bank investors: who were they, who are they and what are they

Bank Investors: Who Were They, Who Are They and What Are They Looking For

Lisa Schultz Managing Director, Equity Capital Markets & Syndicate, U.S.,

Stifel Nicolaus Weisel

11:30 AM - 12:20 AM

Anton Schutz President & Chief Investment Officer, Mendon Capital Advisors

Corporation and Founder, New Ground Capital

On Demand Passcode: CAMELBACK Twitter Hashtag: #AOBA13 Wireless Passcode: AOBA2013

I. Evolution of the Bank Market

II. What Investors Are Currently Looking For

III. Bank Investors Today

IV. Shareholder Activism

V. Positioning For The Future

Presentation Outline

Stifel, Nicolaus & Company, Incorporated and Thomas Weisel Partners LLC are affiliated broker-dealer subsidiaries of Stifel Financial Corp. which are collectively referred to herein under the marketing name Stifel Nicolaus Weisel, representing the firm’s investment banking services. This document has been prepared by the investment banking division and is not a product of Stifel Research. The information and statistical data contained herein have been obtained from sources that Stifel Nicolaus Weisel believes are reliable, but Stifel Nicolaus Weisel makes no representation or warranty as to the accuracy or completeness of any such information or data and expressly disclaims any and all liability relating to or resulting from your use of these materials. The information and data contained herein are current only as of the date(s) indicated, and Stifel Nicolaus Weisel has no intention, obligation, or duty to update these materials after such date(s). These materials do not constitute an offer to sell or the solicitation of an offer to buy any securities. Stifel Nicolaus may be a market-maker in certain of these securities, and Stifel Nicolaus Weisel may have provided investment banking services to certain of the companies listed herein. Stifel Nicolaus, Thomas Weisel Partners, and/or their respective officers, directors, employees, and affiliates may at any time hold a long or short position in any of these securities and may from time-to-time purchase or sell such securities. These materials may not be distributed without Stifel Nicolaus Weisel’s prior written consent. Copyright 2013 Stifel, Nicolaus & Company, Incorporated

I. Evolution of the Bank Market

$6,884

$14,290

$4,538

$10,537

$0$2,000$4,000$6,000$8,000

$10,000$12,000$14,000$16,000

1999 CurrentTotal Assets ($B) Total Deposits ($B)

4

Source: Institution totals from FDIC data, total assets and deposits as of 9/30/2012. Market data from SNL Financial.

*Public banks include institutions listed on the NASDAQ, NYSE, Pink Sheets and OTC Bulletin Board.

Summary of Banks in 1999 and Today

Changes in the Banking Landscape

# of Banks Total Assets and Deposits ($B)

# of Public Banks* Total Market Cap. ($B)

1,2381,088

0

200

400

600

800

1,000

1,200

1,400

1999 Current

12% Decrease$1,140

$1,077

$0

$200

$400

$600

$800

$1,000

$1,200

1999 Current

Median Market

Cap.$47 M

Median Market

Cap.$34 M

6% Decrease

% Increase Assets 108% Deposits 132%

10,222

7,121

0

2,000

4,000

6,000

8,000

10,000

12,000

1999 Current

30% Decrease

5

Bank Sector Performance Comparison

5

Source: SNL Financial. Market data as of 12/31/2012. *KBW Regional performance data is unavailable prior to 7/25/2005.

S&P 500 SNL Bank KBW Bank KBW Regional*

2001 (13.0%) (1.2%) (4.6%)

2002 (23.4%) (11.5%) (13.0%)

2003 26.4% 30.9% 30.3%

2004 9.0% 8.5% 6.8%

2005 3.0% (2.1%) (0.3%) (4.2%)

2006 13.6% 13.0% 13.2% 5.6%

2007 3.5% (25.2%) (24.6%) (24.4%)

2008 (38.5%) (45.6%) (50.0%) (21.7%)

2009 23.5% (2.8%) (3.6%) (24.2%)

2010 12.8% 11.2% 22.2% 18.2%

2011 (0.0%) (23.7%) (24.6%) (7.1%)

2012 13.4% 32.3% 30.2% 10.5%

2001 - Present 8.0% (39.0%) (43.1%) (45.0%)

Changes in the banking landscape continue to drive investors into more liquid names

Reasons for underperformance:

o Community banks: Loss on commercial real estate

and construction loans

Higher expense base

Required to hold more capital

o Large banks: Concerns over mortgage

litigation risk

Impact of Dodd-Frank & Volcker Rule on fee income and non-banking business lines

6

Ownership in Mid & Large Cap Banks

Source: SNL Financial, Factset. 2012 as of reported filings for 9/30/2012.

