5 Years Later, The "Middle Ground" For Publicly Traded Banks Keeps Growing

Prior to 2012, a community bank had two options if it wanted to go public: IPO on an exchange or trade on what’s now known as the Pink Open Market.

One of those options is capital intensive. The other comes with minimal financial standards and disclosure requirements. For many firms, neither is ideal.

But that changed with the passing of the JOBS Act, which eased many SEC regulations on small businesses. Among those changes was a section that increased the shareholder threshold from 500 to 1,200 for a bank to be SEC-registered.   

Suddenly, a number of banks deregistered to save the cost of SEC filings, which can amount to over $250,000. And though it became easier for small banks to raise money by selling shares, they had no market on which to do so.

To solve that, OTC Markets created the OTCQX U.S. Banks market, which launched five years ago this month. The purpose, according to OTC Markets Group Vice President Laura Hamilton, was to create a middle ground for those community banks with high financial standards to differentiate themselves without the costs of being an SEC filer.

“How do you elevate your profile and have a better peer group without having to file with the SEC?” she said. “OTCQX for Banks filled that void.”

5 Years Of Growth

The OTCQX U.S. Banks market was created with 10 founding members, six of whom have since either uplisted to an exchange or have since been acquired. The remaining four, Virginia National Bankshares Corporation VABK, Harleysville Savings Financial Corporation HARL, Calvin B. Taylor Bankshares, Inc. TYCB, and Katahdin Bankshares Corporation KTHN still trade on the market.

In the ensuing years, over 130 community banks have joined OTCQX —10 voluntarily delisted from an exchange, and more than 20 have used the “Slow PO” method, which is equivalent to a direct listing, to become publicly traded. There are currently 90 banks trading on the OTCQX Market, 30 of which joined in 2018.

Data courtesy of OTC Markets

Hamilton said that at the outset, most banks trading on the market were under $1 billion in assets, but today some have grown to as much as $4 billion.

“We’re doing all these things to raise the profile of a bank without the cost and complexity of traditional exchanges,” Hamilton said. “We’re pushing out financial reports, providing banks with opportunities to share their story. OTCQX has helped these companies raise their profile enough to use their stock as a currency and get the liquidity they need.”

She noted that the OTCQX Banks Index, which can serve as a benchmark for the banks trading on the OTCQX Best Market, has outperformed the SNL U.S. Banks Index since inception.

Data courtesy of OTC Markets

“Following SEC deregistration in the fall of 2013 we were looking for another reputable index through which we could deliver our message to existing and prospective stockholders,” said Raymond Thompson, president & CEO of Calvin B. Taylor Bankshares, Inc. TYCB. As a Founding Member of the OTCQX, we have benefitted from reduced expenses, increased market visibility, and a credible trading platform. We enjoy our affiliation with the high-performing financial institutions that have become members since its inception.”

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