Stop Waiting for Better Multiples: A CEO's Guide to Building Real Bank Value

Let's have an honest conversation about bank valuations.

I hear it in boardrooms across the country: "We'll consider selling when the multiples improve."

Or my personal favorite: "We won't even look at offers under 2x book."

Here's the truth: If you're waiting for multiples to determine your bank's future, you're letting fate write your story.

And fate is a terrible author.

Why Price-to-Book Multiples Are a Trap

Let me show you why fixating on multiples is misleading with a hypothetical comparison.

Consider two $200 million asset banks that both sold for $30 million:

Both bank’s shareholders initially bought stock for $100 per share on the same day, with the same amount of shares outstanding.

Both banks opened on the same day and sold on the same day.

Bank A:

- Tangible Book Value: $16 million (8% TCE)

- Last 12 Months Net Earnings: $1 million (0.5% ROA)

- Price/TBV Multiple: 1.88x

- Price Per Share: $300

Bank B:

- Tangible Book Value: $22 million (11% TCE)

- Last 12 Months Net Earnings: $2 million (1.0% ROA)

- Price/TBV Multiple: 1.36x

- Price Per Share: $300

Bank B's leadership might be frustrated.

After all, they're better capitalized, more profitable, and by traditional metrics, "better run."

Shouldn't they command a higher multiple?

What’s the difference?

The capital policy.

Here's what matters: Shareholders at both banks walked away with $300 per share.

Same return.

Your shareholders don't care about multiples.

They care about return on investment.

The Strategic Path to Real Value Creation

Instead of obsessing over multiples, let me show you how successful bank CEOs build genuine, lasting value.

Here's your roadmap:

1. Think Like a Buyer (Reverse Engineering)

Ask yourself: If you could design the perfect complementary bank to acquire yours, what would it look like?

- Which markets would it serve?

- What would its deposit mix look like?

- Where would its loan portfolio strengths lie?

- What talent would it bring to fill your current gaps?

This exercise isn't theoretical – it's about understanding what makes your bank valuable to potential partners.

2. Envision the Combined Future

Once you've identified your ideal partner profile, dig deeper:

- What could the combined institution achieve?

- Which new markets become accessible?

- What products become feasible at larger scale?

- How would your competitive position change?

Don't constrain your thinking. This vision will drive your strategic decisions.

3. Quantify Your Hidden Earning Power

Here's where it gets interesting. Consider your bank at 5-7 times its current size:

- How many existing relationships could you expand?

- Which loan participations would you recapture?

- What's the earning potential locked in your current customer base?

Most CEOs never consider how valuable their relationships could be to a larger institution. That's a costly oversight.

4. Build a Self-Sustaining Operation

Your bank's value increases dramatically when it can run smoothly without you. Ask yourself:

- Can your team handle daily operations independently?

- Are key client relationships managed across multiple touch points?

- Have you developed clear succession plans for critical roles?

You don't need to make yourself redundant – but you need to make yourself non-essential to daily operations.

5. Time Your Window of Opportunity

While you can't perfectly time the market, you can identify optimal windows for consideration:

- Clean regulatory exams (Safety & Soundness, BSA, IT)

- 18 months until the next exam cycle

- Core processing contract 18-24 months from renewal

This is your "Golden Window" – when your bank is most attractive to potential partners.

The Path Forward

Smart bank CEOs aren't watching multiples or obsessing over what the bank down the street sold for last quarter.

They're methodically building value through:

- Strong, sustainable earnings

- Scalable operations

- Strategic market positioning

- Deep customer relationships

- Clean regulatory standing

This isn't about quick fixes or market timing.

It's about building a valuable institution that's attractive to potential partners while being profitable and sustainable if you choose to remain independent.

Your Next Steps

Take a hard look at where you stand on each of these five elements.

Which areas need attention?

Where are your hidden value drivers?

Most importantly, what's your first step toward capturing that value?

Remember:

The best time to start building value isn't when you're ready to sell – it's right now.

Let me know which of these areas you'd like to explore further.

There's always more to unpack when it comes to building genuine bank value.

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.

I’ll see you next week.