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The Go-To Checklistfor A Successful BankMerger Or Acquisitionintegrityts.com

TABLE OFCONTENTSIntroduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2What Are Bank Mergers & Acquisitions? . . . . . . . . . . . 3Why Are Banks Merging, Buying, Or Selling? . . . . . . . 4How To Plan For A Successful Bank Acquisition . . . . . . 5Checklist For Successful Bank Mergers & Acquisitions 8Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9integrityts.com1

INTRODUCTIONA majority of banks are open to the idea of a mergeror acquisition in 2021.In fact, more than one-third of respondents to the2021 Bank M&A Survey said their bank was likely topurchase another by the end of 2021.1That’s because one of the quickest ways a bank canscale is through acquiring another.As a result of a merger or acquisition, banks canlower their overall costs, increase cash flow, andgrow value.2To successfully acquire another bank,buyers should be aware of a number ofconsiderations.In this document, you’ll learn how to plan for thesuccessful acquisition of another bank so internalstaff, customers, and your bank as a whole can gers/integrityts.com2

WHAT ARE BANK MERGERS& ACQUISITIONS?Banks are generally bought through some combinationof cash and stock.What’s The Difference BetweenA Merger and An Acquisition?“In general, if a bank has a strong valuation,it will likely look to do some kind of stock dealin which it exchanges its shares for the sellingbank’s shares. With a high valuation, or whatcan be referred to as a strong stock currency,the acquirer gets a better exchange ratiowith the seller and therefore would be ableto issue less shares in the deal, which meansless share dilution for existing stockholders.”3Banks who are open to deals should assess whichis better for them: a merger or an acquisition.Traditionally, it’s been said about bank M&A activitythat banks are sold, not bought, and that cash is king.However, as a result of the global pandemic, banks aremore willing to accept stock in the hopes that they’llbe able to ride the inevitable post-COVID wave.4A bank merger occurs when both the buyingand selling banks “share strategy executionrisk, lowering Day One share value for sellingshareholders in return for potential higher postsynergy returns down the road.”A bank acquisition occurs when the acquiring bank“bears all synergy risk, providing more immediatevalue to the seller, but none of the longer-termupside.”5Regardless of whether you merge or acquireanother bank, these considerations are importantall the same.3 nk-mergers/integrityts.com3

WHY ARE BANKS MERGING,BUYING, OR SELLING?What is driving banks’ openness to deals in themerger & acquisition space?First, it may be helpful to highlight the purpose of abank: finding people who want to take loans.More rural community banks are often rich in cash,but they may not always have customers desiringloans.3. Banks Want To ScaleBuying a bank is one of the quickest ways toacquire new customers.Banks who are looking to acquire can swiftlyincrease their geographic footprint, customer base,and assets, in order to reach their goals morequickly.Mergers and acquisitions typically happen whenone bank is rich with cash, and the other wantsto borrow loans. By being able to lend customersmore, both banks and customers succeed as a resultof a merger or acquisition.4. Banks Want to Improve Efficiency5 REASONS WHY BANKS MERGE, BUY,OR SELL5. Banks Want A Succession PlanBank mergers & acquisitions happen for otherreasons than increasing their asset size.1. Banks Want To Cut CostsIn light of the pandemic, banks looked to reduceexpenses, particularly as they related to staff,branches, and real estate. Many banks announcedlayoffs and branch closures in an effort to cut costs.Banks can also cut costs through buying or mergingwith another.Acquisitions can help a bank scale operationsthrough consolidating infrastructure across bothbanks.We’ve looked at why one bank may want to acquireanother, but let’s explore the perspective of a bankwho may be looking to get acquired.Many community banks are owned by families.When the head of that family passes away, familymembers may not want to continue the legacy.Selling a bank is a succession plan that allows thatfamily to cash out and move on to other adventuresin life.2. Banks Want To Modernize DigitalInfrastructureAll too often, banks are run by legacy infrastructure.Banks that have invested in transformative digitalstrategies like agile methodologies, analytics, andartificial intelligence have only widened the gapbetween themselves and those who have notthroughout the pandemic.7As a result, stragglers may be more receptive todeals than ever yts.com4

