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How to buy a community bank?

|Includes: BBX, Cadence Financial Corporation (CADE-OLD), MROE, ONB

Buying a community bank can be a complex and confusing process. For many investors seeking to acquire a bank, the complexity of the acquisition process can sometimes serve as a non-starter.  I have put together a quick process overview to help would-be bank acquirers to understand the overall process.


Typical acquisition process consists of the following steps.


Step 1: Identify an Acquisition candidate
Step 2: Conduct Due Diligence
Step 3: Negotiate a price
Step 4: Negotiate a Definitive Agreement
Step 5: Fund the Transaction
Step 6: Apply for Change of Control approval


Step 1: Identify an acquisition target

Identifying a potential bank to acquire is the first step.  Investors should seek a bank that fits their business needs and their capital ability. There are many factors that play a role in the bank identification process, these include geographic preference, charter type, number of branches, asset quality etc.


Step 2: Conduct due diligence

Know what you are buying. It is important to build a thorough due diligence checklist before starting the process. The checklist should include A/L, regulatory, governance and management due diligence.


Step 3: Negotiate a price

Before making an offer, it is critical to understand the various factors impacting bank valuations. Some of the key considerations in price determination can include the following items.


  • Business Plan Strength
  • Profitability Analysis
  • Lines of Business
  • Growth Forecasts
  • Asset quality
  • Branch Network Value
  • Brand Value
  • Local Market Trends


Step 4: Negotiate Definitive Agreement

The definitive acquisition agreement outlines all aspects of the acquisition terms and conditions and should include the following components


  • Price
  • Terms
  • Non approval risks and remedies
  • Loss sharing and existing portfolio treatment


Step 5: Fund the investment

In order to fund the acquisition, the investor should establish an Escrow account. Select a stable bank to hold the escrow money. Prior to selecting an escrow agent, some financial due diligence may be necessary on the institution.


Step 6: Submit Change of Control Application

Once the Change of Control application is completed, it should be filed with the relevant regulatory bodies. Additionally, the new investors will be required to submit detailed personal and financial background information. Certain factors such as a criminal history, bankruptcies, foreclosures etc. may be considered as automatic disqualifiers by bank regulators. Typically a meeting will be scheduled between the investors and the regulating agency, at the meeting the investors must explain and defend their business plan to the regulators.


To learn more about the bank acquisition process please visit my company website at

Disclosure: I am a community banking consultant