Independent Banker - February 2018 - 64

Risks & Rules
companies, " explains
Peter Duggan, senior vice
president at Computershare
Private Markets.
" To be a fully reporting
company and to fulfi ll all of
the accounting and reporting
requirements to keep
your registration active,
that was fairly onerous for
a small community bank, "
Duggan says. " But for banks
that wanted to raise capital, that was
what they needed to do in the past,
unless they wanted to signifi cantly
restrict those that could invest. "
Joshua Mitts, securities law
professor at Columbia University,
explains that the JOBS Act allows
community banks that had become
SEC registered-by virtue of having
500 or more shareholders-to
$1.25 million-
$3 million
Estimated savings in regulatory
expenses over fi ve years for banks
that deregister from the SEC
deregister so long as they have fewer
than 1,200 shareholders (the new
threshold for mandatory SEC registration
is 2,000).
The steady decline in the number
of public companies has attracted
attention. A Nov. 16, 2017 Wall Street
Journal article points out that there
were 7,322 domestic companies listed
on U.S. stock exchanges in 1996,
while today there are only 3,671.
Community banks are among the
throngs of U.S. companies that are
rethinking the value of listing on the
New York Stock Exchange (NYSE)
or Nasdaq. When the rules fi rst
changed fi ve years ago, dozens of
community banks deregistered.
And while the incidence of
deregistration has slowed, banks
continue to make changes. In
October 2017, $790 million-asset
Westbury Bancorp in West Bend,
Wis., which previously traded on
Nasdaq, listed on OTCQX. That
same month, $860 million-asset
California First National Bancorp in
Irvine, Calif., announced a voluntary
SEC deregistration and plans to
list on OTCQX in the future. And
on Oct. 3, 2017, $514 million-asset
SBT Bancorp, based in Simsbury,
Conn., announced plans to
Choosing OTCQX: Wayne Savings
When $446 million-asset Wayne Savings Bancshares in Wooster, Ohio, decided to embark upon
an SEC deregistration, president and CEO Jay VanSickle knew it meant the bank's days as a
Nasdaq-listed company were numbered. Any company that trades on Nasdaq must be registered
with the SEC, and so the bank decided to pursue an OTCQX listing.
VanSickle, who had experienced an SEC deregistration fi ve years earlier when he was CFO
at National Bancshares, which is now the $2.2 billion-asset Farmer's National Bank in Canfi eld,
Ohio, says many community banks are signifi cantly sensitive to the disclosure requirements and
compliance burdens that accompany signing on more shareholders. At National Bancshares,
he remembers, the bank wanted to attract as many shareholders as possible " because a shareholder
then becomes a customer, too, and an advocate. "
However, more shareholders means more reporting requirements, and as a public company
with more than 500 shareholders, National Bancshares bore the burden of hefty disclosure
necessities. " The last straw for us was XBRL [the global standard for exchanging business information],
which had a cost of $20,000 to $30,000 a year, " says VanSickle. " We just stuck up our
hands and said, 'Come on, let's do something diff erent here.' "
When National Bancshares deregistered, the bank didn't touch its key controls. VanSickle
also points out that deregistration in and of itself can be considered as a way to enhance capital,
because it boosts profi tability.
This argument is borne out by statistics. Jason Paltrowitz of OTC Markets Group points out that
for banks, OTCQX, which lists approximately 80 community banks, has outperformed the SNL
Bank Stock Index by roughly 21 percent since OTCQX for banks' inception on May 21, 2014. " A lot
of that outperformance, " he says, " is because banks are saving signifi cant amounts of cost that
they're able to return right back to their shareholders. "
-Elizabeth Judd
64 ICBA Independent Banker February 2018

Independent Banker - February 2018

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