When Bank Stock Financing Is Your Answer
The number of U.S. banks continues to drop as management deals with burdensome regulations, operational inefficiencies, and lack of ownership or management succession. In fact, there are 55% fewer banks than there were 25 years ago.
Despite the consolidations, many banks are still actively looking to expand their brands, footprints and balance sheets via acquisitions. The challenge is that the price for banks continues to rise. The median price/tangible book in 2015 was 1.37x. It is 1.71x this year. In May, a Texas bank agreed to pay 3.19x to purchase a bank in Colorado.
SNL Financial reports that bank and thrift target valuations in the Midwest between last June and this June averaged just over 159% of book, nearly 167% of tangible book and had a median of 20.57x earnings, on an aggregate basis.
If you’re a buyer, understanding the right price to offer isn’t a science; there are often many factors that management must take into account. Usually, competition, rather than performance metrics, sets the price.
That’s where Bell’s experience and expertise can help. Our team has years of experience working with banks and understanding their balance sheets and strategies. We offer competitive terms and pricing that can provide flexibility to absorb your acquisition.
Here correspondent banker Callie Schlieman, who has worked in banking nearly 20 years (the last 12 at Bell) and is a former bank examiner, answers your bank stock financing questions.
How can Bell help finance an acquisition?
In addition to acquisitions, we also offer competitive terms to refinance your existing bank stock debt or provide funds to meet various bank or holding company needs, such as funding growth.
Bank stock financing can help you:
- Expand through mergers and acquisitions
- Maintain healthy balance sheets
- Provide capital for growth
- Plan for the future
- Buy back investor shares
- Accommodate an employee stock ownership plan (ESOP) purchase of shares
- Purchase holding company stock
What do banks need to know about taking out a holding company loan?
It’s an easier process than you’d think. We always go in with an open mindset, so there isn’t a one-size-fits-all product. We will tailor a plan to fit your holding company’s and bank’s balance sheets, strategy and cash flow while working within our risk parameters.
Besides the traditional bank stock loan, Bell’s correspondent staff can also team up with your bank by purchasing or selling loan participations.
What is a typical timeframe?
Bank financials are public and tell a quick story of the bank, so our approval turnaround is fast when we can use public data along with standard management reports.
We also make our decisions locally, and our decision makers are long-term Bell employees who understand banking.
Ideally, we like to visit the banks in person. We always strive to meet face to face to better solidify our relationship. However, sometimes we can underwrite remotely over phone conversations, depending on the borrower’s time frame.
What are the loan terms and amortizations, typically?
We offer both variable and fixed-rate options, with a typical loan term ranging from 12 months to 5 years.
Usually, we like to keep the amortization around 12 years, but if a bank projects growth and needs an interest-only period ahead of the 12 years, we’re flexible. We are here to help you succeed, and placing additional pressure during a growth phase isn’t always in your best interest.
Where are your customers located?
Our correspondent bankers have established partnerships with more than 200 banks in Arizona, Idaho, Illinois, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, South Dakota, Wisconsin and Wyoming.
We focus on the Midwest, but if a bank is sound and well-performing, we are always willing to work with borrowers outside of the Midwest.
What else should banks know about this process?
We really like to get to know management and strive to have someone on our team meet them in person, no matter how many miles away the bank is. We always want to understand your bank, the risk profile of your bank, what keeps you up at night, and what your goals are for the future.
We’re here to partner with you and understand how your bank works, what you offer and if we have any services here at Bell that can benefit you. For example, we can originate all loan types to insiders to alleviate Regulation O concerns and accommodate investor and employee stock purchases.
We are a family-owned, community bank. Our owners love lending to bank holding companies. We are your partner before, during and after recessions.
▶ Don’t miss out on an opportunity because you don’t have the capital you need. Contact Callie Schlieman at 701-433-7430 to find out how Bell can help your bank.