Pub. 2 2021 Issue 2

www.cbak.com 12 In Touch Liquidity Strategies for Illiquid Community Bank Stocks BY GREYSON E. TUCK, GERRISH SMITH TUCK T he fundamental duty of community bank directors and executive officers is to enhance shareholder value. One of the key tenets of enhancing shareholder value is providing actual common stock liquidity. In this regard, liquidity is defined as a shareholder’s ability to convert their shares to cash at a fair price in a timely manner. Unfortunately, many community bank stocks do not enjoy market liquidity. A community bank shareholder’s inability to convert their shares to cash at a fair price in a timely manner represents one of the biggest threats to the ability to maintain long-term community bank and holding company independence. If your community bank has adopted a strategy of long-term independence and your stock does not enjoy market liquidity, the following should be considered to provide for liquidity in the common stock. 1. Walk-In Stock Repurchase Program – A Walk-In Stock Repurchase Program offers share liquidity by authorizing a representative of the holding company, typically the president or chief executive officer, to repurchase on behalf of the holding company shares of holding company common stock within certain board-established parameters. To implement a Walk-In Stock Repurchase Program, the board passes a resolution that (i) allocates a specific amount of corporate cash to the program; (ii) establishes the per- share price at which the authorized representative may repurchase shares; and (iii) establishes any other terms or conditions appropriate for the program, such as a maximum number of shares to be repurchased from a selling shareholder. Following approval of the board resolution, the authorized company representative is free to act upon any shareholder request for liquidity that fits within the established program terms. This provides the shareholders a ready, willing, and able purchaser that can quickly react to shareholder liquidity needs. 2. Voluntary Stock Repurchase Program – A Voluntary Stock Repurchase Program is a formal program memorialized in a written document distributed to the shareholders that describe the terms and conditions of an offered share repurchase as approved by the board. In this type of program, the board allocates a specific amount of corporate cash to the purchase of holding company common stock at a specified price per share. Similar to a Walk-In Stock Repurchase Program, the board is free to incorporate any other program terms determined appropriate, such as minimum share repurchase requirements or a requirement that a shareholder owning less than a specified number of shares sell all of their shares to participate in the program. Once the voluntary stock repurchase program document is drafted and approved by the board, the documentation is distributed to shareholders for their consideration. Any shareholders wishing to sell shares back to the holding company may respond according to the terms of the program. A Walk-In Repurchase Program is a reactive solution to shareholder liquidity, whereas a Voluntary Stock Repurchase Program is a proactive solution to shareholder liquidity. The general concepts relative to the programs are the same. The primary difference is in a Voluntary Stock Repurchase Program; the shareholders are provided specific program documentation that actively solicits the repurchase of shares, should the shareholder wish to sell.