Maximizing the Value of Being Publicly Traded


1-20-14-OTCMarkets.pngMore 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. 

Banks Increasingly Move to Public Markets


10-9-13-OTC-Markets.jpgThree years after the financial crisis, we are finally seeing a resurgence of small banks around the nation raising capital, evident by the uptick in conversions, preferred stock and initial public offerings, as well as the number of private banks becoming publicly traded. Year-to-date, banks have raised $17 billion through preferred equity issuance, a pace that would surpass the $18.5 billion raised in all of 2012. Since January, 10 banks have joined the NASDAQ Stock Market: six as traditional IPOs, and four as transfers from the OTCQB marketplace.

To better determine how banks are trading today, I turned to our OTCQB marketplace, where over 700 regional and community bank and thrift trade their securities, making OTCQB the best gauge for liquidity and trading activity in small community bank stocks. Twenty-four banks have started trading on OTCQB this year, 20 of them since June, an increase from 15 banks last year. Comparatively, NASDAQ has seen six IPOs this year, up from five in all of 2012.

One differentiating factor between the national stock exchanges and OTCQB is that to trade on OTCQB, companies do not have to file periodic reports with the Securities and Exchange Commission (SEC). Banks, already highly-regulated within their industry, often favor a path that minimizes additional regulatory requirements, which has led more than three-quarters of publicly-traded banks under $1 billion in assets to trade on OTCQB. A small company may spend $150,000 to $300,000 annually on maintaining a NASDAQ listing, with much of that expense allocated towards filings and attorney and accounting costs associated with SEC registration. As reported by the Independent Community Bankers of America, 90 percent of all U.S. banks have less than $1 billion in assets. This year, three banks have voluntarily left the NASDAQ Stock Market, taking advantage of a provision in the recently enacted Jumpstart Our Business Startups Act (the JOBS Act) that allows banks with fewer than 1,200 shareholders of record to deregister their stock.

The more than 700 banks and thrifts trading on OTCQB represent banking communities in almost every state, including 138 banks and thrifts in the state of California alone. The map below shows the geographic breakdown and the number of OTCQB-traded banks in each state.

Number of Banks or Thrifts Trading on the OTCQB by State

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There are different reasons why banks choose to trade on OTCQB. Here are three of their stories.

Nicolet Bankshares (OTCQB: NCBS) – Nicolet Bankshares commenced trading on OTCQB in April 2013, following a merger with Mid-Wisconsin Financial Shares. Prior to 2005, Nicolet was an SEC-reporting company, but it made the decision to deregister when regulatory changes and compliance with the Sarbanes-Oxley Act proved too costly and complex for the small bank. Following its merger with Mid-Wisconsin, Nicolet is now the sixth largest bank holding company based in Wisconsin, with $1.1 billion in combined assets, achieving economies of scale to stay competitive and expand its market presence.

CU Bancorp (NASDAQ: CUNB) – CU Bancorp, a $1.2-billion asset bank, moved from OTCQB to NASDAQ in October of 2012. The bank, originally named California Republic Bank, opened in 2005 with a little more than $100 million in assets, following a $35-million private placement. Subsequently, the bank became publicly traded and remained a non-SEC filer up until its merger in 2012 with Premier Commercial Bancorp, another OTCQB bank. While trading on the OTCQB, CU Bancorp was successful growing organically and raising $67 million in capital. It also acquired two banks since 2011, eventually becoming large enough to qualify for a NASDAQ listing.

Standard Financial Corp (OTCQB: STND) – Standard Financial Corp., a $437-million asset bank operating in central Pennsylvania, went public on NASDAQ in 2010 following a mutual-to-stock conversion and offering. The bank traded approximately 7,000 shares a day on NASDAQ, which the bank determined was not sufficient trading volume to support the significant costs associated with a NASDAQ listing and SEC reporting requirements. As a result, Standard Financial recently deregistered with the SEC and began trading on OTCQB. According to Standard Financial’s board of directors, deregistration has allowed the company to “focus more on profitable operation of the company as opposed to the considerable time and effort necessary to manage compliance with SEC reporting requirements.” Standard Financial Corp. is the 12th bank to voluntarily delist from NASDAQ since the enactment of the JOBS Act.