Community Bank CEOs: Want a successful bank sale? Free your limits.

Your potential acquirer will be five to seven times your size.

If we can get an idea of the size of a potential acquirer, we can extrapolate an estimate of what the legal lending limit would be for that bank.

That’s good information to consider.

You likely have borrowers in your loan portfolio that are at your internal hold limit or even perhaps at your legal lending limit.

And you know the borrowers well enough that if you had a higher internal hold limit or legal lending limit, you would have no problem extending additional credit to them.

You might have sold participations to others because of your internal hold limits or legal lending limits as well.

Look at those participations sold.

You may want to purchase them back if you have the capacity.

My guess is that you want those earnings if you now could hold those loans.

You’ve already made the credit decision.

Start building a list, by customer, of those who would have a larger relationship with you if you were five to seven times the size you are today.

In addition, you may be able to add to your leasing portfolio if you have more capital and a higher legal lending limit.

Or, if there were considerably more locations that you would have as a part of a larger organization, perhaps your mortgage unit could expand, and you could increase the number of loans closed and fees earned.

The whole point here is to think “Do & Become.”

That’s how the buyer will be looking at it.

What does the future hold?

You don’t know who the potential buyer could be, so don’t try to predict what they might or might not be interested in.

Just think of your bank being five to seven times its size and make some assumptions on additional locations and imagine what you could do with that.

As previously mentioned, the buyer is under no obligation to execute the plan you are coming up with, but it helps to go through the process of thinking through this and building out assumptions so that you can help paint a picture of what could be.

It can’t be assumed that the potential buyer has the imagination to understand what could be in your customer base and product mix.

It is up to the buyer to execute the plan they build for the acquisition.

That is their risk to manage.

 Execution risk.

These are exercises only you can do.

Investment bankers can’t do this for you.

Only you will know this information.

They can only work with what is provided to them.

Stay highly engaged.

Action plan:

• Look at your existing loan client list and build specific lists:
  • Who would you do more with?
  • What participations would you buy back?
  • Are there any industry concentration limits you have that you now would go further with?
• In addition to the increased loan balances you are looking at, is there additional fee income you may benefit from too?

There are zero hacks or tricks in this newsletter. Just proven tactics that help you choose the right path for your bank.

Your path will:

• Inform your strategic plan.
• Guide your annual business plan and budget.
• Clarify priorities.
• Define your message so it can be communicated with confidence.

This is how savvy bankers navigate.

They build smart and valuable banks and choose the best time to sell - serving the needs of the shareholders and the board.

I hope you found this short lesson helpful.

What are your thoughts?

I’ll see you next week.