Over $1.0 Billion

Market Cap. Historical Ownership / Shares Outstanding

1% 2% 2% 2% 2% 2% 2% 2% 2% 3% 3% 3% 3%

31%35%

43%48% 47% 50% 54%

61%67% 69% 74% 71% 73%

68%63%

56%50% 51% 48% 44%

36%30% 28%

24% 26% 24%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Insider Institutional Retail

7

Ownership in Small Cap Banks

Market Cap.

$250 Million to

$1.0 Billion

Historical Ownership / Shares Outstanding

2% 3% 4% 4% 6% 6% 6% 7% 7% 7% 7% 9% 9%11% 13%

19% 22%25% 27%

32%39% 40% 43%

48%52%

56%

87% 84%77% 74%

69% 67%62%

54% 53% 50%45%

39% 34%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%



8

Ownership in Micro Cap Banks

Market Cap.

$50 Million to

$250 Million

Historical Ownership / Shares Outstanding

6% 7% 6% 8% 8% 8% 9% 10% 11% 11% 12% 15% 16%2% 3% 6%9% 9% 11%

14% 12% 13% 12% 14%17%

21%

92% 90% 88% 83% 83% 81% 77% 78% 75% 77% 74%68% 63%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%



9

Institutional Ownership Analysis – Then and Now

Source: SNL Financial, Factset.

Holdings of Top 10 Investors by Fund Type – 12/31/1999 Holdings of Top 10 Investors by Fund Type – Current

Top 10 Holders of the KBW Regional Bank Index

30%

70%

Discretionary Non-Discretionary

28%

72%


1999 $921 Million

Assets Held by Discretionary Funds:

Current $6.3 Billion

10

Institutional Ownership Analysis – Then and Now

Top 10 Institutional Investors in the KBW Regional Bank Index – 12/31/1999

Top 10 Institutional Investors in the KBW Regional Bank Index – Current

Source: SNL Financial, Factset. Discretionary investors highlighted in grey.

Rank Institutional Investor

Market Value

($MMs)1 BlackRock Fund Advisors $831

2 Fidelity Management & Research Co. $320

3 Wellington Management Co. LLP $311

4 State Street Global Advisors $305

5 Putnam Investment Management LLC $290

6 The Vanguard Group, Inc. $290

7 TIAA-CREF Asset Management LLC $262

8 Deutsche Bank Investment Management, Inc. $238

9 Dimensional Fund Advisors, Inc. $221

10 Mellon Capital Management Corp. $216

Total $3,283

Rank Institutional Investor

Market Value

($MMs)1 BlackRock Fund Advisors $4,741

2 Vanguard Group Inc. $3,960

3 State Street Global Advisors Inc. $3,179

4 Fidelity Management & Research Co. $1,951

5 Dimensional Fund Advisors LP $1,764

6 T. Rowe Price Associates Inc. $1,550

7 Northern Trust Global Investments Ltd. $1,215

8 Lord Abbett & Co. LLC $1,029

9 Wellington Management Co. LLP $883

10 Columbia Wanger Asset Management LLC $874

Total $21,146

11

BlackRock Fund Advisors TIAA-CREF JPMorgan Asset

Management The Banc Funds Co.

Fidelity Management AllianceBernstein Putnam Investment Mgmt. Deutsche Bank Investment

Management Columbia Management

Investor Movement Since the Beginning of 2000

KBW Bank Index

KBW Regional

Bank Index

Buying Maintaining Selling

Vanguard Group State Street Wellington Management T. Rowe Price Dodge & Cox Invesco Advisors Capital World Investors Sandler Asset Management BlackRock Fund Advisors Vanguard Group State Street Fidelity Management Dimensional Fund Advisors T. Rowe Price Lord Abbett Sandler Asset Management

Wellington Management TIAA-CREF The Banc Funds Co.

Deutsche Bank Investment Management

Putnam Investment Mgmt. Mellon Capital

Source: FactSet.

