Is Your Bank a Keeper

Community banks whose owners want to sell find it harder to do so at acceptable prices-or harder to sell, period. Is this a temporary problem, or new order of things? Not so long ago, when investment bankers attorneys specializing community bank mergers acquisitions spoke at conferences, a subject that always came up was: Can our board say no to an unsolicited offer directors perfer independence? Somewhere along line, in community bank boardrooms around country, that question is being stood on its head: Will there still be a way to say yes? That is, if our board wants to sell bank, can we find some-one out there to say 'yes' to at a decent price? Or, for that matter, can we expect to find someone out there who will buy us at all? Thud!! Lately, when investment banker Charles Miller gives a speech, there's a bit of ironic humor that bank merger specialist tries to work in. I joke around that, 'If you heard that loud noise a minute ago, it was window of opportunity-closing!', says veter-an community-bank dealmaker. Listeners chuckle-either because they sold their banks just in time or from nerves. Miller, managing director at Alex Sheshunoff & Co., Austin, Texas, has been marrying off community financial institutions for years, he says that it's never been this to find buyers. If what Miller has been asked to peddle is a rural bank that's on small side, he says, prospects of finding someone interested in buying it are increasingly slim. It's certainly hard to find more than one potential buyer, he says. Even in comparatively rare cases where multiple buyers are interested, the buyers are far more discerning than they used to be, Miller says, and that's because they have a lot more banks being shown to years ago, we would have found six eager bidders for every bank client that we shopped around, says Arnold Danielson, chairman of Danielson Associates, Inc., Rockville, Md. Now we hope that just one comes through with a decent offer. Two years from now, Danielson isn't sure one decent buyer will be there for many sellers. Absolutely, agrees consultant George Ostrowksi, Ostrowski & Co., Inc., Cranford, N.J. They missed it when they didn't sell in 1998. Some banks that did sell then not only gained a coup for shareholders with initial deal, but put them in way of a dip when larger acquirors bought organization that bought them. Going forward, those double dips are not going to happen, says Ostrowksi. The opportunities aren't out there. Indeed, he says, many 1999 sellers didn't even get prices they announced when their deals first saw ink, because lockup walkaway price levels typically put in merger contracts are pegged to peer group numbers. peer prices fell, he recalls. In Iowa, where recent community bank deals have been done for cash, banker Jeff Plagge, president CEO of First National Bank, Waverly, says acquisitive banks in his market aren't going to pay more than they have to to make a deal. Where a bank might have gone for a cash price of between 1.7 2.25 times book a few years ago, he says, I think two times book is going to be a potential challenge. And deal will really have to have wheels. What happened? Statistics bear out anecdotal evidence. FDIC's Quarterly Bank Performance report for fourth quarter of 1999 put it succinctly: For fourth consecutive year, pace of industry consolidation slowed. There were 231 new commercial bank charters, largest number since 1986. Mergers absorbed 417 banks, fewest since 1990, 7 commercial banks failed in As shown in tables below, acquisitions of community banks (defined as commercial banks under $1 billion in assets) fell from 1998 to 1999. …