Episode 81: Kurt Knutson

Jack: I've had the privilege of being in and around banking for more than 50 years. Lots of changes during that time. We've gone from ledgers to laptops, typewriters to technology. One thing, however, remains the same. Banking is a people business. And I'll be talking with those people that make banking great here on, jackrats with modern bankers.

Welcome to Jackrans with modern bankers. It's brought to you every week by RelPro and vertical IQ. After six decades in banking, it's time to give back. And I hope this program amplifies that. Every week, I, feature top voices in financial services, bankers, consultants, best selling authors, and more. And today, we have all three in one guest. The goal here is to provide insights, success practices, and to bring new ideas to the table that you can use to maximize your results. My friend Ned Miller called me recently and said, you know, there's a new book out, and I'm going to interview the author. He'd be great on your show, too. Ned was right. Today we have a conversation about being acquired with my guest, Kurt Knudsen. Curt's new book, the art of selling your bank, is a step by step tutorial that takes you from start to close and beyond. Curt earned a bBA in marketing from Iowa. He has worked four decades in banking and launched Freedom bank in 2025. Only to sell it in 2022. Yep, he has firsthand knowledge of all of this. Curtis, founder and CEO of strategic options. And you'll be blown away by his practical insights on selling your bank. It's Kurt Knutson on Jack Rance with modern bankers.

Here we go. So, as I mentioned, I think Ned Miller is becoming my agent because he is introducing me to all these amazing people. And today's guest is Kurt Knutson, who wrote the book that you see behind him, the art of selling your bank. Glad to have you with us, Kurt.

Kurt Knutson: Thank you, Jack. I appreciate it very much.

Jack: Well, this is a fascinating topic. and while it's a pretty niche topic, there are a lot of things going on in mergers and acquisitions that we need to talk about.

But, to start with, you have a company called Knudsen Enterprises. You're out in Kansas City, and you have two strategic brands. One is strategic options, and one is level three, freedom. Talk about those two brands and how you help clients.

Kurt Knutson: Yeah. Thank you. Knutson Enterprises is a single member, LLC. I'm a solopreneur. after I, moved away from the bank at the end of 2022, I started writing this book in 2023. And that was really my project for the past year. And, so what I'm looking to do, I've got kind of a unique background in that I was a commercial banker, then I spent some time in capital markets, corporate finance, and then I started my own bank. So I've got the experience of how to raise capital and how to put a bank together and bring it out of the ground, then ran the bank through a very trying time and then sold, the bank. So at this point in time, I'd love to be having written a book about starting a bank, but that isn't kind of the way things are going these days. There's, more leaving than entering. And so what I thought I'd do is start with this book, write it about, how to get down this process, to optimize your value and avoid making mistakes, and to master the process before you go down that path. And then that's the strategic options brand. And then the level three freedom brand is for a little later down the road. And that's more about the way I describe level three. Freedom is level one is you're starting up and you're trying to break even. Level two is you're profitable, but you're very involved in the daily operations. And level three is you're trying to move away from being involved in the daily operations so that you're working on the business rather than in the business. So that's what those two things are all about. And those are the things, things that I've been working on from a content creation standpoint.

Jack: Well, as we mentioned before we started recording, you are going to be a busy guy. This is a really, really good book. And one of the things I really like about it is, that it's a step by step tutorial. I don't know. And maybe, you know, if there's ever been a book written like this before, I'm curious, what was the inspiration for writing this book?

Kurt Knutson: Well, I've been involved with businesses my whole career in terms of helping them from a commercial, relationship manager standpoint. And then I got involved in this capital markets, corporate finance side of things so that I could sell the whole right side of the balance sheet. I was with a bank that later became bank of America, and they acquired, an investment bank. So they hired a bunch of people to come in and train a few bankers on the whole right side of the balance sheet so we could bring that to bear. And there were a lot of things that really, came out to me in that regard. And one of them was planning for exit at some point down the road. And I know through my own experiences in dealing with business owners that often isn't the case. Oftentimes they're thinking about this year's earnings, tomorrow's fire, you know, whatever they've got going on, maybe next year's budget, but beyond that, there's not a lot of planning. And so what I wanted to do was put together a book to help somebody understand the planning process. There have been some bank books written about bank and mmmm and a, but it's really about kind of the world of m and a, not from the banker's perspective. So I wanted to take somebody through the whole process, from initial stages of exploring this to engaging people, to, getting your name out there and having one on one conversations with other folks. All of the different things. You need to navigate through that process to make sure that you are working on it in the most efficient manner possible and not spending all your bandwidth on how this process works, but focusing on the issues that can help you, again, optimize value and minimize, any chances that you're going to, make a mistake.

Jack: Yeah, that's true. I was going through, because it's starting to be golf season and I was going through some golf balls and I found all these golf balls of, old banks that aren't around anymore. Bank four, sure. You knew Boatman's bank and I'm talking about banks in your area. When I started in banking, and probably similar to you, there were over 15,000 banks in America and banking controlled 74% of the market share. We just screwed it up and now I think today there's about 4500 banks.

So talk about the mindset and the landscape for acquisitions today. How active is it? What about regulations and the economy? Just talk about acquisitions today and where we are.

