Community Bank CEOs: Waiting for Better Multiples? Start Building Real Value Instead
I hear it in boardrooms constantly:
"We'll consider selling when the multiples improve."
Or:
"We won't even look at offers under 2x book."
Here's the truth:
If you're waiting for multiples to determine your bank's future, you're letting fate write your story.
And fate is a terrible author.
Why Multiples Don't Matter (But Returns Do)
Let me show you why fixating on multiples is misleading.
Consider two $200 million banks that both sold for $30 million on the same day:
Bank A:
- Tangible Book Value: $16 million
- Net Earnings: $1 million
- Price/TBV Multiple: 1.88x
- Price Per Share: $300
Bank B:
- Tangible Book Value: $22 million
- Net Earnings: $2 million
- Price/TBV Multiple: 1.36x
- Price Per Share: $300
Bank B's leadership might be frustrated.
They're better capitalized, more profitable, and by traditional metrics "better run."
Shouldn't they command a higher multiple?
Here's what matters:
Shareholders at both banks walked away with $300 per share.
Same return.
The difference?
Capital policy.
Your shareholders don't care about multiples.
They care about return on investment.
The Five Steps to Building Real Value
Instead of obsessing over multiples, here's how successful CEOs build genuine value:
1) Think Like a Buyer
Ask yourself: If you could design the perfect bank to acquire yours, what would it look like?
- Which markets would it serve?
- What would its deposit mix be?
- Where would its loan portfolio strengths lie?
- What talent would it bring to fill your gaps?
This isn't theoretical.
Understanding what makes your bank valuable to potential partners drives better strategic decisions.
2) Envision the Combined Future
Once you've identified your ideal partner profile, dig deeper:
- What could the combined institution achieve?
- Which new markets become accessible?
- What products become feasible at larger scale?
- How would your competitive position change?
This vision should guide everything you build.
3) Quantify Your Hidden Earning Power
Consider your bank at 5-7 times its current size:
- How many existing relationships could you expand?
- Which loan participations would you recapture?
- What's the earning potential locked in your current customer base?
Most CEOs never consider how valuable their relationships could be to a larger institution.
That's a costly oversight.
Example:
You have 50 business customers who also bank elsewhere for treasury services because you lack the platform. A buyer with that platform just bought 50 ready-made treasury relationships.
That's hidden value you're not capturing—but a buyer will.
4) Build a Self-Sustaining Operation
Your bank's value increases dramatically when it runs smoothly without you.
Ask yourself:
- Can your team handle daily operations independently?
- Are key client relationships managed across multiple people?
- Have you developed succession plans for critical roles?
You don't need to make yourself redundant.
But you need to make yourself non-essential to daily operations.
Buyers pay more for banks that don't collapse when the CEO leaves.
5) Time Your Window of Opportunity
You can't perfectly time the market. But you can identify optimal windows:
- Clean regulatory exams (Safety & Soundness, BSA, IT)
- 18 months until the next exam cycle
- Core processing contract 18-24 months from renewal
This is your "Golden Window"—when your bank is most attractive to partners.
Why these factors matter:
Clean exams: No surprises lurking in due diligence.
18-month runway: Enough time to complete a transaction before the next exam.
Contract timing: Avoids messy early termination fees or dual-system conversions.
What Smart CEOs Focus On
Successful bank CEOs aren't watching multiples.
They're not obsessing over what the bank down the street sold for last quarter.
They're methodically building value through:
- Strong, sustainable earnings
- Scalable operations
- Strategic market positioning
- Deep customer relationships
- Clean regulatory standing
This isn't about quick fixes or market timing.
It's about building a valuable institution that's attractive to partners while remaining profitable if you stay independent.
The Capital Policy Reality
Remember Bank B from earlier?
Better capitalized, more profitable, lower multiple.
Why?
They retained more earnings.
Built stronger capital.
Distributed less to shareholders over time.
Bank A distributed more along the way.
Lower capital ratios.
Lower profitability.
Higher multiple.
Both strategies delivered the same shareholder return.
There's no "right" answer.
But there is a strategic choice you're making—whether you realize it or not.
Your Next Steps
Take a hard look at where you stand on each of these five elements:
- Do you know what makes your bank attractive to buyers?
- Have you envisioned what a combination could achieve?
- Have you quantified your hidden earning power?
- Can your bank run without you?
- Are you in your optimal window?
Which areas need attention?
Where are your hidden value drivers?
Most importantly:
What's your first step toward capturing that value?
The Bottom Line
The best time to start building value isn't when you're ready to sell—it's right now. Stop chasing multiples and start building real value through sustainable earnings, scalable operations, strategic positioning, and deep relationships. Your shareholders care about total return, not price-to-book ratios. Build a bank that's valuable whether you sell or stay independent.
P.S. I'm not a lawyer, an accountant, or an investment banker. Just a former bank CEO who has been in your shoes.
There are zero hacks or tricks in this newsletter. Just proven tactics that help you choose the right path for your bank.
Your path will:
- Inform your strategic plan.
- Guide your annual business plan and budget.
- Clarify priorities.
- Define your message so it can be communicated with confidence.
This is how savvy bankers navigate.
They build smart and valuable banks and choose the best time to sell on a timeline of their own choosing – serving the needs of the shareholders and the board.
I hope you found this short lesson helpful.
What are your thoughts?
I’ll see you next week.
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Additional resources, including the Community Bank Value™ Playbook, are available at kurtknutson.com.
