ABA Banking Journal - April 2008 - (Page 44)

BANK MANAGEMENT claimed to reach 20% of smaller banks’ incomes. Earlier regulations slashed margins for brokers making a market in small stocks and so made small-bank stocks less attractive to trade. Not only are the dot-com heydays of initial public offerings gone, now banks are indiscriminately tarred with the subprime-mortgage brush whether their results were sullied by such activity or not. “The problem is the market’s not differentiating between big banks and community banks,” says Helen Sullivan, senior vicepresident, financial and capital markets solutions with ABA. “Bank stocks have been hammered with the credit crunch,” she adds. (Citibank and Washington Mutual, for example, have lost half of their market value.) Thirteen community banks went public since last summer, well down from 23 in the second half of 2006. However, annual flotations at 32 in 2007, were not radically below the 38 in 2006, so the trend is recent. America’s Community Bankers NASDAQ Index (now part of ABA) includes all (502) domestic banks publicly traded on NASDAQ, minus the top 50, monoline and foreign banks, and banks traded on other exchanges. Like the S&P 500, the ACB NASDAQ Index (ticker symbol ACBQ), is down as bank stocks face what some have dubbed their worst time in 25 years. It has been enough to send some banks the other way: taking their banks private (see story on page 46). [For information on the index, go to www.acb.us/about_acb/ acbq_nasdaq_index/. The index itself can be seen at http:// classic.NASDAQtrader.com/trader/aspx/index_main.aspx?ix= ACBQ.] Theodore Kovaleff, senior bank and thrift analyst, Sky Capital, New York, says, “There have been several failed attempts [of banks] to go public recently.” He attributes that partly to regulators “having forced too high a valuation on institutions,” in an unreceptive economy. Regulators can make banks going public or demutualising thrifts issue more shares, which reduces the possible earnings per share for prospective investors and makes that investment less attractive. Bankers didn’t rate this as a big factor. One banker, who did not wish to be quoted, said regulators acted to take heat out of previously oversubscribed IPOs. He regretted his bank issued so many shares initially and then had to buy some back (something generally prohibited in year one) but blamed his underwriters. “We can focus on our highest objectives rather than being concerned about quarterly performance reports” — Earl McVicker, Central Bk & Tr tomers.” The alternative way to generate capital is, as Hudson says, “to rent money from Wall St.” Yet, he concedes that going—or remaining—public may not be for a “mature” bank, meaning “a community bank that’s seven to nine years old with $300-700 million in assets.” Then, curtailing shareholder numbers below the 500 SEC/SOX trigger may make sense, he agrees. A necessary evil ABA BJ spoke to a half-dozen banks. At one end of the privateto-public scale, McVicker and a recently ‘delisted’ bank have no regrets about being private, in the sense of not being SEC corporations. At the other end, the best cheerleader for going public admits his shareholders are “not particularly happy” to have shares worth substantially less if traded on NASDAQ today than if the bank were liquidated. Two others, public and SEC regulated, represent it as a necessary evil, perhaps. We asked Steve Wilson, chairman and chief executive of $610 million Lebanon National Bank and its holding company in Lebanon, Ohio, how he would rate now as time to go public on a ten-point scale. “One,” he replied, without skipping a beat. “After SOX—a great cost and a great burden— we debated whether to delist, but we decided we would just grow to the point where we’d have to take that on again,” Dan Blanton, vice-chairman of ABA’s America’s Community Bankers Council, advises others: “I wouldn’t even think about going public or opening a bank.” Given it all to do over, he’d probably keep his bank below 500 shareholders, but now it would be “politically incorrect” to disenfranchise community members who have stock in Georgia Bank & Trust, Augusta. The bank is 50% owned by Blanton’s family, but—as Societe Generale and Bear Stearns know—no stock corporation is immune from a takeover, especially if performance falters. Dealing with big blocks of shares Another banker suggested it’s a risk to have too much stock held by locals in aging communities, exposing the bank to shares flooding the market if descendants cash out inheritances: often substantial blocks of stock that grew over time through stock splits of the deceased’s original holdings. Earl McVicker’s family owns 85% of the $600 million bank holding company for $225 million-asset Central Bank, so relatively few people own relatively large blocks of bank stock. If a shareholder wants to sell, the BHC buys the stock back or connects the seller with a buyer within the known circle of shareholders. Share values aren’t listed on some public database, and with less than 500 shareholders the bank is not subject to SEC/SOX. “We don’t keep an official list [of prospects] and we www.ababj.com/subscribe.html Why go public? Deposits Dan Hudson, president of nubank.com, a Dallas consultancy, is about the only commentator currently bullish on bank IPOs, which Nubank helps arrange. New banks need start-up capital and they uniquely enjoy the pluses of being public without the minuses of SOX, because start-ups are exempt in the first two years. Nubank has over a dozen de novo launches in the pipeline for this year, up from eight in 2006, Hudson says. Hudson’s argument for going public is also contrarian: “It’s the only way to get core deposits.” If local residents get to invest in a bank, he argues, “chances are they’ll become cus44 APRIL 2008/ABA BANKING JOURNAL http://www.lcnb.com http://www.acb.us/about_acb/acbq_nasdaq_index http://www.acb.us/about_acb/acbq_nasdaq_index http://classic.NASDAQtrader.com/trader/aspx/index_main.aspx?ix=AC http://classic.NASDAQtrader.com/trader/aspx/index_main.aspx?ix=ACBQ http://classic.NASDAQtrader.com/trader/aspx/index_main.aspx?ix=AC http://www.skycapitalholdings.com http://www.skycapitalholdings.com http://www.georgiabankandtrust.com http://nubank.com http://www.ababj.com/subscribe.html

Table of Contents Feed for the Digital Edition of ABA Banking Journal - April 2008

ABA Banking Journal - April 2008 Contents Editor's Column You Can't Beat Wal-Mart: Or Can You? Snapshot: Non-Interest Income Shoulders More Weight ABA National Conference for Community Bankers Report 100th Anniversary: Then & Now ABA Resources ABA Chairman's Position Banks Plus Insurance: How to Make It Work Pass the Aspirin 2008: Year of Rich Internet Apps? Tough Time For That IPO Your Audience Needs to Know Who You Are Telepresence: Costly But Very Cool Webnotes Better Websites Mean Tougher Compliance Mailbox Banker's Mart To Advertise/Index of Advertisers The Economy

ABA Banking Journal - April 2008

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