Kurt Knutson: Yeah, I had some of those golf balls myself. Bank four became Boatmans. I was at Boatman, so I'm familiar with those. And it's kind of an interesting time period that I started in 83. So it was 15,000, banks at the time. Then we went through that, stage where the interstate banking was approved and everybody got gobbled up and then it kept that trend. And then I started the bank when we leveled it out, just for a brief period of time before the financial crisis, where you're putting in banks about the same amount that you're taking out. So there are roughly on average, 200 banks leaving the market every year and 200 new banks entering the market. So it was staying level for this period of time. The financial crisis hit and de novo banks virtually came to a halt. I think since 2010 to today, there's been about 45 banks that have started, and that number's a little bit generic, but roughly that number. but there's also been a couple hundred banks that have left every year, continually since then. And so, last year was the lowest year, I think, recorded on the number of bank acquisitions that happened. I think a lot of what that was a result of was the AoCi and the uncertainty that people had surrounding, you know, how that was going to be handled. And I think there's still a lot of hesitation there for people to, do anything in that regard. But I think there's a lot of pent up demand that has been building. I would guess that 2024 is going to have probably a more, active market than it was in 2023. Certainly at some point I would guess that this is going to migrate or revert back to the mean. So my guess is there will be some that will, that will go, beyond that 200 a year. The reason for it is everybody's getting older. Management, succession in our industry is hard. we lost a couple generations of bankers, from my perspective, particularly during the, time, period where, we went through the financial crisis and we all got kind of a bad name just because we had the word bank in our name. We got drugged through the mud on everything. 99.9% of the community banks out there had nothing to do with the financial crisis, but we kind of got beat up with it. And I think that took a generation of people out of the market that may have come to banks, in a normal environment. And so we've. Then you had this dip, going from 70 million baby boomers to 60 million gen xers before you came back to 80 million millennials. So there was this dip in talent that you were trying to bring up. We anticipated that, but, not a lot of people did. And, so you got that management succession issue. You've got computer technology that continually is an issue every day. And you've got this regulatory environment, particularly in the last couple of years, where it is just over the top in terms of regulation and compliance. So I think there's fatigue for the most part, in management teams frustration, with some of the things that are coming about. And I think that's going to lead to probably some more activity, like I said, that will revert back to the mean eventually.

Jack: Yeah. And we were talking before we started being on the board of a bank. You have a very important fiduciary responsibility for your shareholders. heres the challenge. Youve got credit unions who we fight against for market share, and then weve got credit unions buying banks. Is that a fad or a trend? Where do you see that headed?

Kurt Knutson: Yeah, its an interesting deal. There are some states that have taken some action. I know the industry in general is fighting things in that regard. The banking industry, it's a double edged sword. I was a person that fought the credit union fight on a daily basis as well. but when it comes to, and so your fiduciary responsibility to the shareholder there is maximizing shareholder value and you're just trying to protect your turf when it comes to the sales side of it, you still have that fiduciary duty of maximizing shareholder value. And if they want to come to the table, you really need to invite them in because if you don't, you've got some liability to the shareholders for not doing that. And you know, oftentimes because they don't have shareholders, their number may be a little bit better than somebody that has shareholders. so it's certainly somebody that you need to make sure you change your hat, from a fighting hat to a welcoming hat. I'm not saying that that has to be something you're thrilled about, but it is probably something you need to do from a liability perspective.

Jack: Yeah, yeah.

You know, I was down in Kentucky recently and doing a program and I was encouraged because a lot of the folks in the room were younger bankers. One of them came was nine, months out of college. And you know, my first question for him was, are you family? And he was family and so he grew up in the banking business and he just kind of kept going with it. That's happening a lot, 4th, 5th, 3rd generations, but it's becoming more of a challenge to run a bank. What are you seeing, Kurt, especially in the midwest where there's so many family owned banks, what are you seeing around third and fourth generation folks that are saying, you know what, I don't know if I want to stay in this business or not.

Kurt Knutson: Yeah, the situation kind of depends, which it's a normal financial services answer on a lot of occasions. It depends. There are family, third and fourth generation families that own and operate banks, but maybe don't work in the bank. And they've done a nice job of working on the business and they have a management team and they've got succession plans and that's a little bit different animal than a, family that's worked in the business. you can have changes in how determined the generations are as you go through that process. whether they have a level of interest in carrying it or the same desire to carry the bank forward as maybe past generations is an issue that they might have. so it's really, it's really dependent upon each individual circumstance. And I would say that, you know, if they're not, they're not, they're not outside of the realm of having the same issues with management succession and it, and regulation. So I think they're pretty much in the same boat as everybody else.

Jack: Yeah. And I think we need to be careful as a society. I appreciate that. overdraft fees for some banks are extremely onerous. I get that. Other kinds of fees, like charging for transactions on a checking account, I get that as a consumer, I don't want to pay any more than I have to. Here's the problem. In somewhere in Iowa where there are very few banks and the farmers and businesses depend on the bank for loans and running their business, all of a sudden, if the bank can't operate anymore, what's going to happen? A bigger bank is going to come in there and their policies are going to be a little different. So I'm not asking you to comment on it. It's just one of those things where I feel like too often we keep gouging banks from a profitability perspective and suddenly we're going to look around, you're going to go, where's my bank? I don't know where you're seeing.

Kurt Knutson: Yeah, no, you're exactly right. And it's frustrating that there aren't de Novo banks being, built and entering into the market from that perspective, to continue to create a healthy bank ecosystem, because you have, that community banks are the backbone and the horsepower for about 60% of the US economy.

