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Moeling and McAlpin Present at AOBA

On January 27, 2013, Bryan Cave LLP Partners, Walt Moeling and Jim McAlpin, presented at the 2013 Acquire or Be Acquired Conference on “Charting Your Strategic Course in a Challenging Environment.

The presentation includes the results of the 2013 Bryan Cave Survey of thought leaders in the banking industry, and is available below.

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Building Value in a Changing Environment

A Letter to our Clients and Friends in the Financial Institutions Industry (Spring 2012)

Walt Moeling and Jim McAlpin spoke at the 2012 Acquire or Be Acquired Conference sponsored by Bank Director Magazine. Their topic was “The Path to Recovery – Building Value in a Changing Environment.” In preparation for their presentation at the AOBA conference, Walt and Jim surveyed a group of leading industry observers to obtain their insights. (A printer-friendly version of the Letter to Clients is also available.)

We thought you would be interested in what we heard this year in response to these questions, and the following is an excerpt from Walt’s and Jim’s presentation at the AOBA Conference:

Background

6,800 commercial banks (91% of all U.S. banks) have assets of less than $1 billion. Only 560 banks have assets between $1 billion and $10 billion, and only 106 institutions have assets greater than $10 billion. 2,500 banks (33% of all U.S. banks) have assets less than $100 million.

Both ROE and ROA for banks with less than $10 billion in assets improved in 2011, but still were about 65% to 70% of historical averages.

Economists surveyed by The Wall Street Journal expect U.S. GDP growth of just 2.3% for 2012. [The Wall Street Journal, December 22, 2011.]

2012 Bryan Cave Survey

We surveyed 50 industry thought leaders, including bank consultants and advisers, investment bankers and partners at private equity firms. We asked them to look forward over the next few years and give us their thoughts on factors considered by bankers and boards of directors when conducting strategic planning. We received more than 40 responses from across the country. Many of our respondents have allowed us to share their comments either with attribution or anonymously.

What will be the pace of growth in the U.S. economy and in bank assets over the next 3 years?” 

Survey respondents consistently predicted the pace of growth in the U.S. economy over the next 3 years to be between 2% and 3%.

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McAlpin and Moeling Present at Acquire or Be Acquired

On January 29, 2011, Bryan Cave partners Jim McAlpin and Walt Moeling presented at the 2012 Bank Director Acquire or Be Acquired conference in Phoenix, Arizona.  Their presentation was titled, “The Path to Recovery – Building Value in a Changing Environment.”

The presentation includes an overview of the results of the 2012 Bryan Cave Survey of investment bankers and bank consultants to assist in providing strategic advice to clients.  A sampling of results include:

  • “In my opinion, the calendar just needs to turn another 3 to 6 more months and more signs of credit stabilization just need to naturally occur. We think folks will be pleasantly surprised to see the natural “mating process” happen on its own in 2012. [This will] start really slow but moderately gain momentum as 2013 unfolds, and by 2014 it will be a great deal different.” – Chris Marinac, FIG Partners
  • “Failed bank opportunities need to disappear (still two more years of this in the Southeast); more healthy buyers need to appear; private equity will become much more involved; buyers prices need to improve; Banks with TARP will likely have to sell as capital markets will not open up in time.” – Bill Wagner, Raymond James
  • “Dominate its ‘micro’ market as it relates to deposits and their lending competency and try to achieve critical mass (~$750m).” – Jeff Brand, KBW
  • “Sometimes the blocking and tackling basics are a competitive advantage – provide the services desired on par with the big banks with care and concern.” – Phil Moore, Porter Keadle Moore

A copy of their PowerPoint presentation is now available online.

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The Path to Full Profitability by 2013

A Letter to our Clients and Friends in the Financial Institutions Industry

Walt Moeling and Jim McAlpin spoke at the recent Acquire or Be Acquired Conference sponsored by Bank Director Magazine. Their topic was “The Path to Full Profitability by 2013.” In advance of their talk at the conference, Walt and Jim sought input from a group of industry observers on what they foresee as likely developments over the next few years. (A printer-friendly version of the Letter to Clients is also available.)

We thought you would be interested in what we heard in response to these questions, and the following is an excerpt from Walt and Jim’s presentation at the AOBA Conference:

Background

  • There are more than 6500 commercial banks in the U.S. Only 500 of these banks have assets of more than $1 billion, and only 110 have assets of more than $10 billion. In other words, over 90% of U.S. banks have assets of less than $1 billion. Also of significance to this discussion, one third of U.S. banks have less than $100 million in assets.
  • In connection with this presentation we sent a survey to a number of our contacts at investment banking firms and also to a group of bank consultants. We asked them to look forward over the next few years and project what the landscape will look like in community banking. We received responses from over 30 industry observers from across the country, and our respondents have allowed us to share their comments either with attribution or anonymously.

“What will the ideal community bank look like by year end 2013?”

  • Adam Aspes of Sterne Agee provided an answer that sums up most of what we heard in response to this question: “The ideal community bank will either: (i) have a dominant market share in a rural slow growth market, or (ii) if located in an urban market, have enough scale and product offering to compete for deposits with the larger banks.”
  • Jennifer Demba of SunTrust Robinson Humphrey responded: “Investors will value concentrated market share community banks, not fragmented networks.”
  • One community bank consultant wrote in response “$1 billion in asset size will not be a large bank by 2013.” We consistently heard in response to this question that, in all but rural markets, a minimum necessary asset size will be $500 million.
  • Chris Marinac of FIG Partners wrote: “While not universally applicable, in general we think the regulatory costs of operating a bank have increased such that it is difficult to produce adequate long-term returns for a bank below $500 million in assets. There are exceptions, and some private bank investors find a single-digit Return on Equity to be acceptable. However, we think the demands for 11% to 14% ROEs create a $ billion+ size threshold for surviving banks.
  • Another investment banker told us that his firm has modeled the impact of increased compliance costs on smaller community banks: “If you assume an increase of [direct and indirect] compliance costs of $100,000, and then factor in growth of only 5% to 8% per year, it is hard for a smaller bank to get to 1% ROA, much less double digit ROE.”
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