Mercer Capital's Bank Watch | August 2021 | 2021 Mid-Year Core Deposit Intangibles Update

www.mercercapital.com
Second Quarter 2018
AUGUST 2021
Bank Watch
2021 Mid-Year Core Deposit Intangibles Update
BUSINESS VALUATION &
FINANCIAL ADVISORY SERVICES
ARTICLE
In This Issue
2021 Mid-Year Core Deposit
Intangibles Update 1
Public Market Indicators 7
MA Market Indicators 8
Regional Public
Bank Peer Reports 9
About Mercer Capital 10

© 2021 Mercer Capital // www.mercercapital.com 1
Mercer Capital’s Bank Watch August 2021
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
1-Month
1-Year
2-Year
3-Year
5-Year
7-Year
10-Year
20-Year
30-Year
2Q21 (Current) 1Q21 (Previous) 2Q20 (Previous Year)
Source: Federal Reserve Statistical Release H.15
Note: Figures shown are the average yield for the last month of the quarter.
2021 Mid-Year Core Deposit Intangibles Update
In our last update regarding core deposit trends published in August 2020, we
described a decreasing trend in core deposit intangible asset values in light of the
pandemic. In response to the pandemic, the Fed cut rates to effectively zero, and
the yield on the benchmark 10-year Treasury reached a record low. While many
factors are pertinent to analyzing a deposit base, a significant driver of value is
market interest rates. Although there has been some recovery in longer-term trea-
sury rates since this time last year, shorter-term treasury rates (maturities of two
years or less) have eased as investors concluded the Fed will not raise short-term
policy rates in the near-term.
MA Activity
For the full year of 2020, bank MA activity fell sharply to 111 announced transac-
tions from approximately 250 to 300 transactions per year during 2014 to 2019.
More deals have been announced in the first eight months of 2021 than were an-
nounced in all of 2020. As shown in Figure 2, on the next page, the majority of the
2021 announcements occurred in the second quarter.
With 63 announced deals, the second quarter of 2021 represented the highest
level of quarterly deal announcements since the third quarter of 2019 (83 deals).
For comparison, only nine whole-bank transactions were announced in the second
quarter of 2020, representing the fewest deals announced during a quarter over
the time period analyzed. At this time last year, there were several factors hindering
deal activity. Unknowns surrounding credit quality and the severity of loan defer-
rals in the midst of the pandemic gave pause to many deal talks in progress prior
to the pandemic. Constraints surrounding travel and due diligence also hampered
activity.
Ultimately, credit losses were not as significant as were feared initially, and travel
has begun to normalize in the wake of widespread vaccine distribution. As a result,
there appears to be a degree of pent-up demand in the bank MA market. More-
over, many of the factors driving acquisitions have intensified over the past year.
Revenue pressure is causing institutions to seek operational efficiencies via syner-
gies, as loan growth (excluding PPP loans) has been exceptionally weak over the
past year, deposit growth has been unprecedented, and interest rates remain near
historic lows. Additionally, as more consumers adopted digital banking in a socially-
distancing society, banks lacking capability in this arena saw a more acute need to
seek partnerships with more technologically advanced institutions.
Figure 1 : U.S.Treasury Yield Curve

Trends In CDI Values
Using data compiled by SP Capital IQ Pro, we analyzed trends in core deposit
intangible (CDI) assets recorded in whole bank acquisitions completed from 2000
through June 30, 2021. CDI values represent the value of the depository customer
relationships obtained in a bank acquisition. CDI values are driven by many fac-
tors, including the “stickiness” of a customer base, the types of deposit accounts
assumed, and the cost of the acquired deposit base compared to alternative sourc-
es of funding. For our analysis of industry trends in CDI values, we relied on SP
Capital IQ Pro’s definition of core deposits.1
In analyzing core deposit intangible
assets for individual acquisitions, however, a more detailed analysis of the deposit
base would consider the relative stability of various account types.
In general, CDI assets derive most of their value from lower-cost demand deposit
accounts, while often significantly less (if not zero) value is ascribed to more rate-
sensitive time deposits and public funds, or to non-retail funding sources such as
listing service or brokered deposits which are excluded from core deposits when
determining the value of a CDI.
Figure 3, on the next page, summarizes the trend in CDI values since the start
of the 2008 recession, compared with rates on 5-year FHLB advances. Over the
post-recession period, CDI values have largely followed the general trend in inter-
est rates—as alternative funding became more costly in 2017 and 2018, CDI values
generally ticked up as well, relative to post-recession average levels.
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Figure 2 : Bank Deals Announced by Quarter
1
SP Global Market Intelligence defines core deposits as,“Deposits, less time deposit accounts with balances over $100,000, foreign deposits and unclassified deposit”