And I'm going to talk a little bit about what happened during PPP. when PPP came out with the very first round, there was some articles written about how community banks really came to the, to the rescue for a lot of smaller businesses during that period of time. I'm not going to go into whether or not PPP was the right thing to do or not. I just want to point out the fact that the reason that that was the case is a lot of times these very big banks just score their customers, particularly under a certain level, based off of maybe the owner's FICO score. And when you had to complete those PPP applications, community bankers knew their businesses and they were able to fill out the business, the forms for the business, and help them get these things completed and turned in. And I want to say it was like 67% of the applications that were turned in in the first round were done through community banks. Well, the second round that kind of evened out. And the way it evened out, and this is my memory of it, and what happened was on a Sunday night at 1030, the folks that were administering the program came out and said, hey, we're going to open up this to batch processing and you're eligible to do batch processing for your customers too. This is 1030 on a Sunday night. And as long as you have that file to us by 08:00 tomorrow morning, you can participate in this. Well, there was no way any community bank was going to get a batch process file put together into them by 08:00 in the morning. So these bigger banks batch processed their PPP loans, brought the numbers back up to parity in terms of how the industry looked. And it was just a little bit of, ah, a game that was being played there. But the message is the people that understand small businesses are community banks, bankers, and that again, goes back to 60% of the US economy. And if that part of the business isn't taken care of, isn't healthy, the whole economy stands at risk of becoming unhealthy as well. So I hope that this ecosystem can get figured out. You need buyers and sellers, you need new entrants, and you need strong people growing organically. but it needs to happen in all those areas. And we've got some of those areas that aren't functioning properly, no doubt.

Jack: And I've always been a community banker, and you had a standard bank of America, but you're a community banker too, and we need to stop having pity parties for ourselves. We can compete. On the other hand, there may come a time when a CEO says, I wonder if it's time for me to sell the bank.

In your book, you talk about three questions a CEO should be asking himself or herself. I want to dive into those. One of those is, what is our value? So talk to me a little bit about how we find the value and what are some of the drivers of that value?

Kurt Knutson: Yeah, and what I, what I try to do here is talk about some practical ways to look at things. It isn't a corporate finance book. And that's what typically you get with an M M and a book is all these, discounted cash flow models and so forth. This book is very light on that. There's one chapter that has a little bit of it and it's very simple, but really what I'm talking about is value is determined by steady, predictable and consistent earnings. And so there's some assumptions that I make in this process that your credit quality is fine, good, you're well capitalized, you're not going to see regulators for 18 months. That indicates that you're at a certain level from a rating perspective. And, where I go with it is there are things that you don't think about that have a big impact on the value for the buyer. One of those is if you look at your loan portfolio, imagine if you were five to seven times your size, what your legal lending limit would be. Go through your loan portfolio and look at those accounts that maybe you're at your internal hold or you're at your legal lending limit. And if you had the additional capacity, what could you add to your existing portfolio with higher capital levels and a higher legal lending limit, what participations could you buy back? what does that then do to your earnings? And it's fairly significant and it's something that you need to think of because we have a tendency to stay focused on what we do and focused on our own portfolio. And this is where our limits are. And that controls our vision in terms of what that brings to somebody in terms of earnings. And again, it's not going out and adding new markets or adding new customers. This is our existing loan portfolio. This is what this is worth. How does that translate into earnings for us? And that's the posture we need to go into our conversations with, or that's the information we need to share with our investment bankers. And I highly encourage using investment bankers when the timing is right to bring them in. But it's very important. They don't know what your portfolio looks like. They don't know who the customers are. They don't know who you, who you do more with and what that could mean. And if you can convey that information to them, that puts them in a much more powerful position when they're having conversations on the buyer side.

Jack: That's fair. Ever since I was banker, and, you'd hear executives talking about maybe selling the bank. They would always talk about, I got to get twice book. and thats sort of been a standard in the industry for a long time. But, when you were on the podcast with Ned, you kind of talked about some different metrics versus. So are you, are you seeing twice book anymore? and that kind of metric, the.

Kurt Knutson: Last time that two times book really kind of happened was in the 2006, 2007 time period, right when we were starting the bank. whether or not that comes back, I don't know. It's, from my perspective, not a good way to go about thinking about selling your bank. and the reason I say that is two times book is a multiple that is determined by the end product of what happened. If your bank had half the capital, you're going to take your, your multiple up higher so you can earn more or you can get rid of capital. That's the two things that drive that multiple. If you focus on talent, systems and processes, making sure you're working on the business rather than in the business, if you focus on those value producers, like that loan portfolio equation that I talked to you about, if you look at things from that perspective, that talent, the value in your loan portfolio, the value in strategic things that you might be doing, and the value in you not as the owner, not being involved in everything, that's how you get the value of your bank up. How the math works out at the end is really just a function of math. Multiples are something that a lot of people talk about, because it's real easy to have that conversation. You don't have to get too much into the details of things, and everybody's familiar with the multiples. But to build a strategy or to talk to your board regularly about multiples you want to get, that's just not the right way to go about it. From my perspective, I would try to discourage you from having conversations with your board about multiples. I think the biggest thing you can talk to your board about is just letting them know multiples are a function of what took place. They aren't anything that you should drive your strategy from.

Jack: Interesting. In your book, you talk about, you give a lot of different really good scenarios. One of them is, so I'm a bank, and, my loan to deposit ratio is 95%. I'm in trouble and I'm in a growth market, and we're going to keep going, and I can't. There are other banks perhaps around that are 50% loaned up. They got a lot of deposits. and so we got to marry. We got to get married. The question is, and your second question is, well, how do I find somebody who's interested in us? So talk about that. How do we find somebody? And I got to ask you about the AOBA conference out in Phoenix every year. it's relatively new, so just talk a little bit about who's interested in buying us and how do we find that out.

