If Leon Moore, CEO of Cardinal Bankshares Corp. in Floyd, Va., had his way, his company's shares would not be publicly traded.
Because the $250 million-asset holding company for the Bank of Floyd has more than 500 shareholders, it must register its stock with the Securities and Exchange Commission and submit to the same reporting requirements as companies 1,000 times its size and with far more liquid stocks. The estimated cost of filing all those 8-Ks, 10-Qs and 13-Ds: $250,000 a year, says Moore. That's de minimus to many firms, but a difference-making amount for a company Cardinal's size.
Now, with a hearty push from the banking industry, Cardinal—and institutions like it—could soon get a reprieve.
Lawmakers in both houses of Congress have introduced legislation that would exempt banks, and only banks, from registering with the SEC if they have fewer than 2,000 shareholders. Banks that already file reports with the SEC could deregister if they have fewer than 1,200 shares, up from 300 currently.
Community bankers had hoped to see the thresholds increased as part of the Dodd-Frank Act, but an amendment to raise them was yanked during final negotiations. Since then, the industry has been lobbying members of Congress, SEC Chairman Mary Schapiro and even President Obama, to revisit the issue.
Cecelia Calaby, joined the American Bankers Association in December as senior vice president of its Center for Securities, Trusts and Investments, and says, "I have had more calls on that issue than any other issue since I've been here."
The 500-shareholder threshold has been in place since 1964. Community bankers have argued for years that it should be raised to reflect investor interest in local banks without burdening banks with additional compliance costs. They note that unlike the case for small firms in other industries, their financial information already is publicly available through filings such as call reports.
Cardinal has 700 shareholders, mainly individuals who live within 100 miles of the bank's headquarters, Moore says. Though the stock has been listed on the pink sheets for more than a decade, it's so thinly traded that most days no shares will even change hands. SEC filings "are mainly for the benefit of large investors," says Moore. "They are not really pertinent to the average shareholder at a small company."
The current filing thresholds doesn't just affect banks that already are past the 500-shareholder mark. Calaby says there are banks with fewer shareholders that want or need to raise capital by selling more stock, but have held off for fear of crossing that 500-shareholder threshold and dealing with the cost of complying with SEC reporting requirements.
And those costs keep rising. Next year, companies must include in their financial reports color charts and graphs that can help investors make easier comparisons among filers. The quote Moore got on the extra work topped $42,000.
