Heard Off the Street: Small banks embrace rule allowing less regulation

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Nearly 100 small U.S. banks have filed to deregister their publicly traded shares since Congress approved legislation intended to create jobs by freeing small companies from securities regulations intended to protect investors.

SNL Financial, a Charlottesville, Va., research firm, said the 96 small banks that had filed to deregister their securities -- or "go quiet" -- as of Oct. 11 included Latrobe-based Commercial National Financial Corp.

Commercial National, the parent of Commercial Bank & Trust, said in June it was taking the move to save about $250,000 annually in accounting, legal and administrative costs related to complying with Securities and Exchange Commission reporting requirements.

The bank said that going forward, its quarterly and annual reports "will be similar in nature to much of the financial information currently disclosed."

CEO and president Gregg Hunter did not return calls seeking comment.

Commercial National and other banks are taking advantage of provisions of the Jumpstart Our Business Startups -- or JOBS -- Act. Promoters of the legislation said it will spark job creation by freeing companies of cumbersome and costly disclosure requirements, and make it easier and cheaper for small businesses to raise capital. Securities regulators, consumer advocates and other critics say the law increases the risks of investors becoming victims of fraud.

Among other things, the JOBS Act allows banks with 1,200 shareholders or less to deregister, which means they no longer have to file quarterly and annual financial reports, proxy statements outlining executive compensation, and other reports with the SEC. Previously, banks could only free themselves of the regulatory burden when their shareholder count dropped to 300 or less.

In its July 9 filing with the SEC, Commercial National said it had 849 shareholders.

The Independent Community Bankers Association estimates its members can save up to $150,000 annually in regulatory costs by deregistering stock. Those savings include lower liability insurance premiums for officers and directors who no longer can be sued for failing to disclose something they would be required to disclose if they were a registered company.

But deregistering could make it harder to buy or sell shares of the bank's stock.

"That is a big disadvantage," said Chris Cole, senior vice president of the industry group.

He said banks that drop their SEC reporting requirements will face added costs if they later decide to go public again to raise money. Mr. Cole believes that much of the information investors previously received will be available to shareholders of banks that go quiet, noting banks still have to file quarterly reports with the Federal Deposit Insurance Corp.

"I don't think the level of disclosure will be significantly different," he said.

The percentage of Americans covered by health insurance offered by employers is on the decline, and nowhere is the decline more evident than at firms with fewer than 50 employees.

The Commonwealth Fund reports that 49 percent of workers at the small firms were offered and were eligible for employer-provided coverage in 2010, down from 58 percent in 2003. The private foundation -- which promotes health care for the low-income, the uninsured and other vulnerable populations -- said only a third of the workers were actually enrolled in employer plans, down from 42 percent in 2003.

By contrast, 88 percent of the workers at companies with 100 or more employees were offered and were eligible for employer-provided insurance in 2010 and 71 percent were enrolled, the organization said.

As a result, 40 percent of employees at companies with fewer than 50 employees were without health insurance coverage at some point in 2010 versus 15 percent at companies with 50 or more workers, the organization said.

The group blamed the disparity in coverage on the fact that small firms pay higher premiums than larger companies for the same benefits and have higher per-employee administrative costs.

"Workers in the smallest firms -- and those with the lowest wages -- continue to be less likely to get coverage from their employers and more likely to be uninsured than workers in larger firms or with higher wages," the fund said in a report issued Thursday.

Authors of the report expect provisions of the Affordable Care Act, a popular target this election season, may alleviate the problem for some uncovered workers.

Among other things, the law provides tax credits of up to 35 percent of the cost of employer-paid premiums to small business with fewer than 25 employees and average wages of less than $50,000. The White House estimated in February about 360,000 businesses employing about 2 million workers claimed the credit in 2011.

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Len Boselovic: lboselovic@post-gazette.com or 412-263-1941.


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