Another Community Bank Forms ESOP

Mar 11, 2019 | Timothy L. Stewart

RiverWood Bank in Minnesota has formed an ESOP. CEO Paul Means described the reasons for forming the ESOP as follows:

The driving force for making the decision was our long term employees for their dedication and providing an advantage for us from a recruiting perspective. We really think it will make a difference.

We have seen dozens of community banks (both locally and nationwide) form ESOPs for the same purpose. But these transactions often serve another purpose: the ability to have a “willing buyer” of stock for the other shareholders of the bank.

Often, community banks have many shareholders (sometimes into the dozens). And these shareholders are often of different ages, backgrounds and from different families. Accordingly, their timelines for divesting their stock are diverse. This makes selling outright to a third party difficult. And therein lies the other primary benefit: forming an ESOP as a shareholder willing to buy out shareholders on their own timelines. This relieves the non-ESOP shareholders of the potential burden of trying to find a buyer for their shares, and serves the purpose outlined by RiverWood above: transitioning more and more ownership to the employees of the bank.