What are the steps to buy a Bank?

Bank Acquisitions are the most complex transaction. And it is critically important that the Buyer engage experienced Advisors to assist them. Mostly to effectively manage the steps to buy a Bank which is outlined herein.

Initial Decision

The initial decision to Buy a Bank should carefully consider the entire process. This is required to insure an understanding of the numerous issues and requirements. This will ensure smooth going of the process.

Acquisition Analysis

The first one of the steps to buy a Bank is for potential buyers to identify Banks.  They must be available for sale that meet their:

  • basic requirements of location,
  • acquisition budget and
  • other special requirements.

The substantial part of the initial acquisition analysis can be done with Public Numbers. If the Buyer is an existing Bank it should complete an analysis. This analysis will determine at what price the transaction will be accretive to earnings per share. And then enhance shareholder value.

Letter of Intent (LOI)

Absent any substantial issues of concerns in the Acquisition Analysis a Letter of Intent should be prepared which addresses purchase structure, price, due diligence requirements, confidentiality requirements and retention of key employees. The final LOI is submitted to the Seller along with evidence of the Buyer’s Qualifications to include:

(1) a Business Resume for the Principal Buyer;

(2) a conceptual Business Plan which outlines the intentions of the Buyer for the Bank post acquisition;

(3) a Proof of Funds Letter to evidence the Buyer’s financial capacity; and,

(4) a Commitment from the Buyer for a Preliminary Meeting with appropriate Regulatory Authorities to determine the probability of their willingness to consider a Change of Control Application.

If the material terms of the transaction have been agreed upon by both the Buyer and Seller the LOI is executed. In the event of widely held or publicly held stock there may be additional, and complex, requirements for Shareholder approval of the LOI. The execution of this LOI does not obligate either side to complete the transaction. It merely sets forth in writing the material terms of the transaction and evidences agreement by both parties so that the acquisition process might continue. The non-binding LOI serves as the basis for subsequent drafting of a Definitive Purchase Agreement.

Due Diligence

Following Acceptance of the LOI, by the Seller, the Buyer and its Representatives will perform due diligence on the Bank. If the transaction involves the Buyer’s Stock as consideration, the Seller will also perform due diligence on the Buyer. The due diligence period provides an opportunity for the Buyer to complete a comprehensive review of the Seller’s business operations at the Bank. Due Diligence process includes a comprehensive review of the Bank’s loans, business operations, fixed assets, compliance issues, contractual agreements, other material components of its operations and, if necessary, a ‘Fair Value’ analysis of assets and liabilities.

If due diligence reveals no major deficiencies in the Seller Bank, the transaction proceeds as outlined in the LOI. However, if due diligence uncovers issues or problems, the Buyer has the options of amending the terms of the LOI (such as lowering the purchase price or requiring an additional provision to the seller’s ALLL) to account for the problems discovered during due diligence or simply terminating the LOI.

Definitive Agreement

If the Buyer elects to proceed with the Acquisition a Definitive Agreement is drafted. This Agreement is the actual Purchase and Sale Agreement. It includes representations and warranties of both the Buyer and Seller, conditions to closing such as regulatory and shareholder approval, termination provisions and other relevant issues. The Definitive Agreement will also incorporate any specific requirements of the Buyer or the Seller that may have developed in the Due Diligence process.

♦ Negotiate Definitive Agreement

The Definitive Agreement is then presented to the Seller Bank. Seller will review the proposed Definitive Agreement and notate changes that they deem appropriate or unacceptable. Negotiations will continue until such time as both parties achieve their principal objectives and commit to signing.

♦ Execute Definitive Agreement

Upon Execution by both Parties the Definitive Agreement represents a legally binding contract for both parties to the transaction.

Regulatory Approval Process

Following the execution of the Definitive Purchase Agreement, the Buyer will initiate all required Regulatory applications. The appropriate federal (Federal Reserve / FDIC / OCC) and/or State regulators will review the application, provide comments, ask for additional information and conduct background checks on those whom they deem to be the Principal Buyers. The Buyer will respond to the Regulators in an effort to finalize the application and resolve any issues of regulatory concern. The regulatory approval process is, most often, a four to six month process at the minimum.


Conditioned upon final Regulatory approval, and waiting periods, the Buyer may proceed to a Closing of the Transaction. Wherein payment of the Purchase Price is tendered by the Buyer. And Stock Ownership and Control is tendered by the Seller. This is done in accordance with the terms of the Definitive Agreement. Now you know the steps to buy a Bank, so good luck!

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