Banking Exchange Magazine Logo

Variation on employee ownership theme

A taste of things when employees own the profits and the risks

Blogger Jeff Gerrish recently won the national silver excellence award for blogging from the American Society of Business Publication Editors. Blogger Jeff Gerrish recently won the national silver excellence award for blogging from the American Society of Business Publication Editors.


How much thought have you given to giving employees a piece of your bank?

I believe that employee ownership can have a beneficial effect on a community bank or community bank holding company, and that it is something to look at today.

No, this is not going to be a detailed dissertation about the technical ins and outs of ESOPs, stock options, and the like.

In fact, this is a story about employee ownership with a difference. The real purpose of this blog is to share how I have witnessed employee ownership impact community banks.

Weekend with a winner

Recently, I had the opportunity to spend the weekend with one of the most high-performing community banks in the country. This bank may be under $500 million in total assets, but the numbers it is putting up would make you envious.

I have worked with this bank multiple times over the years, so I knew some of the secrets to their success.

During this day-long meeting, however, I saw behind the curtain.

In trying to figure out what to do with the bank for the next couple of years, I really witnessed what propelled this bank to financial success and community success—employee ownership.

To put it bluntly, stock ownership by the employees is the motor that keeps everything else running so smoothly.

All of the directors and every one of the management employees that attended this meeting are shareholders of the holding company.

That is not altogether unusual in smaller community banks. What is unusual is that they are not shareholders of the holding company simply because stock had been given to them. They are shareholders of the holding company because over the years they have been given the opportunity by the controlling owner to purchase shares with their own money.

In fact, many of them went into debt to do so.

As many of you who have had children or even grandchildren know, when somebody uses their own money to do something, they pay a lot more attention to it.

I watched this reality play out in the discussion that took place at this planning session. The session itself was not terribly unusual, but throughout the proceedings I was consistently reminded that the key to this particular organization’s success was the fact that the employees were mindful of the impact that they as managers made and their departments made on the overall financial condition of the bank and, as a result, the value of their shares.

As you might expect, this bank’s overall business strategy is focused on profitability, with modest balance sheet growth. Again, that is not terribly unusual. It is interesting, though, that during the discussion, directors and management talked about how to make the bank even more profitable and more efficient than it already is. (This bank’s efficiency ratio, by the way, is currently just about right at 50%.)

Strategy under employee ownership

The true “light bulb” moment came in the discussion of some other topics, such as whether the bank should open a new branch, acquire another bank, or remodel some of its existing locations.

The management/shareholders were very mindful of the long-term cost and benefit of each of those opportunities. The general consensus was to expand geographically, at least to some extent, to look at acquisitions, and the like.

As we were discussing expansion, I asked them whether they would be willing to reduce the dividend they received if it was necessary for the holding company to take on significant leverage in order to take advantage of an opportunity. They uniformly indicated they would—provided it was a good deal.

It was clear they are all in it for the long-haul. And that is exactly why they have achieved and sustain such impressive profitability.

Same tactics, different attitude

What I am saying is that, generally speaking, this bank is not doing anything unusual or unique from a strategic point of view. Its strategy on paper is one that could apply to many community banks across the country that have achieved success.

What makes this bank stand out lies in the fact that all of this bank’s strategic decisions are filtered through the lens of shareholder ownership. Regardless of the specific strategy, I know that when the actual opportunities come along, this particular group will provide their input to make sure the profit motive is still there.

Should your bank explore employee ownership?

I am a firm believer that employee ownership is a good thing. I consistently recommend community banking organizations at least consider the possibility of implementing an Employee Stock Ownership Plan or a 401(k) ESOP, which is the easiest way, normally, to ensure employee ownership.

This bank took a different approach with direct ownership by the employees using their own money. Clearly, it works for them. I have also seen it work through one of the more traditional qualified retirement plans as noted above, but this bank is a great example of how skin in the game can make a difference.

Think about employee ownership for your bank. Would it make a difference? I will bet it will.

Jeff Gerrish

Jeff Gerrish is chairman of the board of Gerrish Smith Tuck Consultants, LLC, and a member of the Memphis-based law firm of Gerrish Smith Tuck, PC, Attorneys. He frequently contributes to Banking Exchange and frequently speaks at industry events.

In mid-2016 Gerrish's blog received a national bronze excellence award from the American Society of Business Publication Editors. This followed his receipt of the regional silver excellence award for the Northeastern Region from the same group.

Gerrish formerly served as regional counsel for the FDIC’s Memphis regional office and with the FDIC in Washington, D.C., where he had nationwide responsibility for litigation against directors of failed banks. Since the firm’s formation in 1988, Gerrish Smith Tuck has assisted over 2,000 community banks in all 50 states across the nation with matters such as strategic planning, mergers and acquisitions, common stock private placements, holding company formation and reorganization, and a wide variety of regulatory matters. Jeff Gerrish can be contacted at [email protected].

back to top


About Us

Connect With Us


CSI: Hawthorn River
Lending Regulatory Compliance

WEBINAR: Tuesday, May 21st, 2024, 2:00 CT / 3:00 ET

Join us to learn more about leveraging technology in Hawthorn River to support your lending process and its regulatory compliance. From 1071, TRID, HMDA, CRA and more in the sea of regulatory acronyms, our end-to-end loan origination solution creates efficiency for financial institutions.

Join this session for an overview of the platform, an interactive Q&A and information about:


This webinar is brought to you by:
OneSpan logo