A California community bank is hoping an unusually large reverse stock split will pull its price out of the basement and boost its visibility to investors.
In a rare move for banks, Sacramento-based First Commercial Bancorp completed a 1-for-125 reverse stock split Dec. 9. The action reduces the bank's outstanding shares from a whopping 105 million to 850,000, more typical for community banks of its size.
The $151 million asset bank traded at 9.4 cents a share Friday and opened Monday at the reverse-split equivalent, $11.75. It lost ground Tuesday, trading at $11.
Besides being more likely to catch the attention of investors, the higher price will ensure that First Commercial won't lose its status on the Nasdaq Small Cap Market, where it has traded for several years.
"It'll enhance the value and it'll allow us to be seen in the marketplace consistent with how other banks operate," said president and chief operating officer James E. Culleton. "There are not many banks that operate on the penny stock arena, if any."
Under Nasdaq rules, stocks must trade above $1 to remain on either the Small Cap or National Market exchanges, with few exceptions. Otherwise, the stocks are removed from the exchanges and sent down to the less visible and less liquid bulletin board or pink sheets. No other bank stock is currently trading at less than $1 on Nasdaq.
As a result, it's in the banks' best interest to get their prices back up quickly through a reverse stock split as at First Commercial, said Randall Kinoshita, bank analyst at Burford Capital in La Crescenta, Calif. He added, however, that the 1-for-125 ratio was probably the highest he'd seen.
"They have no choice," Mr. Kinoshita said. "For them to remain on Nasdaq they have to do that."
First Commercial's reverse split comes one year after a crucial recapitalization of the bank by St. Louis-based First Banks Inc. After severe real estate problems at First Commercial caused $35 million in losses over several years, First Banks injected $13 million in new capital at 10 cents per share. That saved the bank from regulatory seizure, Mr. Culleton said, but also inflated its outstanding shares. First Banks now has a 62% stake in First Commercial.