The saying goes that banks are sold, not bought, and many small ones — grappling with succession issues, new regulations and lackluster profits — are more than ready to sell.

One problem they face, though, is that buyers are as picky as ever. Many banks are eager to bulk up through acquisitions, to be sure, but most have very specific criteria in what they want and, frankly, are unwilling to settle for anything less.

It's Bob Browne's job to bridge that gap. A director in McGladrey's Performance Improvement Consulting division, Browne travels the country working with banks of all sizes to help them manage M&A expectations.

In January, McGladrey hosted a session at BankDirector Magazine's "Acquire or Be Acquired" conference in Phoenix that closely examined the issues that might prompt a bank to sell itself.

In an email exchange and follow-up interview, Browne elaborated on some of the themes, including why buyers are so risk-averse and why it's a mistake for potential sellers to stop investing in talent and technology. Here is an edited transcript of the discussion.

What's your current take on bank M&A?

BOB BROWNE: There is way too much demand. There are [perhaps] 10 buyers for every seller, maybe 20 to one down in Texas. But the problem is [buyers] all still want the perfect acquisition.

Everyone is very risk-averse right now. In some cases, there are real defined patterns where bankers are saying they only want to be in specific larger markets. They are much, much pickier than they were in the past. I was with a chief financial officer recently and as we discussed what he wanted, he had eight or nine criteria.

Succession is always a major driver of M&A — what's the landscape like right now?

We have seen several banks where the owner/operator of the bank is now in their mid-70s and even early 80s, and they have not taken the necessary steps to ensure that internally management has been put in place to carry their bank forward. Much of this is intentional in that the owner wishes to work as long as they can and then sell the bank as part of their retirement.

Too often, factors like the health of their owner or their spouse takes a sudden turn for the worse and the bank owner is then faced with making a deal at less-than-desirable terms.

In other cases, they have been holding out hope that family members would join the family business and this has not happened. The younger generations often do not want to work as hard as previous generations or within today's highly regulated banking environment.

Also the banks might not have $100,000 to keep an executive on the bench while the owner decides to retire. Banks should be planning this two or three years out.

It sounds like a lot of this is emotionally driven — how do potential sellers get past that?

I'm not sure you do. This is very human. In some cases, these banks were inherited. Most of these individuals have been successful in their careers and are proud of their personal accomplishments and the role that their bank has played in their communities.

That's the sad part — they just don't see a way out.

I do think that providing the existing ownership with a means to gradually reduce their involvement through continued employment, consulting contracts or board participation may be ways to make this transition more palatable for the owner and/or chief executive.

If small banks stay static for too long, aren't they going to be worth less over time?

We see some banks not only fail to invest in new leadership but also fail to keep their internal manual and automated processes up to date with the changing business and regulatory climates. They sometimes try to squeeze out that last dollar to drive up short-term earnings or increase dividends to the detriment of the viability of the bank.

This sometimes results in things like not investing in newer technologies like mobile banking and losing their appropriate share of younger customers, perhaps forever.

One of my frequent questions for bank presidents is: "when is the last time a younger person representing Generation Y walked into your bank lobby and asked to be sold a bank checking account?"

Are there cases where there are no logical buyers? What happens then?

In many cases, now that we are on the backside of our "banking crisis," we are seeing a few smaller rural banks in less-desirable markets having difficulty finding a buyer that is acceptable to the regulatory agencies.

We are approached probably once a week by a nonbank entity — check cashers, wealth managers, software companies — that are seeking some way to acquire one of these entities but fail to understand the complexities of such an acquisition or lacking the willingness or ability to execute such an acquisition.

In a few cases, these banks eventually can fail. More likely, they will find a buyer who will eventually offer then a lower-than-desired price for the bank and they may feel compelled to accept that offer.

Your presentation had a slide that said "sellers verbalize their frustrations for why they need to sell but many cannot articulate the specific reasons or causes."

The pace of change has certainly accelerated in recent years, and it is becoming more and more difficult for smaller community banks to adapt.

In many cases, bank managements have abdicated their responsibility to manage this change to more junior officers in their compliance and internal audit functions rather than providing the appropriate level of management oversight that regulatory authorities expect.

Executives will tell me how frustrating they find the new regulatory environment that we live in…but when pushed to be more specific in their concerns, they usually cannot provide any additional details.

I think Dodd-Frank has become as much a catchall phrase for excessive and unnecessary regulation imposed upon the small community banks as it is a specific list of new requirements.

If these banks are in a good shape from a credit quality and capital standpoint, shouldn't they have a good relationship with their regulators?

Over several decades, many bankers were taught that the way to deal with the regulatory agencies was to fight. If there were 20 things on the exam, they picked 20 fights.

After the crisis of the 1980s, the regulators were a bit more accommodating. When the pendulum swung, it became time for payback. Regulators then reacted to the pushback with enforcement actions and banks didn't know how to handle that. They kept fighting over every single issue. Only pick a fight where you need to pick a fight. Let the regulators have some wins.

I sat through an hour-long discussion [recently] with a Midwest banker and the issues that probably go back over 20 years are still festering.

Sometimes you just need to negotiate a resolution and have the examiner in charge changed. Get the bad blood removed and get some fresh eyes in there.

Additionally, the regulatory agencies have a very difficult job to do and they are sometimes limited in the tools that they have at their disposal to address what they have identified or perceive to be the issues present within an individual bank. Sometimes they have to apply an imperfect set of remedies to a specific situation.

There are still 467 problem banks. What happens to them?

Many of these will work themselves out given time and slowly improving economic conditions. But we could see additional problems, too. Recently announced new projections with regard to a decline in 2014 agricultural revenue projection may negatively impact small rural community banks whose customers may see a decline in their record revenue levels.

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