, says the company considered alternatives to an IPO prior to going ahead with the offering. A debt offering was considered, for instance, but the 11-year-old, $290 million-assets, company had not had debt up until then and going into debt went against the grain. Furthermore, says Frankland, "we wanted to take the company to the next level and create a currency out of our stock for acquisitions."
The IPO completed earlier this year wasn't the bank's first attempt at the process. An IPO was originally slated for last summer, but Frankland says that the bank pulled the plug on it when the stock market dipped. Price levels came back sufficiently to convince the company that there was no point to putting off its plans any longer. The company trades on the NASDAQ under the symbol of CNBB.
Now, then, or not at all?
A historically high number of community banks did IPOs last year (see chart, p.18)--some right along with the launch of their charters and others, like the preceeding banks, after years of being closely held. But since then activity has slowed down somewhat, according to market watchers.
In the Internet world, it seems like one hot IPO is announced every hour, but the outlook for bank IPOs isn't nearly so optimistic. The consensus right now is that the decision to go for an IPO depends very much on your bank's plans and aspirations.
"Quite simply, the answer is 'maybe'," says Steve Nelson, an investment banker in the Chicago office of the Washington, D.C.,-based Hovde Financial, Inc. The decision, ultimately, revolves around timing versus your bank's business plan, or lack thereof; its tolerance for what comes along with going public; and your bank's consideration of alternatives to doing an IPO.
There is also the matter of paying the freight. Going public requires the talents of several disciplines, including investment banking and the law, and a community bank raising, say $5 million to $10 million in an IPO can expect to pay between $500,000 and $600,000.
Hovde's Nelson puts the numbers in the chart into perspective. Up until the third quarter of 1998 bank and thrift stocks were hot; suddenly, in the third quarter and continuing into the fourth, the market turned on them. "The segment just got hammered," explains Nelson. …