Dedicated Bank Stock Investors

That Have Gone Away

Tontine Asset Management Synovus Asset Management Keefe Managers

12

Public Float Soaked Up by Index Funds

Bank ownership trends mirror those of the broader market in the sense that more money is being managed through non-discretionary funds (ETFs and passively managed index funds)

ETFs and Index Funds have grown in popularity as investors look for lower cost investment alternatives in a stock market that has been relatively unchanged since the beginning of 2000. Contributing to this phenomenon have been:

High levels of stock market volatility, including the 2009 “flash crash”

Underperformance by some of the higher profile active managers (Bill Miller and others)

Access, liquidity and specialization of ETFs relative to traditional mutual funds

Current liquidity in bank stocks is diminished as public float is further reduced by shares held by index funds

Price/valuation impacted by a higher liquidity discount applied by investors

Changes in stock ownership impacted more and more by computers/models, not fundamental valuation techniques applied by real-life portfolio managers, which on occasion leads to over-corrections based on technical indicators

13

Source: SNL Financial. Small Cap defined as banks with market capitalization less than $1 billion. Mid & Large Cap defined as banks with market capitalization over $1 billion.

*Exchange traded banks defined as banks listed on the NYSE or NASDAQ. Excludes merger targets.

Composition of Publicly Traded Banks

Current Banking Universe

Small Cap Mid & Lg. Cap

# of Exchange Traded Banks* 362 75

Total Assets ($M) $624,217 $11,188,750

Median Assets ($000) $1,118,361 $17,018,592

Total Market Cap. ($M) $70,430 $983,492

Median Market Cap ($M) $98 $1,987

Public Banks by Region: Northeast – 34 Midatlantic – 93 Southeast – 84 Southwest – 15 Midwest – 87 West – 49

Source: SNL Financial; as of 12/31/2012.

29

8

9

Public Banks Per State

0 1-4 5-9 10-14 15 +

Current Banking Universe – Small Cap Banks

18

11

6

11

15

24 8

19

26

25

11

14

8

17

8

5

30

8 5

5

5

9

Public Banks by Region: Northeast – 3 Midatlantic – 16 Southeast – 15 Southwest – 10 Midwest – 17 West – 14

Source: SNL Financial; as of 12/31/2012.

Public Banks Per State

0 1-4 5-9 10-14 15 +

Current Banking Universe – Mid & Large Cap Banks

15

9

8

6

6

1

5 4

1

2

3

2

II. What Investors Are Currently Looking For

17

Shift in Banking Environment = New Investor Expectations

While Primarily Focused on Banks and Thrifts, We Seek Attractive Investment

Opportunities Across the Broad Spectrum of Financial Institutions

Various Types of Opportunities Deserve Special Focus:

Long-Term Consolidation Driven Identify Potential Targets and Acquirors Thrift Conversions

Shorter-Term Catalyst Driven

FDIC Assisted IPOs/Capital Raises Earnings Expectations vs. Results Buyback

Always Concentrate on Intensive Fundamental Research of Investment Ideas with an

Understanding of Technical Factors that Affect Trading

18

Three-Step Discipline:

Idea Generation •Daily review for

valuation anomalies

•Map and model M&A possibilities

•Analyst road trips: several per year per analyst

• Industry conferences throughout the year

• In-house management visits

•Daily industry news

•Filter sell-side ideas, IPOs, capital offerings

Investment Decision •Analyst presents idea

and thesis to PM and Head Trader

•Team discussions to ensure all key factors known and analyzed

•PM makes final call; analysts have discretion in PM’s absence

Position Monitoring •Analyst maintains

responsibility for investment thesis

•Monitor daily changes in price and volume; news updates

•Regular discussions with company management

•Special focus around earnings releases, 10-Q releases and headline news

Investment Process

19

Sub Sectors

With the Vast Breadth of the Financial Services Sector, Opportunities Abound in Any Economic, Credit or Rate Environment

20

Valuation Dynamics

Value Management

-Experience -Insider ownership -Age of chairman/CEO -Attitude regarding growth

Geography -Market growth -Industries served -Competition -Growth vs. peers

Credit -Lending history -Portfolio diversification -Aggressive/ conservative -Adequacy of reserves

Balance Sheet -Interest-rate risk -Deposit/loan composition -Debt/equity -Flexibility

Capital -History of capital stewardship -Excess? -Adequate?