Throughout 2019, CDI values exhibited a declining trend in light of yield curve in-
version and Fed cuts to the target federal funds rate during the back half of 2019.
This trend accelerated in March 2020 when rates were effectively cut to zero. CDI
values have shown some recovery in the past two quarters (average of 60 basis
points for the first half of 2021 as compared to 50 basis points in the second half
of 2020). Despite the recent uptick, CDI values remain below the post-recession
average of 1.33% in the period presented in the chart and meaningfully lower than
long-term historical levels which averaged closer to 2.5-3.0% in the early 2000s.
The average CDI value declined 11 basis points from June 2020 to June 2021,
while the five year FHLB advance increased 25 basis points over the same period.
Although the five year FHLB advance rate has increased year-over-year, rates on
FHLB advances with terms of less than two years have declined an average of 11
basis points since this time last year.
Since the beginning of the pandemic, banks have been burdened with an excess
of deposits. It was initially expected that the increase in deposits would be tran-
sient in nature as the economy re-opened, PPP funds were spent or invested, and
consumer confidence improved. However, the glut of deposits has endured, and
deposits at US commercial banks were at a record level of $17.3 trillion at the end
of July despite earning historically low deposit rates. Weak loan demand has ag-
gravated the issue for banks, and margin pressure remains a very real concern for
financial institutions.
In past cycles, when interest rates declined, the change in the CDI/core deposit
ratio was mostly caused by lower CDI values (the numerator in the ratio). In the
pandemic, though, CDI values declined (due to lower rates) while core deposits
increased (due to the governmental response to the pandemic among other fac-
tors). With market participants unwilling to pay a premium for potentially transient
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
2008
Q2
2008
Q4
2009
Q2
2009
Q4
2010
Q2
2010
Q4
2011
Q2
2011
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Q4
2018
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2018
Q4
2019
Q2
2019
Q4
2020
Q2
2020
Q4
2021
Q2
CDI 1 Yr CD Money Market Reg. Savings 5-Yr FHLB
Figure 3 : CDI as % of Acquired Core Deposits

deposits, the CDI/core deposit ratio was squeezed by both lower CDI values (the
numerator) and higher core deposits (the denominator). Time will tell how stable
deposits will be after the deposit influx experienced in 2020 and the first half of
2021, which will affect CDI values going forward.
Trends In Deposit Premiums Relative To CDI
Asset Values
Core deposit intangible assets are related to, but not identical to, deposit premiums
paid in acquisitions. While CDI assets are an intangible asset recorded in acquisi-
tions to capture the value of the customer relationships the deposits represent,
deposit premiums paid are a function of the purchase price of an acquisition. De-
posit premiums in whole bank acquisitions are computed based on the excess of
the purchase price over the target’s tangible book value, as a percentage of the
core deposit base.
While deposit premiums often capture the value to the acquirer of assuming the es-
tablished funding source of the core deposit base (that is, the value of the deposit
franchise), the purchase price also reflects factors unrelated to the deposit base,
such as the quality of the acquired loan portfolio, unique synergy opportunities
anticipated by the acquirer, etc.
Additional factors may influence the purchase price to an extent that the calculated
deposit premium doesn’t necessarily bear a strong relationship to the value of the
core deposit base to the acquirer. This influence is often less relevant in branch
transactions where the deposit base is the primary driver of the transaction and
the relationship between the purchase price and the deposit base is more direct.
Figure 4 presents deposit premiums paid in whole bank acquisitions as compared
to premiums paid in branch transactions.
As shown in Figure 4, deposit premiums paid in whole bank acquisitions have
shown more volatility than CDI values. Deposit premiums in the range of 6% to
10% remain well below the pre-Great Recession levels when premiums for whole
bank acquisitions averaged closer to 20%.
Deposit premiums paid in branch transactions have generally been less volatile
than tangible book value premiums paid in whole bank acquisitions. Branch trans-
action deposit premiums averaged in the 4.5% to 7.5% range during 2019 and 3.0%
to 7.5% during 2020, up from the 2.0% to 4.0% range observed in the financial
crisis. Only eight branch transactions were completed in the first half of 2021, but
the range of their implied premiums is in line with 2019 and 2020 levels.
Some disconnect appears to exist between the prices paid in branch transactions
and the CDI values recorded in bank MA transactions. Beyond the relatively small
0.0%
3.0%
6.0%
9.0%
12.0%
15.0%
18.0%
21.0%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
2
0
0
0
2
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0
1
2
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2
2
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9
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1
Deposit
Premium
CDI
CDI Deposit Premium Paid
Figure 4 : CDI Recorded vs. Deposit Premiums Paid