HOW TO PLAN FOR ASUCCESSFUL BANK ACQUISITIONThe following section describes key areas for helpingyour bank acquisition or merger go smoothly.NOMINATE A CULTURE CHAMPIONArguably the most critical component of a successfulacquisition is choosing its champion.A champion’s role involves nurturing the two banksto act as one. This involves a number of activities,including merging the leadership teams together,defining how the newly formed bank meets withits customers, and helping employees interactwith each other. A champion helps lubricate theacquisition process by merging the cultures of thetwo banks togetherCONSULT WITH IT EARLY ON TODEBUNK MISLEADING THINKINGOne of the champion’s first items to tackle is towork with leadership and staff to debunk misleadingthinking.Oftentimes, a merger or acquisition is perceived tobe a painful process. This can be the case if eitherof the banks’ internal IT resources or outsourcedpartners (or both) have no experience in integratingsystems following a merger or acquisition.Banks may seek the help of outsourced partnersthat have a repeatable process for bank acquisitionsto set them up for success from the get-go.MERGE CORE SYSTEMSAnother step in successfully acquiring another bank isto merge the banks’ core systems.Most often, the acquiring bank prefers to keep itsexisting core system and will wind down the acquiredbank’s core system.Sometimes, however, banks will migrate from theirdisparate systems into one new core system.Determining which core system your bank will endup on will go a long way in acquiring a bank.ALLAY STAFF CONCERNSStaff may not feel they are the right fit for their newbank, and they may also fear they’ll lose contact withtheir existing customers.PLAN FOR INCORPORATING NEWSTAFF INTO THE BANKWhen two banks don’t mesh culturally, we’ve noticedthat the newly merged bank loses its acquired talentto competing banks.A key to easing the acquisition is to communicatewith each bank’s employees throughout the process.VERIFY EMAIL IS USABLEOne of the most common concerns we hear amongbank employees during the acquisition process is,integrityts.com5

“Will my email work?”Banks should consider the impact to staff in order tointegrate its end users.Often, we’ll see a process like the following: Anacquired bank’s employee is being brought on to theacquiring bank. That employee’s old email may workfor up to 3 months, in addition to that employee’snew email. However, after a certain period—perhapsseveral months—that employee’s previous emailwill be wound down and turned off. That employeeshould work with their new bank to plan outcommunication to the bank’s customers in advanceabout the transition process and to begin using thebank’s new email.COMMUNICATE IMPACT TO CUSTOMERSAs much as a bank acquisition affects all theemployees, they affect customers, as well.In the communication plan, a bank’s customers mustbe in the loop as early as possible about: Whether they need to take any additional actionson their accountsWhether their debit card information will changeand need to be updated through services such asPayPal, Venmo, and othersWhat, if anything, must be done about directdeposit of paychecks, for exampleWhether they can use checks with their existingaccount information, or if they need to purchasebrand-new checks.Banks also must be transparent about the processup through the point at which the old systems arecut off and fully integrated into the new bankingsystem, and they must not disrupt customers’ dailyuse of the banks’ apps and services.VERIFY ADDITIONAL REGULATORYCONTROLSLong before the deal is done, banks that are inthe acquisition process must consider regulatorycontrols. After all, with two or more banks joiningforces, the overall asset size of the bank—amongother things—will increase.Banks may face additional compliance requirementsas they grow to a new category of asset size.Auditors may or may not tell you what thoserequirements are. Your IT provider can offerguidance on what solutions you may need to ensureyou’re meeting compliance regulatory requirements.KNOW WHAT MUST HAPPEN FORMERGER TO BE APPROVEDBefore a merger or acquisition occurs, banks mustunderstand what resources are needed and stepsmust be taken to approve it.First, what is required by the regulatory entity yourbank is registered under? The FDIC may requiredifferent preparation than the OCC or the FederalReserve, for example.Once the banks’ boards of directors approve of themerger or acquisition, the regulatory agency mustthen approve.integrityts.com6

The evaluation process of whether the banks canmove forward with the deal is largely dependent onwhether the banks have had clean audits with regardto security and controls. That’s why we recommendthat IT become an asset and not a barrier in theacquisition process by making sure your banks bothhave cleared any regulatory hurdles.INVOLVE IT EARLYSpeaking of IT, involve the IT departments at eachbank early on. Maybe a bank only works with anoutsourced partner, in which case, help that partnerhelp your bank throughout the transition process.IT departments—internally staffed or outsourcedpartners—can help banks take inventory of whateach bank has in terms of infrastructure andservices. Banks may also value the input of anoutsourced partner in the event they have few, ifany, people in their internal IT department.The IT departments, whether they’re internal orexternal, should be able to help the acquiring bankscale appropriately.PROJECT A TIMELINEEach bank merger and acquisition is unique, so it canbe difficult to say with certainty how long it couldtake.Most banks complete the M&A process within 6-12months. However, some may take more than ayear, while others may get completed in around 3months.integrityts.com7

CHECKLIST FOR SUCCESSFULBANK MERGERS & ACQUISITIONSUse this checklist to get your bank merger or acquisition off to the right start andcompleted with the best outcomes in mind.Choose A Champion Have you nominated a single point person to help integrate the two banks as one?Work With IT Have you met early in the process to discuss what must happen to integrate the banks with yourIT department and to yield clean audits?Determine Your Core System Will you be using an existing core system, and have you planned for its integration and adoption?Cultivate Culture Do you have a plan for folding in employees across banks, and a backup plan for whether anyemployees jump to a competitor?Verify Email Determine how staff can successfully transition their old email to their new one.Let Customers Know Will customers have to do anything during the transition process, and will you let them know whatthe new systems, services, processes, and apps look like?Verify Additional Regulatory Requirements Have you checked to see what, if any, additional regulatory requirements must be met by the newlyformed bank?Project A TimelineHave you estimated and communicated a timeline to staff, customers, and other key stakeholdersabout the merger or acquisition?integrityts.com8