Agenda Item No. 1: Good governance

Just as banks must adapt their strategic goals and operations to changes in local business conditions, the broader economy, and consumer preferences, governance must also evolve in order to effectively oversee management and protect the interests of shareholders. “Right now a lot of organizations are stepping back to look at their structure and asking: ‘How can we enhance or improve it?’” said Karen Grandstrand, head of the Bank and Finance Group for Fredrikson & Byron in Minneapolis, who counsels financial institutions on governance. [Continue]

Weighing the costs and benefits of establishing an ESOP

Community banks that have implemented ESOPs credit them with boosting employee morale and performance, furnishing liquidity to shareholders, and raising capital by turning employees into investors. ESOPs also offer attractive tax breaks to small community banks, particularly S corporations. But community bankers considering an ESOP should weigh the obligations along with the rewards of employee ownership. [Continue]

Bankers cry foul over CU acquisitions

After a lull due to the Covid-19 pandemic, credit unions are pursuing banks and thrifts with renewed vigor, picking up where they left off in 2019, which set a record for credit union-bank deals. In buying community banks, credit unions are leveraging their financial heft to break into new markets, gain new members and become a force in commercial lending. For their part, many bank owners find it difficult to turn down a handsome offer from a credit union, despite the complexity of such sales and the stigma associated with them. [Continue]

Navigating bank ownership succession

Understandably, bank owners tend to put off succession planning. It involves discussing discomfiting topics such as wealth and death, for one thing. It entails relinquishing control of the bank and the income stream that comes with ownership. And the planning process requires huddling with lawyers and accountants to work through irksome matters such as regulatory compliance and estate taxes. [Continue]

Succession planning pain points: Death and taxes

Once a rough framework for bank succession is in place, it’s time to call in the professionals — estate lawyers and tax accountants who can advise on and execute the technical aspects of transferring bank ownership along with other assets to the next generation. A well-crafted buy-sell agreement that specifies what happens to the principal owner’s stock at retirement or death is essential. A buy-sell (or buy-out) agreement provides for the redistribution of shares to put control of the bank in the right hands when a major shareholder leaves the bank, becomes disabled or dies. [Continue]

How has the pandemic impacted branch strategy?

Bank building photo

Bank owners are in the throes of rethinking their branch networks. This process has been ongoing for years, thanks largely to the rising popularity of digital banking, but the pandemic has brought the question of the future of branches into sharper focus. Aware that a substantial share of customers likely won’t return to branches after Covid-19 fears abate, community banks continue to invest in digital banking tools that kept them in business during the pandemic. But small institutions haven’t abandoned the concept of the retail branch. [Continue]

Navigating the perils of Reg O

Most community bankers are familiar with Regulation O, the Federal Reserve’s set of rules intended to prevent abuse of bank credit by bank presidents, directors and other “insiders.” Reg O has been around for 40 years, and the terrain of compliance is well trodden. But familiarity doesn’t necessarily shield bankers and bank owners from the risks of running afoul of this key regulation. Its stipulations and restrictions are complicated, and pitfalls await those who fail to pay attention to the details. [Continue]