Valuation -Versus geographic peers -Price/tangible book -Core deposit premium -P/E ratio

Propensity for M&A -Willingness to acquire or be acquired -Management’s prior M&A history

Deal activity, advantageous to buyer and seller, will accelerate over next two to five years due to:

Regulatory headwinds

Dodd-Frank Act TARP exit

Lack of significant revenue growth Weak loan demand Reduced fee income

Capital constraints Capital markets mostly shut to smaller banks

“Tired” management teams and boards of directors Improved valuations & market conditions

21

Consolidation Dynamics

22

Drivers of M&A are in Place

Operating “fatigue” due to current credit, economic and regulatory environment likely to accelerate consolidation in the industry

Scale becomes more important given revenue pressures and higher levels of fixed costs

An average of 230 depository institutions sold per year since 2000

211 260 270 271 296 288 143 118 178 152 228

188% 216% 225% 229% 244% 230%

170%

114% 120% 106% 118%

0

50

100

150

200

250

300

350

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Number of Deals Average Deal Value/ Tangible Book Value(%)

Industry Consolidation in Community Banking Sector

23

Community Bank Returns

12%

85% 73%

24%

(100%)

(50%)

0%

50%

100%

150%

200%

250%

300%

12/99 12/00 12/01 12/02 12/03 12/04 12/05 12/06 12/07 12/08 12/09 12/10 12/11

SNL Mid Cap U.S. Bank & Thrift Total Return SNL Micro Cap U.S. Bank & Thrift Total Return

SNL Small Cap U.S. Bank & Thrift Total Return S&P 500 Total Return

24

Illustrative Model – Bank XYZ*

Pre-Crisis "New Normal"

TCE / TA 6.00% 8.00%

ROAA 1.25% 1.00%

Asset Growth 6.0% 3.0%

Implied Forward P / E

11.5x 9.3x

Implied P / TBV

253% 120%

253%

120%

Pre - Crisis "New Normal"

What Will the “New Normal” Look Like?

*See Appendix for approach and assumptions.

III. Bank Investors Today

26

Traditional Mutual Funds Private Equity Funds Hedge Funds

Shortest required holding period with daily redemption

Investments are typically sized as a percentage of the fund, creating minimum size limitations for positions in small cap banks

Most diversified

Focus is typically on fundamentals

Almost always long only

Investors expect modest returns

Longer holding period, typically quarterly redemptions

Investors expect large returns

Oftentimes focus is on fewer core investments than a typical mutual fund

Generally shorter term investment horizon relative to mutual funds

Focus is typically less on fundamentals

Usually can adopt long or short strategy

Longest holding period and investment horizon (typically 3-5 years)

Tend to take significant positions, but given ownership limits in banks, size restrictions may cap investment

Less diversified with concentration in a small basket of key investments

Focused on IRR (typically 25-30%) and cash on cash return multiples

Types of Institutional Investors

27

Largest Holders By Number Of Banks Held Largest Holders By Dollar Value of Position

Source: FactSet LionShares, as of reported filings for 9/30/12. Note: Includes top 100 banks by market capitalization under Keefe, Bruyette & Woods Research Coverage with market capitalization under $1 billion. Top 10 excludes non-discretionary funds and investors with fewer than 10 positions. Green arrow indicates investor moved up in ranking from 2011. Red arrow indicates investor moved down in ranking from 2011.

Largest Institutional Investors In Small Cap Banks – Q3 ’12 Trends

1) BlackRock Advisors LLC 2) AllianceBernstein LP 3) Columbia Management Investment Advisers LLC 4) SunAmerica Asset Management Corp. 5) Aberdeen Asset Management, Inc. 6) Principal Global Investors LLC 7) Manulife Asset Management (United States) LLC 8) JPMorgan Investment Management, Inc. 9) UBS Global Asset Management 10) Goldman Sachs Asset Management International Ltd.

1) Wellington Management Co. LLP 2) Columbia Management Investment Advisers LLC 3) Fidelity Management & Research Co. 4) The Banc Funds Co. LLC 5) Lord, Abbett & Co. LLC 6) T. Rowe Price Associates, Inc. 7) Manulife Asset Management (United States) LLC 8) BlackRock Advisors LLC 9) Goldman Sachs Asset Management LP 10) JPMorgan Investment Management, Inc.

