The Securities and Exchange Commission amended its definition of “smaller reporting company” (an “SRC”) increasing the public float threshold (cap on portion of shares held by public investors) to $250 million, up from the prior $75 million threshold.  Companies with a public float of up to $700 million may also qualify for SRC status under the new rule if their annual revenues are less than $100 million.

Benefits of SRC Status

The less rigorous reporting requirements for SRC’s provide a number of benefits to qualifying companies.  The Independent Community Bankers of America estimates that SRC status—thus exemption from the 404(b) reporting requirements—could cut audit fees for qualifying bank holding companies by as much as 50%.   Included in the lesser filing requirements for SRCs are the following scaled disclosure accommodations:

  • Audited historical financial statement filing requirements are reduced to two years (rather than three for larger reporting companies)
  • Less rigorous disclosure for annual and quarterly reports, proxy statements and registration statements
  • Two years of income statements (rather than three)
  • Two years of changes in stockholders’ equity (rather than three)
  • Reduced compensation disclosures
  • No stock performance graph required
  • Not required to make quantitative and qualitative disclosures about market risk

Methods of Calculation

A company’s public float, the total market value of the company’s outstanding common stock (voting and non-voting) held by non-affiliates or non-insiders, is the amount reflected on the first page of the company’s 10-K as the “aggregate market value of the common stock held by nonaffiliates of the registrant.”   The public float is measured as of June 30th each year.

To calculate “annual revenues” for the $100 million SRC limit, a financial institution must calculate its gross revenues earned from traditional banking activities.

Interest income

+ non-interest income

– gains and losses on securities

= annual revenues

The calculation of annual revenues is from the most recent 12 months for which audited financials are available.  We have no reason to believe based on the issuance of this new rule that the SEC will change the calculation of annual revenues for financial institutions.

A company that does not qualify under the new calculation of smaller reporting company may qualify once (i) the company’s public float becomes less than $250 million, or (ii) if the company has no public float or a public float of less than $700 million, the company’s revenues become less than $80 million.

Other Changes

The new rule also contemplates changes to the “accelerated filer” status.  The SEC approved removal of the exclusion of SRCs from the accelerated filer definition.  Now some registrants may qualify as both and SRC and an accelerated filer.

Finally, the new rule implements a few minor tweaks to the filing form.