Preserving Independence: Navigating Investor Relations and Liquidity in Community Banks
By Pete Scully, President, My Private Shares
Maintaining independence, enhancing shareholder engagement, and offering liquidity solutions without compromising stability have always been the focus for the nation’s privately held community banks. While the fintech revolution continues to be a force that all community banks must address, there are growing trends that can also threaten a privately held bank’s independence.
An Aging Shareholder Base
One increasingly urgent issue is the aging demographic of community bank shareholders. In some privately held banks, internal assessments suggest that the average shareholder age exceeds 70. These individuals often represent a critical customer base for deposits and lending relationships, but also a growing risk to ownership continuity. Some community bank CEOs have put out the call for “new blood” to replace shareholders who have passed or who are seeking ways to liquidate their holdings.
As older shareholders prepare their estates or pass away, their heirs—many of whom live far from the bank’s geographic footprint—may have limited personal connection to the institution. This disconnection can result in a push to liquidate inherited shares quickly on the open market, which can destabilize the shareholder base and introduce unintended parties into ownership.
This scenario recently played out at a community bank in Ohio. When one of its largest shareholders with 6,000 shares passed away, the five heirs—none of whom lived in the region—initially planned to sell their shares on the open market. The bank, lacking an internal solution for liquidity, acted quickly by implementing a third-party private listing service. This platform allowed their 400 existing shareholders to create, view and respond to Buy and Sell listings. Within weeks, all shares were successfully transferred to current shareholders, preserving the bank’s ownership structure. The bank’s CEO also reported saving a considerable amount of time by not looking for investors, something he pointed out could have taken months.
The Liquidity Gap for Private Investors
Liquidity has always been a challenge for investors in privately held financial institutions. Without the benefit of a public exchange, these shareholders often lack clear, consistent ways to manage their holdings. As economic conditions shift—and shareholder needs are shifted based on macro events that cause market uncertainty and various personal life circumstances—this illiquidity becomes more concerning.
Privately held banks walk a fine line. While they want to support their shareholders, engaging in one-off pricing discussions or negotiating buybacks on a case-by-case basis can expose the bank to risk and distraction. Some banks turn to informal methods—such as word-of-mouth transactions or outdated mailing lists—but these approaches often lack transparency, fail to reflect real-time buyer interest, and are difficult to scale effectively.
Investor frustration can also increase when they have to wait to see if there is an opportunity to buy or sell more shares of their privately held bank. Until recently, private community banks had limited options to generate liquidity, unless the bank wanted to consider listing on a public exchange. Losing their privately held status is not an option that the majority of these banks want to consider. Instead, they can now create a bulletin board for the exclusive use of their investors and others they wish to welcome. The key is controlling access to the site in order to protect the privacy of investors.
Succession and Strategic Continuity
Ownership isn’t the only area facing generational transition. Many community banks are also preparing for executive leadership turnover, with senior officers nearing retirement. Employee retention and leadership succession are perennial challenges, but the opportunity to provide equity-based incentives can make a significant difference.
For example, younger leadership candidates or rising stars within a bank may be more inclined to commit to long-term roles if they are offered the chance to become shareholders. Yet many banks struggle with how to make those opportunities accessible, especially in a privately held structure. Tools that create a fair, controlled secondary market for shares can support these transitions, helping banks offer real equity opportunities without having to initiate new capital raises.
Looking Ahead
The broader financial landscape will continue to evolve, and community banks must navigate a path that preserves their independence while addressing the changing needs of shareholders and employees. By proactively managing shareholder demographics, providing structured liquidity options, and preparing for leadership succession, banks can remain resilient.
The tools and strategies now available—especially those that empower banks to maintain control while increasing transparency—offer a promising path forward. The question for community banks is not if these issues will arise, but whether they are prepared to address them thoughtfully and effectively when they do.
My Private Shares provides a seamless, transparent platform that simplifies investor relations and mitigates risk benefits not only for investors, but employees of privately held banks. For more information about our services, please contact [email protected], or [email protected] or call 615-519-5044.