“This is the way we have always done it.” Or maybe, “This is what we have always paid to buy back our stock.” In my almost 30 years with Wipfli, I have heard these comments countless times. I applaud you for wanting to be consistent. But with changes in the industry, changes in the economy and changes in the market, continuing to use the same buyback formula or price is setting you up for potential problems.
Remember you have a fiduciary responsibility. I remember working with one bank that wanted to keep buying back their holding company stock at a certain level when the recession was starting. I encouraged them to adjust their pricing for the reduction in earnings, the change in the loan portfolio and other items, but they wanted to be consistent. In a situation like this, if I were a shareholder, I would have been the one wanting to get bought out first because in my mind the ones left with the stock were the ones holding the empty, or reduced-value, bag. You can only overpay so many times before the shares you hold reduce in value.
The moral of the story is that the value of your bank and holding company changes...sometimes slowly, sometimes quite quickly. The amount you pay to buy back stock should as well. We value many banks annually. Let us help you come up with today’s value…not the value from 2007 or 2012.