ABA Banking Journal - April 2008 - (Page 46)
BANK MANAGEMENT don’t set the price—that’s important,” McVicker says. When buyer and seller reach agreement, the company records the exchange price. The case for going private hirteen community banks went public in the last six months of 2007—essentially matching the six that moved to go back ‘private’ in about half that period. ABABJ found data only through mid-Oct. 2007 on banks that filed to quit being ‘public’ companies, in the commonly understood sense of being SEC-regulated corporations. Almost 30 of 100 banks that switched back in the past 15 years did so in the past two years, extrapolating from bank client and SEC filing data collected by Powell Goldstein LLP, an Atlanta law firm specializing in legal ways out of SOX. When it comes to engineering shareholder numbers below the 500 trigger for SEC/SOX compliance, “Bankers don’t understand the latitude they have,” says partner Walt Moeling, IV. Tender offers are best known, but shareholders rarely respond to requests to sell stock back to the bank, he says. Reclassification is the most popular of three main alternatives in that it doesn’t force shareholders to give up their shares or force the bank to find cash to buy them out, as reverse stock splits and cash-out mergers entail. The bank must reclassify shareholders into new groups each with fewer than 500 members, but “they must have substantive differences,” says Moeling. For instance, smaller shareholders might lose voting rights but gain extra dividends. The one-time exit cost (for legal and other advisers) often is less than what is saved annually on SOX, according to banks’ public filings. Most dramatically, First Citizens Bancorp, Columbia, S.C., reported saving $1.35 million annually—most of it management time—and paid $150,000 to get out. Most banks are “shocked” when they tally the cost of time spent promoting the bank’s stock in analyst calls, on roadshows, etc. Moeling says. “A $30 million bank that is SEC regulated probably loses 20% of its income on SOX,” he claims. Asked if there’s any downside to having come off NASDAQ, Lawrence Safarek, president of First Niles Financial, Inc., a $100 million-bank in Niles, Ohio, is emphatic: “No, absolutely not.” Since ‘downgrading’ to the bulletin board from NASDAQ, First Niles (FINI) has maintained the trading volumes it had on the exchange, more than held its own on share price relative to its depressed bank-stock peers, done its first buy-back since reverting to ‘private’ ownership, and saved itself close to $100,000 a year in expenses associated with being an SEC regulated company. “For a bank our size, SOX was just way out of line,” says Safarek. “The banking industry is already regulated.” Case for listing on an exchange That wouldn’t work for $1.8 billion-asset Great Florida Bank, says chief financial officer Gary Laurash: it has too many shareholders for personal introductions. On day one, June 30, 2004, the Coral Gables bank had more than 500. There was little to lose and theoretically something to gain by upping Great Florida’s level last December from Over The Counter (OTC) Bulletin Board trading to trading on the NASDAQ Global Market exchange. The bulletin board, owned and operated by NASDAQ, is free, but companies pay to be on the exchanges (currently at least $5,000 a year), which offer greater visibility and usually more liquidity. Certain institutional investors, for example, will only invest in companies trading on an exchange. Smaller banks’ stocks may be so thinly traded on a NASDAQ exchange that the returns are no better than the bulletin boards. Laurash agrees that Great Florida’s stock is “somewhat thinly” and erratically traded, with anywhere from a few 100 to a few thousand shares trading hands daily. However, he says, “If you’re not on an exchange there’s no way of knowing where your shares are at. On the bulletin board, a broker puts a price on a screen, but there’s nothing to say whether they actually bought or sold shares at that price.” Not that he considers the bank’s current share price fair. Great Florida is “probably one of the strongest institutions in the country… we have $90 million in capital against $1.3 billion in loans,” he says. The bank has barely had bad mortgage loans, but Florida is one of the three worst hit states for foreclosures. The upshot? “Our stock is now trading at $8 or $9 a share while our book value is over $13.50 a share,” Laurash said in March. Traditionally, banks floated to get capital to acquire other banks using their stock as the currency to purchase. Target institutions, however, have sometimes refused to sell except for cash. That might be more likely now with bank stocks devalued. What is the advantage for Great Florida of being listed on NASDAQ? Laurash says, “It’s hard to say we have achieved our goal of building liquidity,” but by increasing visibility and contacts now, he says “we’re going to be in a good position down the road.” BJ T “If you’re not on an exchange, there’s no way of knowing where your share [prices] are at” — Gary Laurash, Great Florida Bank 46 APRIL 2008/ABA BANKING JOURNAL www.ababj.com/subscribe.html
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