Kurt Knutson: Yeah, that's a great point. And part of what you need to do is reverse engineer who you are to who would fit with your bank. From a complementary perspective, we did this from the perspective of we were an acquirer, and we were an acquirer right up until the time we decided to test the market to see if anybody was interested in us. And lo and behold, we had a lot of people interested in us, but it helped us understand what we needed to do to bring in another complementary balance sheet that fixed all of our issues. And so we were 100% loan to deposit, as kind of the scenario you described. We had $60 million in bonds that were trapped. We had $40 million on our FHLB line of credit, and we were growing at a pretty healthy clip. So we built an acquisition model, and we ran call reports through it to help us understand who might be a good fit. And that really came back to what you talked about. Somebody with a low loan to deposit ratio, maybe somebody that had been around for a longer time. Their market wasn't growing as quickly, and they had a very diversified, deposit base that had been around for a long time. That was a perfect fit for us. Well, we went through that process, and we understood then what we were looking for ended up turning around to us being the. The party that people were looking at. And it was, again, for the opposite reasons. We ended up being acquired by a bank that had mostly a rural deposit base. The rural communities weren't growing as quickly as we were. They were five to seven times our size. and this was a complimentary balance sheet fit, trying to understand who might be interested. You've got ideas, and I know bankers talk about, I'm talking to this gentleman, and I'm talking to this gentleman or this lady. These are folks that I'm m friendly with about possibly doing this. I would discourage those conversations. It's a conversation that you need to have with your board on how you want to handle it. So it's up to you. You can have one on one conversations. People typically do that because they feel like they're the most discreet. The opposite end of that is you have an auction where you give everybody information and you ask them to make one bid, and the high bidder wins. But in the middle, there's kind of this Goldilocks scenario of let's figure out who a list of five to ten people, if you can get that many. And sometimes you can't. Sometimes it's hard to get one, sometimes it's hard to get two. And that's why you don't want to discourage anybody, like a credit union, from being involved in the process, because to have competition, you need to have at least two. So you can have a very discreet one on one conversation with people, but also maximize the value. And that's helped by investment bankers, typically, who are running the traps on your behalf without identifying you. so oftentimes, particularly if you're dealing with a sell side investment banker, and sell side is who would represent you as the seller versus representing the buyer. It's important from my perspective that you deal with somebody who has a lot of sell side experience. They're having conversations with people all the time about their level of interest, and they don't bring up any names. They're just having conversations with people about what's the timing look like. Hey, you got that last acquisition through your system. Now that exam was finished, your core conversion's done. Where are you at? What are you thinking about? What markets would you like to be in? How big would you like them? How many branches do you want them to have? They're having these conversations with buyers all the time. So there's going to be some people, if you're working with an investment banker, particularly a sell side investment banker, that you don't have any idea, might have an interest in you. So if you go this route of having a conversation with one and a conversation with another and a conversation with another, you're going to be, you're going to be exposing yourself a little bit. You're probably not going to get the best deal. There might be some discretion that's a little higher, but for the most part, a process that involves fewer, but several, if you can get several sometimes, I said, it's hard to get two, but if you can have a fewer and several one on one, more, relationship building conversations with folks, I think you stand to do a lot better.

Going on to your question about AobA, the acquirer or be acquired conference. This year was their 30th year. I went in 2012 just to see what this was all about, because we had a de Novo bank at that point in time, I was looking out into the future, going, at some point, we're going to need to do something. I need to go look at this and see what's going on. I hadn't gone back until, 2022, and I was hesitant to go back, because I didn't want word to get out. I didn't want anybody to be talking about this because I didn't want to lose employees, and I didn't want our customers to go to somebody else, and both of which are going to, devalue the bank. From a shareholders perspective, I was highly guarded in that regard. And the investment banker said, hey, we think you ought to come out to this conference. It's a good opportunity to have some one on one conversations. We'll set them up, they'll be private. And I said, I really don't want to do that. And they said, trust us, you're going to be fine. So I went out and m did it. And it was really one of the better things that we did because we had a very efficient process. We were able to meet with people privately. the conference is named wonderfully because nobody knows if you're there as an acquirer or looking to be acquired. So it's like the most elegant name you could possibly have. But one thing that I found out from the process of that was there's a very high level of confidentiality that, the buyers have as well, because they know if they spill the beans and somebody gets hurt by that, that word is going to get around the sell side investment banking community, and they're not going to see any more deals. And the people that are buying, typically are people that have in their mind, hey, we want to buy five in the next ten years, or we want to buy, you know, they have a number that they're working on, and this fits within that number. And that's another reason I should add, too, about having an investment banker involved, because you're bringing somebody serious to the table. And that sends a message to the buyers who are really looking critically at, can we get a deal done this year? They want to know that there's somebody in the process that's been down this road before and can keep this thing on track.

Jack: Interesting, you talk about the, the golden window, fascinating, concept. What is that and why is it important?

