The Planning That Led to Profitable Merger of Banks

How does a small bank go about doubling its size through a “merger of equals?” On the surface, it’s a knotty process. But with computers and a bit of long-range planning and some outside consultants, it’s feasible.

Early last year, First National Corp. President Robert Richley compiled a series of detailed computerized models of what kind of bank First National could become.

He then selected more than two dozen “target banks” around the state and “tried to understand how each of was being managed.”

First National executives then whittled the list to a top 10, and held “get together” meetings with officials of each institution. First National did not play all its cards, however, and several of the banks had no idea that the real reason for the meetings was to explore a potential merger.

Richley then reported his findings to First National’s board, which decided on the final candidates--National Bank of La Jolla, National Bank of Fairbanks Ranch and Rancho Santa Fe National Bank.

Meetings with those banks were held in September, an independent consultant was brought in to determine the value of each bank, a tentative agreement was reached in late November and a definitive agreement was penned just before Christmas.

If all goes according to plan, the deal could close in February or March.

“We wanted a situation where 1 and 1 adds up to 4,” said Richley. Two caveats were attached to the negotiations, according to officials. First, there was to be no good will or other premium paid by any of the participants.

And, second, once the independent consultants had determined the value of each bank, there could be no negotiations over price.