More than 600 community and regional banks trade on OTCQB, a public marketplace operated by OTC Markets Group, a company that operates financial marketplaces for 10,000 U.S. and global securities. R. Cromwell Coulson, president and CEO of OTC Markets Group, answers questions about how community banks can maximize the value of public trading even when they are not listed on a stock exchange.
Q: What is your experience with the community and regional bank market?
I traded and invested in community banks when I worked as an institutional trader and portfolio manager at Carr Securities in the early 1990s. I specialized partly in value-oriented securities, so I was naturally drawn to small, publicly traded community banks, many of which traded on the off-exchange market.
Years after I left Carr Securities, I led a group of investors to acquire the company that published the stock sheets where these and thousands of other off-exchange-traded securities were quoted. Our goal was to modernize what was inefficient and phone-based trading into modern, electronic trading and to create better informed and more efficient markets.
Today, my company, OTC Markets Group, operates three separate and distinct marketplaces: OTCQX, OTCQB and OTC Pink. Community banks continue to make up an important sub-sector of our market: There are more than 600 banks and thrifts ranging in size from $25 million in assets to $16 billion trading primarily on our OTCQB marketplace.
Q: What are the benefits to banks of being publicly traded?
There are five main benefits of being publicly traded that apply to all companies, including community banks: visibility, liquidity, valuation, capital, and reputation or trust.
Community banks, like many companies, think of going public primarily as a way to raise capital that can be used as currency for capital improvements, purchases or to make acquisitions. Banks with a publicly available stock price are also viewed more favorably as acquisition candidates than those with a more opaque valuation.
But the most successful publicly traded community banks, like the most successful public companies, are those that actively engage their shareholders and ensure their information is widely available to investors, whether through SEC filings or by publishing their news and disclosure through our OTC Disclosure & News Service or on their own shareholder relations page.
By making its information widely available, a community bank can increase its visibility with investors and other stakeholders in their community, which can, in turn, be reflected in its public share price.
Q: Is trading on the NYSE or NASDAQ the only way for banks to improve their visibility, valuation and share liquidity?
There is a perception among some in the banking community that the only way to go public is through a traditional initial public offering (IPO) on a U.S. stock exchange and that that is the only way to achieve public visibility with an attractive valuation and stock liquidity. They are mistaken.
There are, in fact, several ways for banks to go public and provide liquidity to shareholders without registering with the SEC and going through the costly and onerous IPO process.
And many of the banks that trade on our OTCQB marketplace trade as actively as those on a U.S. exchange. For example, Harleysville Savings Financial Corp., a Pennsylvania-based bank with $800 million in assets, deregistered and delisted from NASDAQ on December 27, 2012. Around that time, Harleysville was trading between $17 and $18 per share and had an average daily dollar volume of $32,901. Today, the bank is trading on OTCQB at $17.37 per share and has an average daily dollar volume of $40,134.
Q: How can community/regional banks maximize the value of being publicly traded?
Many community banks believe distributing their quarterly Call Reports to regulators is sufficient communication with investors. The truth is that Call Reports are too lengthy and hard to decipher for most investors, depositors and other stakeholders in the market community. Furthermore, the information in Call Reports and other financial data is not integrated or available through electronic brokers and financial portals.
Banks would benefit more by distributing material investors can understand, such as annual reports, quarterly earnings and press releases that include their stock symbol as well as holding regular conference calls with investors, presenting at investment conferences and meeting more frequently with investors.
This year, we plan to introduce some changes that will make it even easier for community banks to gain visibility and maximize the value of their public trading. We will be contacting banks on our marketplaces in the coming months to let them know about the changes and how to qualify.