By Ken McCarthy and Sam Carr
A SNL Financial Exclusive Report
While CEO age has always been one of the elements involved in bank M&A deals, it may be an even bigger factor today in determining which banks are likely sellers.
The age of CEOs that are potential sellers is still "a pretty big thesis" impacting bank M&A today, Nishil Patel, an analyst at Keefe Bruyette & Woods Inc., told SNL. The potential sellers list compiled by Keefe Bruyette & Woods is often marked by CEOs that "tend to be pretty old," he said. The average CEO age in selling banks recently was about 65. "And I think once you start getting to 66, 67, 70 and onward it really starts to become a much bigger factor and people look for them to sell," he said.
The average age of a selling CEO in the nine largest deals from early 2012 to early 2013 was 64 - compared to 58 for the average small and mid-cap CEO, according to analysis conducted by Keefe Bruyette & Woods in 2013. Patel said the analysis has not been updated recently, but he believes 2014 deals would support the findings.
Closely held banks & thrifts with CEO's at least 65 years old
At least two recently announced deals involved sellers with CEOs that were 65 or older and where insider ownership was at least 30%. Marietta, Ohio-based Peoples Bancorp Inc. on Aug. 4 signed a definitive merger agreement under which it will acquire Wilmington, Ohio-based NB&T Financial Group Inc. And Rockland, Mass.-based Independent Bank Corp. announced Aug. 5 that it agreed to acquire Brighton, Mass.-based Peoples Federal Bancshares Inc.
Lafayette, Ind.-based LSB Financial Corp., with insider ownership at 28.11%, is led by 65-year-old President and CEO Randolph Williams. The company announced June 4 that it would be acquired by Old National Bancorp.
Flynt Gallagher, president of Meyer-Chatfield Compensation Advisors, told SNL he agrees that there could be occasions when CEO age does affect a bank's decision to sell. This is especially true as baby boom generation executives retire and board fatigue sets in to some degree. He said situations in which a bank has not prepared for the succession of executives, directors and even shareholders exacerbates the problem. "Additionally, the realization that any potential merger will not provide 5x book - as many banks identified in their business plans in the event of a sale - coupled with the increased cost of regulatory compliance, contributes to the easy solution to sell and take their toys and go home," he said.
Fairmont, W.Va.-based MVB Financial Corp. President and CEO Larry Mazza said the older average age of the leadership teams in markets such as western Pennsylvania compared to some areas where leaders tend to be younger, including Baltimore/Washington, D.C., is a definite factor in M&A. He cited a recent study that suggested 50-year-old CEOs merge because they want to be part of the larger bank's leadership team, 60-year-olds sell so they can cash out and retire, while those in their 70s and older tend to stand pat.
Keefe Bruyette & Woods' Patel said CEO age in selling banks is typically one of the larger factors in a bank's decision to seek a partner. And it tends to be smaller banks of less than $2 billion or $3 billion in assets where the age factor comes into play simply because of the way those companies are structured. Larger banks usually have succession plans in place, and so the idea of the CEO selling out is far less of a possibility, he said. "With the smaller banks, sometimes they're family-run and maybe they don't have their kids working there," he said. "And if the leadership is older it makes more sense, especially if there is no succession plan in place."
Terry Stroud, a former OCC and OTS regulator and now CEO of Dallas-based consulting firm Opportunity Group, told SNL the departure of the older generation of bankers is leading to a change in personality among bank leadership teams across the sector. People who used to want to be bankers did not have many of the same basic personality traits as those entering the business today, he said. Risk quantification and minimization is the No. 1 concern of young bankers today, compared to the prior generation that worried first about how to help communities and businesses grow. "My generation thought about making or creating something," he said. "That is not the mentality of today's younger banker."
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.