Kurt Knutson: Yeah, that's something that, again, you don't really realize until you're in the process. So the last thing you want to do is go down the road after you just signed a seven year contract with your core processor, get everybody heated up, and get down to the fact that you're going to get a letter of intent going, and then to find out that you got a, termination fee that's going to take a big chunk of the proceeds that you get. And your deconversion fee is going to take a little bit more. So if you can possibly manage it to where you're 18 to 24 months out from your core contract, when you start the process, you'll be down to near the end. And if you pass the end, you can be month to month for a little while. That isn't going to hurt you, you're going to pay a little bit more, but not as much as a huge termination fee. And then if you are able to combine that with, having had your safety and soundness, BSA and it exams, particularly when you're 18 to 24 months out of, your termination on your core contract, you're not going to see the regulators again for another 18 months. So you don't have to worry about that while you're going through the process. Plus, you just pulled a whole host of data to provide your examiners, most of which, if not all, will be what's needed to do the due diligence process as you run down this m and a path. And you don't have to disturb a lot of people in your bank. It takes a lot to get all that information pulled together. And when you're asking for that information on an off period of time, it's not saying it can't be done, and there are things you can do to, to work yourself through that, but it just makes an awkward situation and something more you have to be concerned about in disrupting people and having them gather information and they're wondering why. So I call that the golden window is when your exams are over, you don't see them again for 18 months. And I know there are other exams, but those are the big ones, and you're 18 to 24 months away from the end of your core contract. You are in this perfect window to start these conversations.

Jack: Fascinating. A line in your book really stood out to me. and as solopreneurs and entrepreneurs, you and I, a lot of times this is easier said than done. You talk about how important it is for a CEO to work, on the business and not in the business. talk about what you mean by that. And if I'm in a community bank, how do I avoid that?

Kurt Knutson: Yeah, it's tough. You have to have discipline, you have to have a plan and you have to work the plan. and it's not different for a banker as any other business. but most business owners, have a tendency to jump right in, roll up their sleeves and work on things. And some cases, sometimes that gets you too involved in the business. And if you get hit by a bus, the business isn't worth anything. And that's the same thing when a buyer looks at it, is if this person goes away, which we don't want to carry that salary. And over a period of time, we'd like this person not to be involved. How susceptible are we to damaging those steady, predictable, consistent earnings that we're looking at and that's going to devalue your bank? so it's really hard to do, but you've got to focus on developing people. You might say, I don't want to invest all that time and energy when somebody's going to get developed, and then a big bank is going to hire them. And I trained them well. There are things you can do, and I talk about that in the book, too, in terms of protecting those people, because, we did something similar to that from the perspective of we saw this demographic shift happening, and we started really wholeheartedly, trying to identify and hire the right people beginning in 2009. We totally revamped our hiring system in 2011, and we really focused on those next level of folks. Our average age of our management team when we sold was 45. I was 62, and our president was 67. And so we brought the curve up quite a bit, and everybody else was 40 or below. So we were looking at that as a competitive advantage as we went out to be an acquirer. But that also brings talent, to bear in a world where talent is dear at this point in time.

Jack: It's a fascinating concept, and it's something I don't think we think about on a day to day basis. But we should, there two folks starting to come together, a buyer and a seller. And there's due diligence done.

But, there's also a group outside of this that have a role, and that is the board of directors. What's their role in this show?

Kurt Knutson: Well, and this is part of why I wrote the book. You, want to have your ducks in a row when you bring the board in. Your board may have sold their business, may have bought a business. Buying a business is different than selling a business, but they may or may not have any experience with it. They may be looking to you for how this works. You don't want to necessarily go to the board when you're in a situation and you don't know how this process works because you don't have a lot of confidence in what you're communicating to them. You don't really want to go to the investment bankers, right at that point in time, because, you know, it's kind of like asking a barber if you need a haircut. They're going to say, yeah, looks like it's a good time for a haircut. and you might not be able to go to your spouse because your spouse might have plans on what life looks like after this role that you've been in. So everybody's got kind of an investment in and the decision. And so what you need to do is try to get as far along as you possibly can on your own. That's what this book was designed and written for, is so that you can go through this mentally, in your mind, and understand what goes on, even from how you make this announcement to the employees to what kind of things you communicate to the. To your customers, to, you know, it goes, it gets into pretty heavy detail about all the different things that you come across, and you're going to have to deal with, and you're on your own. So this is a full time job you have that is above and beyond all your other full time duties, and nobody knows about it, and it might not happen. So you're. You're in this world where you're on an island, and it's important for you to get a good understanding of what that is. Then you go to the board, you say, we'd like to explore this. Here are some of the things that we need to do. Here's the decision we need to make, and that is, how do we want to approach the market? Do we want to go on this one on one conversation thing? Do we want to have a bid thing, or do we want to have this Goldilocks type of scenario? Because you want to be on the same page with the board there. You want to make sure your board understands how important it is to keep this confidential. We actually had our board sign insider agreements above and beyond their responsibilities. Is confidentiality for the board just to, again, reinforce that these were something that we needed to be very, very careful of this information. We also then had our deal team, the small group of people we brought together to do the deal team, and we talk about how that comes together. But we had those people sign the insider agreements. And then when we went to make the announcement before the regular, before all the other employees found out about it, and before the market found out about it, your customers, we had that management team sign those insider agreements, too. So those things hold a lot of value in terms of trying to keep that information contained. But your board then needs to make sure you're getting the fairest value for the stock. we hadn't talked about either whether it's cash or stock or cash and stock combination. And there are different considerations for each of those. You have to manage the bank differently, because you're. You understand, through this first process of just exploring things, we got to make sure things don't come off the rails here in any regard that's going to disrupt this process. Once you get to the LoI, you have some terms that you're. That's the letter of intent. You have some terms that you're abiding by, but you still don't make this public to anybody. But now you kind of have a filter. You have to run things through, like, anything over a certain dollar amount. And once you get to the definitive agreement, the buyer, is going to want to see. So now you got to have ways to communicate those things to the buyer and still be timely with your response to the customers and not alert everybody to what's going on. and then you get to the definitive agreement where you're getting all those things hammered out, and you finally get to the point where you make an announcement. And as soon as you make that announcement, there is a subtle shift away from the fact that you are the person that had the final word, and it's. Right. But you also need to understand that you're still responsible for this thing if another pandemic came up and threw this thing off, and that could happen all the way up until money's changed hands. So there's a whole host of things involved there. The board is looking to make sure that they aren't taking on any additional liability with the shareholders, that you're maximizing shareholder value and, not putting them at any jeopardy. I will say something, since you're a golf fan, too, because this was happening right when I was writing that section of the book, was this live PGA thing. And essentially, from my perspective, just watching this from the outside, they got to the LoI, which is that framework. It still needed to be quiet until they got to the definitive agreement, where they hammered out everything and it got announced at the Loi stage. It shows you how important it is not to announce it at that point in time, not to let word get out, because the PGA is dealing with a mess. I don't know how they're going to resolve this, but they have to negotiate all this in public. And that's the reason why you don't want to have any of this information get out.

