The IPO Buzz: Anatomy of a Bank Conversion

The “IPO” is the Territorial Bancorp (NASDAQ: TBNK – proposed) and it’s coming to market as a bank conversion.
Now don’t go rushing out to call your favorite broker to get in on this deal. Bank conversions are not your ordinary IPOs.
Who Can Buy
Here’s the way bank conversions usually work; Territorial Bancorp is an example.
Territorial Bancorp plans to offer its common stock in a “subscription offering.” Here’s who gets to subscribe:
— Depositors of Territorial Savings Bank — with account balances of at least $50 as of the close of business on Sept. 30, 2007 (that’s reaching back nearly two years) — will have first priority rights to buy the common stock.
That’s the key.
The minimum number of shares of common stock a depositor may order is 25 shares. The maximum number of shares of common stock that can be ordered through a single qualifying account is 50,000 shares, according to Territorial Bancorp’s prospectus.
Shares of common stock NOT purchased in the subscription offering MAY BE offered for sale to the general public in a “community offering.”
“Best Effort” Decoder
The only investment banker’s name appearing on the cover of Territorial Bancorp’s “prospectus” is Keefe, Bruyette & Woods. And the firm is acting as “subscription agent” in distributing shares on a “best effort” basis.
Note: A “best effort” agent is not required to buy any shares of the common stock that are being offered for sale. It will distribute what it can. That’s it.
In contrast, an underwriter buys the entire offering from the issuer and then re-offers the securities to its clients. What an underwriter can NOT sell -– it owns.
Note: That can be very expensive for an underwriter if a deal is overpriced and the securities can not be sold at its offering price. The stock usually trades well below its initial offering price.
The Bank’s Territorial Days
Formed in 1921, Territorial Bancorp is a Honolulu, Hawaii-based federally chartered savings bank. The S&L plans to offer up to 10,637,500 shares of common stock for sale in connection with the conversion of Territorial Mutual Holding Company to stock ownership from a mutual form of organization. The offering is being priced at $10 per share.
The Territorial Bancorp deal is expected to start trading sometime this week.
Worth noting: Some of the IPO handicappers are giving the stock’s aftermarket performance a “thumbs up.” We’ll find out soon enough.
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