The May 2015 issue of Bank Watch is available now, which features the article “Community Bank Focus: How to Combat the Margin Blues?” written by Jay D. Wilson, Jr., CFA, ASA, CBA, and Atticus L. Frank.
Following the Great Recession, significant attention has been focused on bank earnings and earning power. While community bank returns on equity (ROE) have improved since the depths of the recession, they are still below pre-recession levels. One factor squeezing revenue is falling net interest margins (i.e., the difference between rates earned on loans and securities, and rates paid to depositors). Community banks are more margin dependent than their larger brethren and have been impacted to a greater extent from this declining NIM trend. NIMs for community banks (defined to be those with assets between $100 million and $5 billion) have steadily declined and were at their lowest point in the last ten years in early 2015.
Aside from paying tribute to the late B.B. King and playing “Everyday, everyday I have the blues,” what can community bankers do in order to combat the margin blues? While not all encompassing, we have listed a few strategic options to consider including increasing leverage, considering M&A, acquiring/partnering with non-financials, improving efficiency by leveraging financial technology, or maintaining the status quo.
Also in this issue is the opinion piece “Mississippi Merging” written by Jeff K. Davis, CFA, in which he presents his thoughts on the potential acquisition landscape in Mississippi. Originally published April 28, 2015, at SNL Financial. Reprinted with permission.
This issue contains links to various articles of interest, as well as public market indicators, M&A market indicators, and key indices of the top financial institutions in the U.S., providing insight into financial institution valuation issues.
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