Jack: Yeah, it's a nightmare.

here's another nightmare. So the bank, now we're closed. We have two $750 million banks came together. Now we're 1.5 billion. Okay, that's great. Now the heavy lifting really does start. How do you determine, and by the way, when you and I were young bankers, I cant speak for you. I was fired by four of my five banks because of mergers, and I didnt have the employment agreement. It was like, youre gone bye bye. And they were nice enough to give me a couple of months, but that was it. So now weve got employment agreements. So that muddies the waters a little bit. So I guess I got to ask you two questions. How do you determine once this thing is closed, how do you determine the employees you keep? And, here's another emotional thing. How do you determine which ones are the board members that you keep? Because if you've got ten board members on one bank, and then you combine with the same size bank, you're not going to have 20 board members. How does this all work?

Kurt Knutson: Yeah, the same size bank scenario is more a merger of equals, which has a whole host of social consequences that you got to deal through. And that particular scenario is very, very difficult and not a road not often taken for those reasons. if you get into a sale where, you know, we were 250 million and we sold to a billion two bank, and it was for cash, then it's the buyer's call. That's what they paid for. So they make their choices on everything that they do. They're responsible for execution. And you got to remember that, if it's stock and your shareholders are going to get paid a certain amount over time, if not all, if there's a combination of cash and stock, or if it's stock, you still have risk and you should have more representation and you should have a say in, how things go down the road, because your stocks at risk in this deal. So there's different answers for the different scenarios. Again, ours was an all cash deal, so it was a little cleaner in that regard. But when you get into a cash and stock deal or a stock deal now, you're going to bring some of those social issues back into to the equation. You're probably going to be in the scenario where we were, where we were 250 million and we sold to a bank that was a billion two. If that scenario were to occur, you're probably going to be outnumbered at the board, but, you're going to have representation and you have some input on how things get done. And you are responsible for some of that execution. So it's a little bit of a, a moving target depending on the circumstances. But it's also something to factor into your decision making process when you go down this path because a lot of people think about it as when I sell, I get cash, I leave and move on down the road and, and you gotta watch for that too. So you want to determine with the board do we want cash or stock or cash in stock. Investment bankers can help you sort through that, laying those down side by side and picking through and saying this is how they compare on an apples to apples basis. Its a difficult thing and the investment bankers bring a lot of experience to bear there as well. The other thing the investment bankers bring to bear is if youre negotiating with we had eleven people that were interested in us, we had five that made written offers. We had to go through those five and narrow it down to two. But when you have eleven people that are interested in you and they're all asking for information so that they can make an offer, that's like eleven exams going on, think about that. That's like eleven exams going on and you, nobody knows you're doing this and you already have a full time job. So the investment bankers do a heck of a job managing the data room. Handling is questions as they possibly can, grouping questions together so that their impact on you is minimized and it's worth their way to gold to keep that process moving. But there are all these different scenarios and instances and again, I try to hit on that in the book so that you can think through that so that when you get asked about it you have some impressions formed already. I've found that it's kind of like once you travel down the road to someplace that you've gone on a trip and you've done it the first time, you're new to everything, nothing's familiar, the mile markers aren't meaning anything to you, where to stay. You don't know that, where the good restaurants are, you don't know any of that. The second time through, you know, hey, I'm about this far trip, you know, where the good places to stay are. You're familiar with those things, your confidence level goes up. You only do this once on most occasions. There's probably a few people that have done more than once, but you only do it once and typically you do it once and you move on and that information goes away. And that's again what I was trying to do in this was capture that information. I'm not a banker anymore. I've got 40 years of things that I've seen that I'm willing to give away for people to use if they want to use it. So that's what I'm trying to do in the book.

Jack: Well, it's good stuff.

And I want to do a couple of lightning around things with you. Some of the chapters in here, had math in it, so I skipped those. Not good at math. But, one of the things I really like is your section on post closing, and announcement, to closing, because now that gets into some real family issues, some real emotional things. So let me ask you a couple of questions about that. So the announcement is made. I'm a lender or a branch manager. I'm, nervous. What are some success practices for the buyer to keep? Not only the employees, because you want to keep the good ones, but the customers, because the customers in a community are going to be nervous, too.

