Staying relevant? A look back to #AOBA12
In my next few posts, I’ll share some of the key takeaways from various presentations made at last week’s Acquire or Be Acquired (AOBA) conference. As you may have read, I had the pleasure of introducing a number of our speakers over the three day event — a culmination of a year’s worth of effort for the Bank Director team. Leading up to the conference, I spoke with many of the participants as they framed their information and insight for an audience of 550+ bank CEOs, CFOs, Chairmen and board members from banks that ranged from a few hundred million in assets to nearly $17Bn in size. Up first: a workshop presented by our friends at Griffin Financial entitled “￼How Do You Make Your Bank Relevant in Today’s Consolidating Industry?”The first time I met Mark McCollom, I had just downed three cups of coffee & was trying to shake a long night of travel from my eyes. It was Jan. 30th 2011 — an early Sunday morning to be exact — and I’d just entered a conference room in Hyatt’s Gainey Ranch in Arizona chocked full of talkative bankers eager to hear from the former CFO at Sovereign Bank and his colleagues at Griffin Financial. Mark, now the Senior Managing Director at the investment bank, was speaking on the first time spot at last year’s AOBA — and I’d been back with Bank Director for only a few months so we hadn’t met.
While I’d prepared to welcome everyone to our conference, I quickly realized the time for small talk between the two of us would have to wait until after his two hour presentation… a real problem, as I couldn’t find his bio. Thank goodness their Chairman (who was leading the presentation) bailed me out by introducing Mark to the crowd!
Fortunately, this year’s intro went far smoother than last — much needed, in fact, as it was Mark leading this year’s workshop. So “taking a bailout” was not an option as we opened AOBA with his presentation on staying relevant to potential merger partners and/or investors who provide growth capital. With a 80+ page deck, let me share some of the more salient points of Mark’s presentation (IMHO):
- Over the past 10 Years, large banks have typically out-earned smaller banks due to both size & scale + an ability to leverage operating expenses.
- Returns for community banks will continue to suffer, with margin compression due to increased competition and flatter yield curves, higher capital requirements under Dodd-Frank and Basel III and more severe risk weighting.
- As recently as 5 years ago, a moderately performing community bank could gain access to public capital sources. This has largely dried up in recent quarters.
To the merger-side of his talk, many are on record that banks < $1 Billion in assets should seriously consider selling their bank (or tying up with a similar sized institution). While I know quite a few CEOs under this threshold who have absolutely no interest in selling, Mark did share stats like these:
- About 2% of small banks (<$250 million) have sold each year since 2008, and represent about 67-81% of total M&A volume each year, despite being only 66% of the total number of financial institutions
- The median relative size of seller assets has shifted upward from 13% in 2005 to 18.5% in 2011 – according to Mark, this implies lower premiums are allowing banks the opportunity to grow more quickly when they do transact a deal and a greater willingness to pursue a merger of equals
While many factors ultimately impact “relevance” for banks today, Mark ultimately believes it comes down to generating the best returns for shareholders when taken in light of attracting investor or acquirer interest. Agree or disagree? Feel free to weigh in below.
*If you attended the conference, you can access all of Mark’s slides using the “on demand” feature on BankDirector.com (under the past conference tab on the site).