Community Bank Succession Planning

About 8,000 baby boomers are now turning 65 years old every day, according to the AARP. Included among these retirees and those soon to retire are many community bank leaders. Unfortunately, many community banks haven’t done much in the way of succession planning. As a result, a leadership crisis could be looming on the horizon in the community banking industry.

 Timely and Orderly Planning

One of the biggest keys to successful community bank succession planning is starting the planning process well in advance of the date you plan to exit the bank. It’s never really too early to start thinking about succession, but serious succession planning should generally start between three and five years out from your planned exit date. The first thing to think about when it comes to succession planning is to whom do you want to transfer ownership of the bank? If yours is a family-owned bank and you want to keep ownership within the family, then start by identifying family members or other management team members who are the best candidates for future leadership. Once you’ve identified potential future leaders, it’s time to start grooming them for future leadership responsibilities. Next, start giving these candidates real responsibility, empowerment and decision-making authority. It can be hard to let go of the reins, but successors need to be put in positions of real responsibility and then allowed to succeed or fail on their own.

Conversely, yours might not be a family-owned bank, or there might not be qualified successor candidates within the ranks of family members. In this case, you need to decide if you want to recruit potential successors from outside the bank and bring them in and start grooming them for succession. If so, clearly communicate your intentions to these candidates and make sure they understand the opportunity before them. Also, structure a compensation plan that will incent them to stay with your bank during the succession planning and transition process, which will likely be a matter of years, not months.

Selling to Outsiders

Another option is to sell your community bank to a private equity group or another bank — usually a similar sized community bank in a merger of equals or via an acquisition by a larger regional bank. In this scenario, grooming future leaders is just as important as it is when getting family members or outside recruits ready for leadership. One of the biggest things buyers of community banks look for in acquisition candidates is depth and stability in the leadership team. Buyers will usually pay a higher multiple for community banks with strong leadership, so building a deep executive and management bench will increase the value of your bank. As you groom future leadership for your community bank keep this important point in mind: There is a big jump when going from mid-level management to executive-level management at a community bank.

Mid-level management skills are more tactical in nature, while executive-level skills require more strategic and visionary insight. Therefore, it’s important that you be intentional when it comes to helping future leaders be prepared to make this jump. Give them an opportunity to work on projects that will expand their horizons and skills beyond individual silos within the bank. Give us a call if you would like to discuss succession planning for your community bank in more detail 417-881-0145.