sample size of branch transactions, one explanation might be the excess capital
that continues to accumulate in the banking industry, resulting in strong bidding
activity for the MA opportunities that arise–even in situations where the potential
buyers have ample deposits.
Accounting For CDI Assets
Based on the data for acquisitions for which core deposit intangible detail was
reported, a majority of banks selected a ten-year amortization term for the CDI val-
ues booked. Less than 10% of transactions for which data was available selected
amortization terms longer than ten years. Amortization methods were somewhat
more varied, but an accelerated amortization method was selected in approximate-
ly half of these transactions.
For more information about Mercer Capital’s core deposit valuation services,
please contact one of our professionals.
Eden G. Stanton, CFA, ASA
stantone@mercercapital.com | 901.270.7250
0%
2%
4%
6%
8%
10%
12%
14%
16%
2008
Q2
2008
Q4
2009
Q2
2009
Q4
2010
Q2
2010
Q4
2011
Q2
2011
Q4
2012
Q2
2012
Q4
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2013
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2014
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2015
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Q2
2017
Q4
2018
Q2
2018
Q4
2019
Q2
2019
Q4
2020
Q2
2020
Q4
2021
Q2
Whole Bank Acquisitions Branch Transactions
0%
10%
20%
30%
40%
50%
60%
70%
3 4 5 6 7 8 9 10 11 12 13 14 15 16 18 20
0%
10%
20%
30%
40%
50%
60%
Accelerated Straight-line Sum-of-years Digits
Figure 5 : Average Deposit Premiums Paid
Figure 6 : Selected Amortization Term (Years)
Transactions Completed 2008 - June 30, 2021
Figure 7 : Selected Amortization Method

WHAT WE’RE READING
As the spread of the COVID-19 Delta variant hampers hopes of return-to-office plans, data has recently revealed that community banks across the U.S. issued a record amount of
commercial real estate loans in the first half of 2021.
Bank Director reviews MVB Financial Corp.’s fintech acquisition history as few banks have seemed interested in acquiring FinTech firms. Meanwhile, appetite for wider bank MA activity
is expected to continue to increase.
As trading activity in cryptocurrencies among individual investors increases, Coinbase prepares for more intense regulatory scrutiny amidst customer service and user issues.

© 2021 Mercer Capital // Data provided by SP Capital IQ Pro. 7
Mercer Capital’s Public Market Indicators August 2021
Mercer Capital’s Bank Group Index Overview Return Stratification of U.S. Banks
by Market Cap
Total Return Regional Index Data as of August 20, 2021
Month-to-
Date
Quarter-to-
Date
Year-to-
Date
Last 12
Months
Price/LTM
EPS
Price /
2021 (E)
EPS
Price /
2022 (E)
EPS
Price / Book
Value
Price /
Tangible Book
Value
Dividend
Yield
Atlantic Coast Index 0.8% 4.1% 43.0% 81.6% 11.8x 11.8x 13.5x 117% 125% 2.5%
Midwest Index 1.4% 1.9% 18.5% 40.7% 9.8x 9.3x 11.0x 103% 121% 2.5%
Northeast Index 2.2% 3.3% 27.9% 54.8% 9.6x 9.7x 10.1x 106% 113% 3.1%
Southeast Index 1.1% 2.1% 25.9% 50.0% 11.5x 10.0x 10.6x 112% 115% 2.3%
West Index 2.2% 4.2% 32.9% 64.3% 10.8x 9.9x 11.7x 123% 126% 2.3%
Community Bank Index 1.6% 3.1% 28.9% 56.7% 10.6x 10.1x 11.1x 111% 119% 2.5%
SP U.S. BMI Banks 3.0% -0.2% 28.3% 68.4% na na na na na na
Dow Jones
U.S. MicroCap
Banks
SP U.S.
SmallCap
Banks
SP U.S.
MidCap Banks
SP U.S.
LargeCap
Banks
Month-to-Date 1.25% 3.22% 1.73% 3.08%
Quarter-to-Date 1.52% -0.52% -1.13% 0.05%
Year-to-Date 29.19% 25.98% 28.25% 29.12%
Last 12 Months 64.84% 70.01% 81.82% 66.18%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
As
of
August
20,
2021
80
90
100
110
120
130
140
150
160
170
180
190
8
/
2
0
/
2
0
2
0
9
/
2
0
/
2
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1
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/
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/
2
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1
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0
2
1
8
/
2
0
/
2
0
2
1
August
20,
2020
=
100
MCM Index - Community Banks SP U.S. BMI Banks SP 500
Source: SP Capital IQ Pro.
Micro Cap: $250 Million
Small Cap: $250 Million - $1 Billion
Mid Cap: $1 - $5 Billion
Large Cap: $5 Billion
Regional Index Data