Dollar Value of Position by Fund Type Number of Banks Held by Fund Type

54%46%


38%

62%


1) Columbia Management Investment Advisers LLC 2) BlackRock Advisors LLC 3) AllianceBernstein LP 4) UBS Global Asset Management 5) Teacher Retirement System of Texas 6) SunAmerica Asset Management Corp. 7) T. Rowe Price Associates, Inc. 8) Goldman Sachs Asset Management LP 9) Aberdeen Asset Management, Inc. 10) Managed Account Advisors LLC

28

Largest Holders By Number Of Banks Held Largest Holders By Dollar Value of Position

Source: FactSet LionShares, as of reported filings for 9/30/12. Note: Includes 69 banks under Keefe, Bruyette & Woods Research Coverage with market capitalization over $1 billion. Top 10 excludes non-discretionary funds and investors with fewer than 10 positions. Green arrow indicates investor moved up in ranking from 2011. Red arrow indicates investor moved down in ranking from 2011.

1) Fidelity Management & Research Co. 2) Wellington Management Co. LLP 3) Capital Research & Management Co. 4) T. Rowe Price Associates, Inc. 5) BlackRock Advisors LLC 6) JPMorgan Investment Management, Inc. 7) Columbia Management Investment Advisers LLC 8) Barrow, Hanley, Mewhinney & Strauss LLC 9) AllianceBernstein LP 10) MFS Investment Management, Inc. Dollar Value of Position by Fund Type Number of Banks Held by Fund Type

59%41%


69%

31%


Largest Institutional Investors In Mid & Large Cap Banks – Q3 ’12 Trends

29 Source: FactSet as of 9/30/12 filings.

Institutional Investors Are Market Weighted In Bank Stocks

Financial Sector

Institutional Portfolio Weight

S&P 500 Index

Weight Overweight / Underweight

Consumer Finance 0.32% 0.26% 0.06%

Commercial Banks 2.86% 2.71% 0.15%

Diversified Financial Services 2.53% 2.76% (0.24%)

Thrifts / Mortgage Finance 0.06% 0.06% (0.01%)

Capital Markets 1.12% 1.04% 0.08%

Total: All Banks 6.88% 6.84% 0.04%

30

Who is Currently Overweight Financials?

Source: SNL Financial, Factset, Bloomberg. *At 12/31/2012, as provided by Standard & Poor’s.

Northern Trust Global Investments Ltd. – 12.5% Dimensional Fund Advisors LP – 10.4% Norges Bank Investment Management – 8.7% Lord Abbett & Co. LLC – 7.8% NFJ Investment Group LLC – 6.4% JPMorgan Asset Management – 6.1% BlackRock Fund Advisors – 6.0% Vanguard Group Inc. – 5.9% AllianceBernstein Holding LP – 5.5% Capital World Investors – 5.3% TIAA-CREF Asset Management LLC – 5.2% Wellington Management Co. LLP – 5.1% BlackRock Advisors LLC – 4.8% Columbia Management Investment Advisers LLC – 4.6% State Street Global Advisors Inc. – 4.5% Goldman Sachs Asset Management L.P. – 4.5% Columbia Wanger Asset Management LLC – 4.2% Fidelity Management & Research Co. – 4.0% T. Rowe Price Associates Inc. – 3.7% Neuberger Berman LLC – 2.1%

Banks Comprise 2.8% of the S&P 500*

Bank Sector Weighting of Top 20 Investors in the KBW Regional Bank Index

IV. Shareholder Activism

32

Objectives and Trends in Shareholder Activism

Maximize shareholder value

Force sale of company or assets

Drive change in management / board

Push for return of capital (distribute cash)

Highlight need for changes in fundamental performance (refocus business strategy)

Corporate governance reform

Activist Objectives Reasons for Increasing Shareholder Activism

Increasing number of activist funds, including traditionally passive institutional investors

More market liquidity

Ease of information dissemination

Success of past campaigns

Erosion of traditional takeover defenses

Political and public support for shareholder rights

Overview of Shareholder Activism

33

$0.1$0.1$0.2$0.2$0.3

$0.5

$0.8

$1.2

$1.4

$1.7

$2.1

$1.5$1.6

$1.7$1.7$1.8

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

3Q '1

2

The Rise of Activist Hedge Funds

Most mutual funds and older LBO funds are barred from making unsolicited bids by clauses in their fund partnership agreements

o Pension funds demanded this out of fear of adverse publicity

However, hedge funds are not bound by such restrictions

o Hedge funds are becoming a force in nearly every public takeover because of the amount of capital at their disposal

o This activism requires attention and warrants careful preparation as for responding to a hostile takeover bid. In fact, some of the attacks are designed to facilitate a takeover or to force a sale of the target

o Diligent planning and a proactive approach are critical. Failure to prepare reduces a company’s ability to control its own destiny

