Caught in the Undertow

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                       or the past few years, community banks have enjoyed
                       a proverbial rising tide in profits. Through early 2007,
              
				
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Description: For the past few years, community banks have enjoyed a proverbial rising tide in profits. Now, however, the tide has turned on both Wall Street and the financial services sector at large. A community bank stock that might have been trading at 225% of book value a year ago might now be trading closer to 125% to 150%, says Bill Sammon, director, capital markets, ICBA Securities. Such deflated stock prices in the capital markets can be appealing to potential buyers, but don't expect a rush in merger and acquisition activity, analysts say. De novos and community banks planning initial public offerings are also encountering difficulties. Today numerous banks are in formation waiting not for regulatory approval but for capital. And more and more of that capital is coming from institutional investors instead of local shareholders who will likely become bank customers. One action that community banks have taken to make their stock more appealing is to continue or increase dividend yields.
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