Independent Banker - August 2018 - 65

at 1.5 times book value and are very close to [having] the
$160 million to $170 million needed to be included in
the index, " he says, " then that's where the stock gets more
liquidity, because fund investors want to own that stock so
the returns are close to the Russell Index. "
Telling a story
" We were getting
to the point where
we couldn't do cash
deals anymore.
We had to have a
stock currency. "
Investors are looking for one thing: ROI. They need to see a
signifi cant upside. That can take many forms. A bank may
have a successful track record, an undervalued stock trading
below peers on the pink sheet, or growth potential due to a
niche, specialization
or a location in a
growing region.
That's why a bank
needs to understand
its strategic direction,
including its size
and trajectory,
before an IPO. " It's
not just fi nancials, "
says Teagno. " It's
being able to tell the
bank's story. "
-David R. Morris,
Royal Business Bank
Many of the most
recent community
bank IPOs have been
in niches, like Royal
Business Bank's
Asian-American niche, or are in regions in California,
Texas, Tennessee and North Carolina, which have been
experiencing relatively high economic growth, Killian says.
For example, on top of its strong fi nancial performance,
some investor segments were drawn to Royal Business
Bank because it's a certifi ed Community Development
Financial Institution, meeting requirements for some
socially responsible investments, and is a minority
depository institution.
" Ultimately, it's about whether investors can get excited
about the story, " says Killian. " What's the price you can buy
the stock at now, versus what they think it can grow to in
the coming years. "
In Farmington Hills, Mich., Level One Bancorp, Inc.,
the parent company of $1.3 billion-asset Level One Bank,
closed on its IPO for $28.9 million on April 24 of this year.
" We explained our fi nancials, track record of growth and
plans going forward, and how our strategies going forward
were similar, " says David Walker, executive vice president
and chief fi nancial offi cer of Level One Bank. He says
investors found its relatively fast organic growth, economic
3 tips for going public
There are many things to
think about when taking
a community bank public.
David R. Morris of Royal
Business Bank off ers his best
IPO advice.
1
Prepare your accounting and risk
management departments. Make sure your
employees understand the large amounts of work
that will be coming their way and are ready for a
few intense months. These departments will be
slammed with paperwork. The risk function will
need to be up to speed on the Sarbanes-Oxley
Act (SOX), and the disclosure committee if it has
more than $1 billion in assets. On
the accounting side, there are
the Securities and Exchange
Commission (SEC) reporting
requirements and forms to prepare
for the roadshow.
2
3
Organize your options. If your bank has
given anyone stock options, Form 3s must be
filed right away. Royal Business Bank gave all staff
options when it was founded in 2008. Options
will expire this year, so people have been quick
to exercise them, which added
a surprisingly large amount of
work for investor relations.
Get to know investment
bankers. Know the types of
shareholders a firm specializes
in. Decide if you want retail investors, institutional
investors or a combination of both, and find
investment bankers that can support those goals.
Royal Business Bank used four diff erent investment
bankers on four teams.
independentbanker.org Q 65
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