Independent Banker - January 2025 - 49

OTC for liquidity purposes at the
encouragement of a private equity
investor, a move that has served the
bank well in many ways, Davis says.
There are some additional expenses
to being a publicly traded company,
but the added liquidity balances that
out, according to Davis. He adds that
since the bank was already doing a
fair amount of financial reporting
and information gathering to meet
its existing regulatory requirements,
compiling the data into a different
format wasn't onerous.
Sometimes banks that
trade on an exchange
decide they no longer
want to deal with the
additional regulatory
requirements, costs
and admin. It's often a
cost-benefit analysis,
says Phillip Buffington,
partner with law firm
Balch & Bingham LLP in
Birmingham, Miss.
He recently worked with one community bank that
OTC VS. IPO
Bank of Eastern Oregon, an
$840 million-asset bank in Heppner,
Ore., listed shares over the counter
more than two decades ago to create
liquidity for private shareholders.
About 25% to 30% of the shares are
owned publicly and the rest is owned
by employees, customers, friends
and neighbors-which executive vice
president and chief financial officer
Mark Lemmon says is how the bank
wants it.
Though being listed OTC means
the community bank needs to check
off additional regulatory points, there
are fewer requirements than being
on an exchange, Lemmon says. He
estimates the community bank would
need to generate two to three times
more revenue than it currently does to
absorb the extra costs of Securities
and Exchange Commission
regulation associated with
an exchange listing. " We
don't need to add more
complexity, " he says.
" The burden
is kind of
overwhelming
for somebody
our size. "
Management also
doesn't want the shares
to be owned by institutional
investors who are going to push
the bank to change its culture and
deregistered because it was costing more to be publicly traded
on an exchange than the value it was giving them.
To be sure, there are challenges to being listed on an
exchange, especially if the bank is experiencing performance
challenges. It can be time-consuming and challenging for
leadership and the board to manage shareholder expectations,
says Anne Arvia, principal at Cornerstone Advisors. You have
more wiggle room to make decisions around short-term
profitability versus long-term goals when you're a private bank.
Banks considering deregistration must carefully weigh the
pros and cons of being listed against the greater cost and
scrutiny they face from investors. In the case of the bank
Buffington worked with, it had about a billion dollars in assets
and had been registered for some time, but a new chief
executive came in and didn't see the value based on the cost.
The bank now trades over the counter, Buffington says.
set demands related to growth and
profitability. " We do things that are
right for the community as opposed
to what's right for a corporate
structure, " explains Lemmon.
Offering shares OTC can also be a
prudent move for community banks
as a stepping stone to eventually
trade on an SEC public exchange.
" You're making incremental
investments over time, and that is
less of a big shock as opposed to
going from one end of the spectrum
to another, " says Alex Vari, chief
-Anne Arvia, Cornerstone Advisors
independentbanker.org // 49
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Independent Banker - January 2025

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