Major financial decisions often include a unique set of tradeoffs, and deregistering with the Securities and Exchange Commission is no different.

A big draw for community banks is the potential for cutting costs. But they also run the risk of plunging into a virtual black hole with investors because dumping the SEC means that a company can no longer trade on a major stock exchange such as the New York Stock Exchange or Nasdaq.

Still, several banks have been willing to take the risk. Since the Jumpstart Our Business Startups Act, or JOBS Act, went into effect last April, 109 banks have voluntarily deregistered. The figure includes 65 banks with fewer than 750 shareholders.

Coastal Banking (CBCO) in Beaufort, S.C., which has 2.6 million shares outstanding and 622 shareholders, is among those banks. The company decided last year that trading on a major exchange did not justify the costs of filing with the SEC.

"We don't really have institutional investors, we have just small investors," says Paul Garrigues, the $475 million-asset company's chief financial officer, adding that deregistering will save Coastal $150,000 a year. "Whether we're an SEC registrant or not seems to be irrelevant."

Harleysville Savings Financial (HARL) expects to save about $250,000, or 6 cents a share, from lower legal, printing and other costs, says Brendan McGill, the Harleysville, Pa., company's chief financial officer and chief operating officer. Last December, the $814 million-asset company left the Nasdaq to trade on an OTC Markets Group exchange.

Trading volume for Harleysville's stock has increased since the move. Still, McGill says the company will continue to be "very transparent" with investors even if it suffers a drop off in volume in coming months. "We like telling our story and we always have," he says.

"We have always gone to the effort of letting investors know" about our financial condition, McGill adds. The company files a balance sheet, income statement and cash flow statement on the OTC Markets website, as well as annual reports, proxy statements and insider trading disclosures.

OTC Markets Group has three tiers of trading platforms, with the top tier requiring a certain level of financial disclosure and the bottom tier having no reporting requirements. Most of the roughly 650 community banks that trade with OTC trade in the middle tier, OTCQB. Those banks range in size from the $3 billion-asset First National Bank Alaska (FBAK) in Anchorage to the $27 million-asset Northern Star Financial (NSBK) of Mankato, Minn.

Companies aren't required to file financial information on the OTC Markets Group's OTCQB platform, though they are encouraged to do so, says Tim Ryan, a managing director at the OTC. "Generally speaking, a bank that continues to provide quarterly and annual reports get more interest from investors," he says.

OTC offers banks a chance to be a big fish in a smaller pond, rather than the other way around, Ryan says. "If you're big enough to be included in large indexes that are followed by mutual funds, then it really pays to be an SEC-reporting company and listed on an exchange," he says. "But lots of companies don't get that full benefit."

Not every bank would benefit from trading on the OTC, says Lee Burrows, chief executive of Banks Street Partners in Atlanta. "If you've got the wind to your back and it's a great environment for financial stocks, then the OTC is a great option," he says.

"Otherwise, you need to weigh the pain the OTC markets may inflict on you," Burrows adds. When bank stocks are out of favor, sellers typically outnumber buyers, which can cause problems for banks by leading to deep discounts for OTC-traded stocks, he says.

There are factors to think about. The OTC has less liquidity than NYSE or NASDAQ, regardless of the bank's underlying fundamentals. And it's a good idea for a bank to get regulatory approval for a repurchase program before switching to OTC status.

"That way, I've communicated to market-makers that there is always going to be a buyer for the stock," Burrows says. "It's not just so simple to say, 'Now I'm not an SEC filer and I'm going to save money.'"

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