Hoosier Banker 35 This information is provided for general education purposes and is not intended to be legal advice. Please consult legal counsel for specific guidance as to how this information applies to your institution’s circumstances or situation. Given the issuer-favorable market conditions, this provided community banks with a relatively inexpensive capital source. Tier 2 subordinated debt capital is not included for CBLR, however. Types of Offerings Securities are sold either in public offerings, in which the securities issued are freely tradeable, or in private placement offerings to certain types of investors with restrictions on their transfer. Both types are subject to federal securities laws enforced by the Securities and Exchange Commission and the securities laws of the states where the bank and its offerees are resident, enforced by the securities departments of each state. Public offerings are used by bank holding companies with publicly traded shares to issue debt or equity, as they will more likely obtain the most favorable terms and economics from investors in the public markets. A public offering requires a registration statement filed under the Securities Act of 1933, as amended. Usually these follow-on offerings are made by publicly traded issuers which have filed a “shelf registration statement” with the SEC that has been declared effective for offers and sales, because the shelf facilitates more efficient execution and quicker completion. Public offerings do not require securities filings with the states in which the offering is made. Also, public offerings generally include investment banks serving as underwriters on a firm commitment (also referred to as a bought deal) basis. Although a firm commitment requires an underwriter to purchase the shares in the offering, an underwriter will not agree to this commitment until after the offering has been marketed and the underwriter has determined investor demand at indicative terms. Private placement offerings rely upon the availability of an exemption from registration under the Securities Act and state securities laws. Regulation D exemptions under the Securities Act and corresponding state registration exemptions have strict rules regarding the manner of the offering and the criteria of eligible investors. Generally, private offerings will not be made through a general solicitation and will be limited to verified accredited investors. An investor is required to hold a security issued in a private placement for 12 months, but this timeframe can be reduced to six months if the security was received from a publicly traded issuer that is current in its required filings with the SEC. Also, private offerings may include a private placement agent to increase distribution of the offering and management of the offering process. Offering Process Management in combination with legal counsel and underwriter/placement agent, if selected, will coordinate the offering process by taking the following steps: • Assess current and potential future market conditions; • Determine the optimal type of security; • Structure the terms based on expected investor demand; • Identify potential qualified eligible investors, often through friends and families of directors and officers and, in some cases, bank customers; • Prepare and deliver offering materials to offerees; • Solicit and respond to inquiries from potential investors; • Make appropriate securities filings; and • Finalize sales transactions with investors. Public and private capital markets have continued to be favorable for community banks in 2021. Banks will need to continue to assess their capital positions to determine whether to take advantage of these favorable conditions while they still exist and choose the optimal strategy to achieve their specific objectives. HB
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