14 May Community Banks Succeeding with Regulation A+

I recently reviewed data from OTC Markets Group, Inc. noting that nine community banks with market capitalizations below $100 million have successfully completed Regulation A+ IPOs. All are trading on the platforms of OTC Markets, including OTCQX, OTCQB and Pink Current. Even better news: the stocks of all but one of the nine are trading up from their IPO price. Three of the nine have since been acquired and gone private.

According to a piece in bankdirector.com, community banks can uniquely benefit from a Reg A+ offering. They are already required to audit their financial statements, thereby not creating additional cost for that in the IPO. Because Reg A+ allows an offering to unaccredited investors, the local banks can “test the waters” with and seek investment from their large, generally not accredited, customer base. Some are using Tier 1 of Reg A+ because they are still preempted from state “blue sky” review in the state in which they operate. This allows them to consider the option of not having to do regular reporting under the light reporting system under Reg A+, lowering public company compliance costs. They still must file certain information for investors with OTC Markets.

By not becoming full SEC reporting companies, the banks also can tap the well again later, using Reg A+ to raise up to $50 million in any 12-month period (or $20 million under Tier 1). OTC Markets and others also have been pushing Congress to allow full SEC reporting companies to utilize Reg A+; let’s hope that one gets through! Hoping we will see more local banks taking advantage of the streamlined, cost-efficient IPO offered by Reg A+.