Annual Reports 2007: A 10K Wrap World

December 2007

As the year winds down and banks begin to look ahead to their plans and goals for 2008, they’re also looking back at 2007, taking stock of their performance and starting their annual report planning in earnest.

As they do, the annual report landscape continues to shift, away from the “traditional” AR and toward the 10K wrap, now the predominant format, according to the National Investor Relations Institute (NIRI). This and a number of other salient findings about the state of the annual report are provided by NIRI every two years.

Indeed, the 10K wrap – in which the 10K SEC filing is “wrapped” by an editorial section in one complete document – now accounts for about 60 percent of annual reports, up from less than 50 percent in 2004 and only 16 percent in 2002.

According to NIRI, smaller cap companies, especially, prefer the 10K wrap because it is faster and easier to produce, and costs less than a long-format annual report.

Interestingly, though, companies are reporting that both the 10K section and the editorial section of their 10K wrap annual reports are growing. The median number of pages in the 10K financial section ranges from 76 to 100 pages. And nearly 70 percent of companies report that their editorial section ranges from 5 to 20 pages.

Breaking out budgets for annual reports into ranges meaningful for the majority of our community banking clients, for companies with a market cap of less than $500 million, 44 percent spend between $20,000 and $49,999, and 28 percent spend between $50,000 and $99,999. For companies with a market cap between $500 million and $1.49 billion, 44 percent spend between $50,000 and $99,999, and 33 percent spend between $20,000 and $49,999.

Finally, according to NIRI, companies that produce a 10K wrap report that the three main topics addressed in their annual report are their strategic plan, their financial performance, and their progress toward enhancing shareholder value. (Traditional AR companies focus equally on their strategic plan and their products.)

MarshComm’s AR Experience & Tips

In our unique experience producing annual reports for community bank clients – we focus exclusively on investor relations and PR for community banks – Marsh Communications has witnessed first-hand most of these trends. We have also seen the increasing sophistication of community bank annual reports in both look and tone as investors have become more sophisticated.

Editorial Content Matters

Even individual investors, not to mention institutional shareholders and hedge funds, are looking for details and specifics relating to past performance and strategic direction. Investors want insight into management’s perspective not just on the bank’s goals, but on how the bank intends to achieve those goals, and the milestones that demonstrate the company’s progress along the way.

They want demographic and economic growth data on current and prospective markets. They demand candor, consistency and credibility in the company’s reporting (see Investors Want the “3 C’s”, our October 2007 Insight article).

Banks will be challenged to meet this demand in 2007 annual reports by dealing head-on with the housing/mortgage issues that are affecting the industry, even if they haven’t been impacted greatly. It’s the No. 1 issue on investors’ minds, and banks should do all they can to assure shareholders that they have taken the steps necessary to protect the company’s long-term interests

Design Matters, Too

Investors want this increasingly sophisticated set of information in a smart, stylish package that fully meets their needs and reflects the growing stature of the bank they own.

Banks that intend to be taken seriously as an investment can no longer afford to produce the mom-and-pop annual reports of yesteryear. Just as the editorial makes a statement about the direction of the company and management’s capability to achieve that vision, so too do the look and feel of the report.

No matter what your annual report plans are for 2007, keeping these trends and tips in mind should serve you well.

###

To view examples of annual reports Marsh Communications has produced, click here and view Bank Annual Reports. For information about how we can help your bank with your 2007 annual report, please contact John Marsh at jmarsh@marshcomm.net, or 770-458-7553.