Kurt Knutson: Yeah, absolutely. And it's a great point. And I've been on the acquisition side of things. I think I've been through four acquisitions and felt some of the same experiences that you had as well, Jack, and where you didn't get anything. You don't know what the circumstances are. You don't know where you're going. A couple things that I try to point out in the book. So hopefully buyers will read the book as well to see, this is how this looks from a seller's perspective. But oftentimes the buyers look at this as one that's closed, that's the finish line. And they really need to be looking at that as the starting line because they haven't done anything in terms of working with the new team yet. And you can't because until the money's changed hands or until the considerations changed hands, it could blow up and you still need to be a standalone operation. In fact, part of what the CEO's role is to make sure that that can happen and that comes through in that communication. So you're not overly, joyous about what's going on. You're matter of fact and business like. But there's several things that are going on. The first thing that happens as soon as those words come out are your employees are thinking, am I still going to have a job? What am I going to do and what am I going to get paid? The first thing your customers are thinking, are, am I still going to work with the same banker? Do I have to? Do I got to keep the same systems we're on. And how is this going to impact my business? Because they've got a full time job doing their business and they don't want their bank out there making another job for them. And then you got your shareholders that say, when does this happen, and when do I get my money? And you and I are from a time period where all that happened in a weekend where everybody huddled together and they had teams come in and they changed the signs and, you know, flipped the switch. So on Friday you left is one thing, and Monday you came back and, everything was switched to the new thing. Even core conversion, it doesn't happen that way anymore. And so there's kind of steps to it. So the steps are you make the announcement. You want to share with your community, your customers, your employees and your shareholders the reasons for the merger. So we're able to go from one location to 33. we're able to go from 250 million to a billion and a half. You're going to have higher legal lending limits. You're going to have more products. You're going to have more access to locations. These are all the positive things that come to you for the employees. You're going to have a much bigger platform to take your career even further. so you're communicating all the reasons why this makes sense, and you're also saying, we're going to be out to see all of you in the next couple weeks, and you really need to dedicate yourself to going out on customer, calling blitzes. As soon as you make that announcement, as soon as you make that announcement, your customers phones are ringing and your employees phones are ringing, and it's competition saying, hey, come over here. And so it's real important to make sure they understand the opportunity that lies ahead. And it's too early to make any decisions and let us walk through that process with you. So you go to the first stage of we make the announcement, and then we've got to get regulatory approval and shareholder approval. And then once we get regulatory approval and shareholder approval, then we need to go through the conversion. So there's three steps there. And we tried to communicate and communicate and communicate over communicate and be out in front of people and let them know this, you know, we're not converting until next year. So your systems that you're on, you don't need to learn anything new. They've got products and services that are better than ours, some of ours are better than theirs. They're going to go through a process and figure out what they're going to keep, but we're going to walk you through that whole process. And we got you. And this isn't going to create more work for you. We got you with the employees. You want to sit down with them and also let them know this is a situation where you've got opportunity galore here. And they have this many positions open right now that are positions we didn't even have. So now you have things that you may or may not even have been exposed to before that you might want to do that you like better than what you're doing now. So there's a new opportunity there for you in that regard as well. And you're trying to go down this path of really covering up, and communicating as much as you possibly can and trying to field as many questions as you can. And as the CEO, you're not the final word anymore. And, on a all cash deal, you don't have any say in it. So it's important to understand and not get your feelings hurt that you just need to support your employees and tell them that, you know, they're going to get around to you and they're going to have conversations with you. Keep your chin up. do what you do. If we don't have customers, this is bad for everybody. So the customer, make sure you're taking care of the customer on all fronts. And then let's get you through this process to understand what, what lies ahead for you. But you're trying to, you're trying to make sure you bring everybody together. Lastly, I'd say the shareholders, it's not like you sold a house and you change, money. It takes a process of 30 to 60 to 90 days to get paying agent and, or the stock transfer agent to process those things. So the first thing you're trying to do with your shareholders as well is, say, find your certificates. You know, this isn't going to happen for a little while yet, but the first thing you can possibly do is go find your certificates because you got to remind them that on every, every communication, and there will still be somebody at the end that doesn't have their stock certificate.

Jack: And in a bank, two banks in the same community who have been just bitter enemies. And I mean that in a professional way. you know, now all of a sudden, we're on the same team. It's kind of like being traded from the Cubs to the Oakland A's. And, you know, now I'm on the Oakland A's and I hate the Cubs and I love the Cubs. It's a real challenge.

But one of the things is, you kind of talked about getting the teams together. If I'm an investment banker, and I may be saying this wrong, I don't think that's probably something that I do, but there probably are consultants out there that can kind of help facilitate these meetings. What are you seeing around that, Kurt? When these teams get together? Are you seeing someone from the outside try to facilitate, or are people doing this internally and just trying to get along?

Kurt Knutson: In the four that I've been through, I haven't seen that a lot. I hope, again, buyers read this book because they can. They're really missing an opportunity to really contain things there. and there should be an opportunity for somebody to come in and be a facilitator and help. Help work through those things. If it's an all cash deal, like I said before, it depends if it's a cash and stock deal or if it's a stock deal, the situations are different. because, again, if it's an all cash deal, you don't have any say in anything, and it's. It's essentially their. Their game. It's. And it should be that way. That's what the money's for, and that's what, that's, up to them to execute. but they don't have to share their plans with you. They typically don't, because if the deal falls apart, again, you don't want the Oakland A's to be given their competitor. you know, here's how. There's the pitch count. We're going to keep people at and all these different things and. And have that work against you. So there's a whole lot of things going on. there should be room for. How do you bring these teams together? How do you have a more professional approach to that? How do you treat it like it's a starting line rather than the finish line? The employees and the customers and the shareholders haven't heard anything about this until the announcement. You, as the CEO and the board has heard about it for probably six to nine months already. So you also have to remember that this is hitting somebody cold. I need to step back and help walk them through this. I can't assume that they are where I am because it's not possible. So you've got to go back and you got to really reply a lot of ground to help them understand why this is a good thing. Yeah.

