• The Framework for Buying a Community Bank
  • December 9, 2011 | Authors: Robert C. Lamonica; Pinchus D. Raice
  • Law Firm: Pryor Cashman LLP - New York Office
  • The Great Recession that began in 2008 altered an array of fundamental market assumptions, bank valuations included. Prior to the recession’s onslaught, acquisition premiums were the norm. Between 2002 and 2007, the average price-to-book ratio for acquisitions of domestic commercial banks ranged between 2.26-to-2.56 times book value. During roughly the same period, there were more than 1,300 bank acquisitions. For investors in the community banking industry, the game plan was straightforward: invest in a de novo or other small bank, grow it while achieving a modest return on equity, and then collect the buyout premium from a strategic or financial purchaser.