Corporate Valuation, Financial Services

February 10, 2016

Strategic Planning for Community Banks on the Mend

Despite much commentary about the significant economic and regulatory headwinds impacting community banks, profitability is on the mend. Community bank earnings improved in the trailing twelve months ended June 30, 2015 with net income up 14% to $17.6 billion compared to $15.5 billion in the twelve months ended June 30, 2014.1 Nearly 60% of community banks reported higher profitability based upon annualized first half 2015 net income compared to 2014 levels. The number of unprofitable banks also declined to 41 in the second quarter of 2015, compared to 109 in 2014 and 167 in 2013. The median return on assets (ROA) for community banks was up to 0.96% (annualized based upon the first half of 2015), which was the highest level since 2008.

As detailed in Figure 1, key contributors to improving earnings were higher net interest income and lower loan loss provisions. Loan growth drove the improvement in net interest income as 84% of community banks reported loan growth in the trailing twelve month period, with the median community bank’s loan growth rate reported at 7.2%. Loan growth offset net interest margin (“NIM”) compression as NIMs were at their lowest level over the 10-year historical period. As the Federal Reserve’s zero-interest rate policy (“ZIRP”) grinds on, asset yields continue to compress while funding costs have essentially reached a floor. One interesting item to gauge in future quarters is how much interest rate and credit risk is being taken by community banks to grow loans and earnings.

community-bank-net-income-change Another sign of improving community bank health is that deal activity is up from recent prior periods as shown in Figure 2. Price/earnings multiples have also improved in recent periods (Figure 3) and appear to be relatively in line with long-term trends at approximately 20x. Price/tangible book multiples are still below longer-term trends, largely reflecting that although improved from the Great Recession returns on assets and equity remain below pre-financial crisis levels. comm-bank-deal-activity-transactionscomm-bank-deal-activity-multiples While it is difficult to tell whether community bank earnings have peaked and how long this cycle may last, improving profitability expands the strategic options available to community banks. A recent article by SNL Financial noted that a number of community banks are looking to sell as earnings may have plateaued. While selling is one option available to community banks in this environment, the range of strategic options available is much broader than that. A well-rounded strategic planning session should include an assessment of the bank’s unique strengths, weaknesses, and opportunities as well as a review of the bank’s performance and outlook relative to both its history and peers. Then, a broader discussion of a range of options that can deliver growth and enhance shareholder value should be discussed. Those other options could include organic and/or acquisitive growth and other ways to provide liquidity and enhance returns to shareholders such as special dividends, share repurchases, management buy-outs, and employee stock ownership plans. Founded in 1982, in the midst of and in response to a previous crisis affecting the financial services industry, Mercer Capital has witnessed the industry’s cycles. Despite industry cycles, Mercer Capital’s approach has remained the same – understanding key factors driving the industry, identifying the impact of industry trends on our clients, and delivering a reasoned and supported analysis in light of industry and client specific trends. Mercer Capital has experience facilitating strategic planning sessions for community banks and providing a broad range of specialized advisory services to the sector. Contact us to discuss scheduling a strategic planning session or your institution’s specific needs in confidence.

Continue Reading

The Tariff Hangover: How a Year of Trade Volatility Is Reshaping Transportation
The Tariff Hangover: How a Year of Trade Volatility Is Reshaping Transportation
The past year has been defined by a series of rapid and often unpredictable shifts in trade policy. New tariffs, temporary pauses, retaliatory measures, and evolving global supply chains have left a measurable impact on the transportation and logistics industry. These developments have influenced freight volumes, pricing dynamics, capital allocation, and ultimately the valuation of transportation companies.
September 2026 | Core Deposit Intangibles - 2026 Update
Bank Watch: September 2026

Core Deposit Intangibles - 2026 Update

Core deposits may appear as liabilities on a bank’s balance sheet, but stable, low-cost funding relationships can be among its most valuable assets. This article explains the fundamentals of core deposit intangible valuation and examines 2026 trends in CDI values, interest rates, deposit growth, and transaction activity. While CDI values have remained resilient, their outlook will depend on deposit pricing, customer retention, and the path of market rates.
Bank Watch Newsletter Banks
Read Now about Bank Watch: September 2026
Mercer Capital to Sponsor and Speak at Bank Director’s 2026 Bank Board Forum
Mercer Capital to Sponsor and Speak at Bank Director’s 2026 Bank Board Forum
Mercer Capital is pleased to sponsor Bank Director’s 2026 Bank Board Forum, taking place September 20 to 23, 2026, at the JW Marriott Austin in Austin, Texas. Jeff Davis and Andy Gibbs will attend and speak on behalf of the firm.The Bank Board Forum brings together bank directors and senior executives from across the country to examine the issues affecting bank leadership, governance, strategy, risk, technology, talent, and growth. This year’s program features main-stage presentations and specialized tracks designed for leaders focused on Audit & Risk, Compensation & Talent, and Governance & Strategy.Davis and Gibbs will present the breakout session “Community Bank 2027 Budget Preview: Opportunities and Challenges.” As boards review proposed budgets for the coming year, the session will examine the industry, strategic, and performance trends shaping the outlook for community banks. Topics will include the financial trends that may continue into 2027, the factors behind the recovery in bank stocks during 2026, the sustainability of that momentum, capital management amid easing capital requirements, and other evolving industry conditions.Jeff Davis, CFA, is Managing Director of Mercer Capital’s Financial Institutions Group. He provides valuation and transaction advisory services to banks and other financial institutions and has extensive experience analyzing publicly traded banks and specialty finance companies. Before rejoining Mercer Capital, Jeff spent 13 years as a sell-side analyst and held senior positions with Guggenheim Securities and FTN Equity Capital Markets. He is a frequent speaker at banking industry conferences and regularly presents to boards of directors and executive management teams.Andy Gibbs, CFA, CPA/ABV, is a Senior Vice President and leads Mercer Capital’s Depository Institutions Group. He provides valuation and corporate advisory services to financial institutions for mergers and acquisitions, employee stock ownership plans, corporate planning and reorganizations, financial reporting, and tax-related matters. Andy is a frequent speaker on community bank valuation and is a co-author of The Bank Director’s Valuation Handbook: What Every Director Must Know About Valuation and other books focused on financial institutions.Mercer Capital looks forward to connecting with bank leaders in Austin and contributing its valuation and transaction advisory perspective to the discussion about the opportunities and challenges facing community banks in 2027. Additional information is available on the Bank Board Forum conference website: https://www.bankdirector.com/event/bank-board-forum-2026/

Cart

Your cart is empty