Jack: last question. on the lightning round, so I know a whole lot of great people in the bank marketing circles. James Robert Lay, Tom Hirschberger, Lance Kessler, and Amber Farley. And when two banks get together, somebody will call on them and say, help me with this brand. I got to believe that there's a lot of heavy lifting here, and that's where marketing people in the bank can really be successful. What are you seeing around two banks coming together and rebranding?

Kurt Knutson: Yeah, rebranding is interesting as well, because there's a huge opportunity, there, like I said, I've been involved in four acquisitions, and, I see opportunity again. I hope a buyer reads this, because there's a huge opportunity there. Most of the time, they like to just essentially wipe the brand away and start with the new brand. Well, there's a lot of emotion tied into that, and they don't factor that in. And it's a great opportunity to say to everybody, here's all your brand merchandise that the bank has. Here's everything you have that's branded that we can put in a room. Help yourself. All we ask is that you just take it out of the bank. But this is a brand you helped create. This is a brand that you help bring to a point of where we wanted to buy you. So have at it. And by the way, we'd like you to do the same thing for our brand. And I think that's a huge message. Oftentimes, though, they just take things down and throw it away. And the message that sends is a message of a huge amount of disrespect, and it doesn't make somebody feel like working for your brand. It kind of goes back to the cattle rancher days where you're working for the brand, and that's people, take it on in that regard. It has a lot of personal meaning, and there's a lot of sacrifices been put in behind it, and they don't like to see their history just demolished like that.

Jack: No doubt. thank you for your generosity of time. you and I are, in a generation of readers. a lot of younger people don't read. We read. Who do you read? Who do you follow? Who do you hear on a podcast that helps you sharpen your saw as you continue your career?

Kurt Knutson: I have a wide variety of. Of people. I listen to things. I read, just to name a few. if I was to look, I get up in the morning, and the first thing I do is look at the New York Post for the headlines and see what's going on. Then I look at the Wall Street Journal and I look at the bond market just to see what's going on. In that regard, I go to zero hedge. There's another website that has a lot of banking information called Wolf street.com. Wolfstreet.com. That's very good. I go, to bank director. I look at the KBA stuff. I look at ABA stuff. I don't have a subscription to American Banker, although I get their notices on what their articles are for the day. I get a little frustrated that the subscription rate for a credit union is about half the price as it is for a bank. And I don't understand that. So I just don't feel like paying them. So I don't do that. But, I also follow a lot of folks that, aren't outside of banking, like Alex, hormozi, and, Justin, Welsh and, Amy Porterfield, Don Miller. There's just a whole host of people that I look at different things, and I read your stuff, Jack, and I read Ned Miller's stuff, and I follow, a whole bunch of people from a banking perspective on LinkedIn. And I just try to get exposed to as much as I possibly can. Business is kind of my hobby. I golf, but not very well. But I like business. I like doing it. And I don't have an off switch, so I don't know what to do about it other than just keep feeding it.

Jack: Yeah. And I think that's interesting. You know, a lot of people say, geez, you've had this long career in banking. Why don't you just kind of retire? I can't. this is such a passion coming to this desk in the morning, even though it's in our spring training headquarters, our rental before we build. I just love it. I just absolutely love it. You also love to write. You've got a savvy banker newsletter blog that is just truly outstanding. This book, I got to tell you, you got to get this book. It's just a wonderful book. how does somebody get a hold of you? Sign up for your newsletter. things like that.

Kurt Knutson: Yeah, LinkedIn is the best way to get a hold of me at this point. and then also what I'd like to do for you and your, audience is to provide a, the first section of the book free. So what I'd like to do is you can go to Kurt knudsen.com jack. So kurtknutson.com jack, and you'll be able to get the first section of the book, which is, what are we worth, that'll come to you for free. And, you'll also be able to figure out from there if you want to sign up for the newsletter. You can do that. you can also find out, how to get onto my LinkedIn page if you're going that direction. If you're not on LinkedIn, I'll put something there so that you can send me a message and I get you my contact information as well. But, we'll go to Kirk Knudsen.com, Jack, and, should be able to find everything there.

Jack: That's great. I appreciate it. You know, I don't play tennis, but one of the things I've heard about tennis is that it's not this shot. It's the next one you're planning for. You may be not, thinking about selling your bank today, but a year from now, you might. And having this book in hand can really be of benefit to you. Kurt, congratulations on the book. Thanks so much for your time today. All the best. As you continue to grow, this new phase of your career.

Kurt Knutson: Thank you, Jack. Thank you for having me on.

Jack: Thanks for listening to this episode of Jack Rance with modern Bankers, with the author of the art of selling your bank, Kurt Knudsen. Can anyone be a good storyteller? Maybe a great one. My guest next week thinks so, and he'll tell you how to make that happen. Join us next week for a fascinating interview with Neil Ford. This and every Jack rants with modern bankers is brought to you by our great friends at vertical iQ, verticaliq.com, and relpro. Relpro.com. Did you know that this is a podcast, too? Well, it is. We're on Apple podcasts, Spotify, Google Play, iHeartRadio, and others. We would love a, review. If you would be so kind, visit our website, too. It's a brand new website, themodernbanker.com, for more information. And sign up for our free public [email protected]. Public library and whether you're buying a bank, selling a bank, or doing business in a bank, make today and every day a great client day.