Page 7 - Winter 2025 - 2.pub

Should I Stay or Should I Go?

BY BOB FEGTLY

The song

Should I
Stay or
Should I Go
was originally
recorded by the
rock group “The
Clash” in 1981. The
song has since been
covered by well over 50
artists from The Ukulele
Orchestra of Great Britain to Ice Cube. No
matter who’s playing this song, whenever I
hear it, I’m reminded of the senior
management, investors groups and boards of
directors with whom I’ve spoken over the
years. They always have a recurring question:
“Should I Stay or Should I Go?” Well, in banker-
speak, this translates to “Should I Sell or Should
I Not?”
Knowing when to buy is easy, because
everyone knows when something is a shareholders or is unable to attract new succeeds in building a more business friendly
bargain. Knowing when to sell is a lot harder, management and board members – these banking environment, it will likely result in new
especially when we are still recovering from a would be major reasons for an organization to investors and potential buyers entering the
5.5% rate increase by the Federal Reserve and consider selling. acquisition environment and thus creating
the havoc that it created related to the mark to greater demand and higher prices. The great
Employees – Banking is a relationship business.
market on securities and the impact on deposit news for our weary banker friends is a new exit
If a financial institution is unable to attract the
costs and loan production. Of course, the door may become available.
necessary, qualified personnel to operate the
decision to sell has never been an easy one, as
organization in a consistent and customer- Economy – The health of a financial
it is usually a once in a lifetime event that
friendly way, ownership should factor this into institution’s loan portfolio and other assets has
affects families, friends, employees, the
their decision. a direct correlation to the economy in which it
community, and usually involves millions of
operates and generates business. A downturn
dollars. For all these reasons, the question is a Regulations – The current regulatory
good one to ask now, because as the sun rises environment continues to place an increased in the economy can happen on national,
and sets, so also do rates rise and ultimately burden of operational costs and manpower on regional or local levels due to nationwide
factors such as inflation, pandemic or wars, or
fall (sooner or later). financial institutions. The ability to comply
with the current number of regulations impacts on the local level from shutdowns of major
Notwithstanding the rate situation, strictly employers or governmental operations. In
profitability as well as customer service,
from a financial standpoint, you should sell times of higher uncertainty, the desire to enter
creating a need to hire highly specialized
anytime an offer is made that is greater than into a deal may fade into the background, but
personnel in all risk management areas.
the present value of future cash flows. That as feelings of greater clarity or economic
Addressing these regulations place a
sounds easy enough, but in real life, things are prospects improve, organizations who have
rarely so cut and dried. There are always more tremendous burden on executive management been
and boards.
variables to consider, many of which are on the fence about selling may decide the time
intangible without a cost/income association. Although the incoming Administration has is ripe.
signaled a willingness to reduce the regulatory
What might those be? Here are some of the Market Area – A market area’s viability and
most common intangible issues to consider burden on US business (which includes the growth prospects contribute to the buy or sell
when determining when to sell: banking sector), many banks are weary of decision making. Higher premiums are usually
trying to comply with the ever-increasing
Management and Board of Directors – alphabet soup of regulations (BSA, AML, CRA generated by well-run financial institutions
Management, depth of management and for example) and changing risk management located in metropolitan areas. For those who
involvement of the Board are keys to any well- requirements. If you think you will struggle to are located in low or no growth markets, there
run organization, especially a highly regulated meet all the regulatory requirements, even are fewer options but many of these banks
financial institution. As the owners, with promises of some relief, you may consider have a valuable franchise because of low-cost
management and/or Board age, if the selling. core deposits which rapidly growing banks
organization lacks a clear succession plan or is need desperately.
unable to provide liquidity to older Actually, if the incoming Administration

Arkansas Community Banker | 7 | Winter 2025