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
LTM
2021
U.S. 20.0%18.4%12.0% 6.9% 6.3% 5.4% 4.3% 5.5% 7.5% 7.5% 6.1% 10.0% 9.6% 9.3% 5.5% 7.2%
0%
5%
10%
15%
20%
25%
Core
Deposit
Premiums
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
LTM
2021
U.S. 243% 228% 196% 145% 141% 132% 130% 134% 155% 148% 143% 170% 178% 168% 150% 156%
0%
50%
100%
150%
200%
250%
300%
350%
Price
/
Tangible
Book
Value
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
LTM
2021
U.S. 22.0 22.1 19.9 19.3 21.7 21.9 17.0 16.5 17.5 18.8 18.1 19.5 22.4 16.3 13.9 15.6
0
5
10
15
20
25
30
Price
/
Last
12
Months
Earnings
Regions
Price /
LTM
Earnings
Price/
Tang.
BV
Price /
Core Dep
Premium
No.
of
Deals
Median
Deal
Value
($M)
Target’s
Median
Assets
($000)
Target’s
Median
LTM
ROAE
Atlantic Coast 15.5x 174% 8.5% 14 118.6 704,154 10.0%
Midwest 17.1x 156% 7.3% 43 114.7 196,820 8.7%
Northeast 14.0x 153% 7.6% 5 141.6 596,948 10.8%
Southeast 16.3x 146% 6.9% 26 108.4 406,411 10.2%
West 14.7x 162% 7.0% 14 165.6 1,103,604 9.8%
National Community
Banks
15.6x 156% 7.2% 102 116.6 383,756 10.3%
Median Valuation Multiples for MA Deals
Target Banks’ Assets $5B and LTM ROE 5%, 12 months ended August 25, 2021
Median Core Deposit Multiples
Target Banks’ Assets $5B and LTM ROE 5%
Median Price/Tangible Book Value Multiples
Median Price/Earnings Multiples

Updated weekly, Mercer Capital’s Regional Public Bank Peer Reports offer a
closer look at the market pricing and performance of publicly traded banks
in the states of five U.S. regions. Click on the map to view the reports from
the representative region.
© 2021 Mercer Capital // Data provided by SP Global Market Intelligence 9
Mercer Capital’s Bank Watch June 2021
Mercer Capital’s
Regional Public
Bank Peer Reports
Atlantic Coast Midwest Northeast
Southeast West

Mercer Capital assists banks, thrifts, and credit unions with significant corporate valuation requirements,
transaction advisory services, and other strategic decisions.
Mercer Capital pairs analytical rigor with industry knowledge to deliver unique insight into issues facing banks. These insights underpin the valuation analyses that are at the
heart of Mercer Capital’s services to depository institutions.

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Depository Institutions Team
MERCER CAPITAL
Depository Institutions Services
BUSINESS VALUATION
FINANCIAL ADVISORY SERVICES
Jeff K. Davis, CFA
615.345.0350
jeffdavis@mercercapital.com
Andrew K. Gibbs, CFA, CPA/ABV
901.322.9726
gibbsa@mercercapital.com
Jay D. Wilson, Jr., CFA, ASA, CBA
469.778.5860
wilsonj@mercercapital.com
Eden G. Stanton, CFA, ASA
901.270.7250
stantone@mercercapital.com
Mary Grace Arehart, CFA
901.322.9720
arehartm@mercercapital.com
Brian F. Adams,CFA
901.322.9706
adamsb@mercercapital.com
William C.Tobermann, CFA
901.322.9783
tobermannw@mercercapital.com
Heath A. Hamby, CFA
615.457.8723
hambyh@mercercapital.com
Mary Jane McCaghren
214.206.3796
mccaghrenm@mercercapital.com
Copyright © 2021 Mercer Capital Management, Inc. All rights reserved. It is illegal under Federal law to reproduce this publication or any portion of its contents without the publisher’s permission. Media quotations with source attribution are encouraged.
Reporters requesting additional information or editorial comment should contact Barbara Walters Price at 901.685.2120. Mercer Capital’s Bank Watch is published monthly and does not constitute legal or financial consulting advice. It is offered as an
information service to our clients and friends. Those interested in specific guidance for legal or accounting matters should seek competent professional advice. Inquiries to discuss specific valuation matters are welcomed. To add your name to our mailing list
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Mercer Capital's Bank Watch | August 2021 | 2021 Mid-Year Core Deposit Intangibles Update