Pub. 12 2021 Issue 2

www.wvbankers.org 26 West Virginia Banker Five Pillars Supporting Community Bank Independence By Mark Mangano, Jackson Kelly PLLC M ost community bank boards aspire to maintain long-term independence. Supporting that aspiration requires a commitment to five distinct pillars: Performance, Shareholders, Management, Leadership and Vision. A consistent focus on all five pillars can significantly increase the bank’s chances of remaining independent or supporting a high price for being acquired. Neglecting any one pillar will undermine the bank’s value and decrease the chances of staying independent. Community bank directors face increasingly complex challenges. They continually receive general admonitions to maximize shareholder value and specific demands from regulators to oversee operational, planning and compliance issues. But between these two extremes, bank directors are left to fend for themselves. Neither general admonitions nor explicit instructions provide a framework for boards seeking long-term independence. Most boards justifiably concentrate most of their attention on performance. Performance is the lynchpin of independence. Achieving a safe, sound and profitable operation is essential. But remaining independent is about the future promise of the bank. For a variety of reasons unrelated to performance, high- performing banks are sold out of existence every year. Boards with aspirations to remain independent must broaden their focus beyond performance. Five Independence Pillars Performance Performance encompasses every element impacting the creation of consistently acceptable returns. Performance includes all safety and soundness considerations as well as compliance with consumer and banking regulations. Beyond ensuring growth and strong returns, performance must focus on increasing demands to improve technology, risk management and operational efficiency. Community banks today are generally excellent at addressing performance. Passing through the crucible of the great financial crisis honed board and management skills in designing and maintaining safe, sound and profitable business models. Community bankers have shown remarkable abilities to adapt to constantly evolving business challenges. Shareholders A bank’s independence is dependent on its shareholders’ willingness to hold the bank’s stock in the face of many other options. A community bank shareholder’s definition of value is some combination of the following elements: • Bank performance • Share liquidity • Share value appreciation • Cash flow • Sentimental attachment • Commitment to the community bank mission The relative importance of each of these factors is different for every shareholder and every shareholder group.