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According to a recent report published by SNL Financial, community banks across the country are deregistering their stock with the SEC.  These community banks are taking advantage of a provision in the Jumpstart Our Business Startups Act, or JOBS Act, signed into law on April 5.  The JOBS Act increases the threshold for deregistration under the Securities Exchange Act to 1,200 shareholders from the previous threshold of 300 shareholders. Accordingly, community banks and bank holding companies with more than 300 but less than 1,200 shareholders are eligible to deregister with the SEC.

The 61 financial institutions highlighted in the SNL Financial report have filed to deregister their common stock and suspend securities reporting requirements. Essentially all of the deregistering banks are community banks. More than 80% of the banks had assets of less than $500 million and only three had assets in excess of $1 billion.

Elimination of the Securities Exchange Act registration requirement for these community banks and bank holding companies obviously results in a huge reduction in regulatory burdens.  Community banks and bank holding companies with registered stock must file annual reports with the SEC. These banks and holding companies must also file reports with the SEC disclosing significant events affecting their business and reports disclosing certain ownership changes, along with numerous other regulatory and reporting requirements. Deregistration eliminates these obligations. At a time when regulatory burdens are otherwise significantly increasing for community banks, the deregistration option provides much needed regulatory relief.

The process of deregistering a bank or bank holding company’s stock with the SEC is relatively straightforward. The bank or holding company must file SEC Form 15 and certify that it has less than 1,200 shareholders. After filing Form 15, the bank or holding company’s Securities Exchange Act reporting obligations are immediately suspended. Deregistration becomes effective and the process is complete 90 days after filing Form 15.

According to SNL Financial, there are over 300 registered banks and thrifts in the U.S. with fewer than 1,200 shareholders and two-thirds of these institutions have less than $1 billion in assets. Given that deregistration eliminates one of the many regulatory burdens on community banks, we expect this deregistration trend to continue in the community banking industry.

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