Keefe Bruyette & Woods Analyst Nishil Patel minced no words last month when he told global financial and business news provider SNL Financial that the potential selling bank list compiled by KBW is marked by institutions whose CEOS “tend to be pretty old.” Specifically, that’s an average CEO age of 65 as an indicator of a likely selling bank, and every CEO age year above that increasing the likelihood of a sale.
Getting away from the SNL report for a moment, life expectancies measured at birth have increased since the current generation of bank CEOs was born, and for our purposes we’re using the statistics for white males, who are the ones predominantly in the corner offices. According to census figures, a white male born in 1950 had a life expectancy of 72.2 years; by 1970, that age had inched up to 75.6 years.
But then there are the profound medical advances that have been made since 1970, which are more likely to be accessed by white males. These advances will likely result in extended lives for the people who can access them, though that does not necessarily imply the ability to remain in the workforce, and of course, there’s the rub.
In the face of all this, a traditional retirement age of 65 is still fairly entrenched in bank management plans. The retirement plans for today’s generation of bank CEOs were inked decades ago, in line with life expectancies of the time. To the advantage of current management, they were very likely able to build and/or reconstruct portfolio assets during a time which had at least as many boom years (the early 1980s and mid- to late 1990s) as down years (late 1980s and the early part of the 21st century).
The three Massachusetts-based banks cited in the SNL report are: Quaint Oak Bancorp, of Southampton; Hingham Institution for Savings, Hingham; and Peoples Federal Bancshares Inc. of Brighton, which is being acquired by Rockland, Mass.-based Independent Bank Corp, parent of Rockland Bank. The SNL list limited itself to public banks and thrifts with CEOs at least 65 years of age and with 30 percent or more insider ownership – it does not include banks on which SNL has no data on CEO age.
The average age of a selling CEO in the nine largest national deals from early 2012 to early 2013 was 64 – compared to 58 for the average small and mid-cap CEO, according to a 2013 KBW analysis as reported by SNL. Patel said the analysis has not been updated recently, but he believes 2014 deals would support the findings.
A Walk Through History
A critical decision marker is whether a merger will result in an acquisition price of five times book value – a key ratio identified by many banks KBW surveyed – coupled with increased regulatory costs and possible instances of “board fatigue,” are contributing to pressure on some smaller banks to sell, according to SNL Financial.
The causes of the pressure to sell go back at least 20 years, about the amount of time it takes to cultivate a next generation of leadership. During the banking crisis of the late 1980s and early 1990s, training programs were curtailed as banks struggled to put out fires on the lending front. Then, after flush times in the mid- to late 1990s, difficult times after the turn of the 21st century stifled many long-term programs to cultivate the next generation.
In speaking to SNL, Larry Mazza, president and CEO of Fairmont, W.Va.-based MVB Financial Corp. cited a recent study suggesting that CEOs in their 50s merge to join the larger bank’s leadership team, 60-year-olds sell to retire, while those in their 70s and older are inclined to stay put.
KBW’s Patel said that a lack of succession plans are more common among smaller banks of less than $2 billion or $3 billion in assets, particularly those which are family-run with no succeeding generation in place.
Additionally, the increased focus on risk management as a priority over community- and business-building is a deterrent to would-be entrants. The biggest barriers include the increased capital requirements of Basel III, and the extensive administrative burden of the Dodd-Frank law.
Terry Stroud, a former OCC and OTS regulator and now CEO of Dallas-based consulting firm Opportunity Group, told SNL that bankers entering the field tend to focus on risk minimization rather than community-building. “My generation thought about making or creating something,” he said. “That is not the mentality of today’s younger banker.”
Email: coneill@thewarrengroup.com