While the number of proxy fights has remained relatively flat, the percentage of dissident victories (including outright sales, partial victories and settlements) have increased steadily

o Corporate control contests are increasingly voting contests with a large public relations component

o Companies need to focus on a variety of constituent interests including governance policies, social issues and traditional Wall Street metrics

Growth in the Hedge Fund Industry’s AUM ($ in trillions)

The Activist Hedge Fund

Overview of Shareholder Activism

Source: Barclay Hedge Alternative Investment Database.

Characteristics of Banks Targeted by Activist Investors History of underperforming on a variety of operational metrics

Performance suffering due to persistent margin compression, core deposit growth challenges, competitive pressures and credit deterioration

Weak demographic trends in the company’s market

High levels of competition from other banks in the market area

Increase in management compensation despite underperformance in stock price and operational weakness

Return on equity below the company’s cost of capital

Company has not redeemed TARP

Activist investor pressure on MHCs to undergo 2nd step conversion

Pressure for overcapitalized institutions to repurchase shares

Sale may be the only source of liquidity for investors in micro cap institutions

What Types of Banks are Targeted by Activist Investors?

34

V. Positioning For The Future

36

How Can Senior Management Create Shareholder Value?

Shareholder Value Be Available •Multiple Industry

Conferences & Road Shows

•Analyst Coverage (Multiple)

•Clear Financial Statements

Track Record of Improving Trends • EPS Growth • Book Value Growth • Loan Growth •Credit Quality •Credible Plan for the

Company’s Future

Defined Plan For Use of Capital • Stock Buyback •Dividend •Acquisitions – Be

Realistic •Growth

Return of Excess Capital: Best Options for Shareholders Our research suggests shareholders are most likely to benefit from a large, sustainable increase in a

bank’s common dividend

Performance is driven by investor perception of a stable dividend at a higher rate as well as the strong probability for further future increases

Highest stock price impact occurred through increasing common dividends but maintaining a payout ratio less than 20%, leading to a 9.7% Bank Index outperformance

Tax changes for 2013 will negatively impact dividends as drivers of stock multiples

Stock repurchase programs have been the second most beneficial option for bank to return excess capital

Banks that repurchased greater than 7.50% of their float outperformed their peer group index, confirming the positive effect large scale buy backs have on EPS

Least beneficial method of returning excess capital to shareholders is special dividends, as they have provided minimal share price outperformance in the 12 months following the declaration

Underperformance due to the one-time nature of this type of capital distribution

– Company management is perceived to view opportunities to internally return excess capital as limited

Special dividends be beneficial and lead to stock price outperformance provided they are declared under the appropriate set of circumstances and to the shareholder base

Source: Stifel Nicolaus Research.

Bank Stock Investors’ Perception

37

Source: SNL Financial and FactSet.

Conclusions Recently, returns in bank stocks have been on par with the S&P 500

The regional bank index returned 10.5% in 2012, which mirrored the return on the S&P 500

Trailing twenty-four month returns have slightly lagged the S&P 500, which returned 13.4%

Lowered expectations of bank stock investors are the result of changing industry trends:

Lower loan growth

Margin compression

Additional capital requirements (Basel III)

Bank investors are market neutral

Focus on current shareholders

Selectively target new investors

New positions likely came from transactions

Bank Stock Investors’ Perception

38

Appendix

40

Illustrative Model – Bank XYZ

Approach and Assumptions Illustrative, bottoms up valuation approach which depicts how the theoretical value of a bank and implied multiples are impacted by changes in assumptions in terms of profitability, asset growth and required capital

― By projecting an earnings stream based on an assumed ROAA and asset growth rate, one is able to calculate a dividend stream in relation to the excess capital generated above a certain TCE requirement. This dividend stream is then discounted back at the assumed cost of capital (assuming the dividend is a growing annuity) to arrive at the implied valuation of the bank. From that point, one can arrive at the implied pricing multiples.

What Will the “New Normal” Look Like?

bank investors: who were they, who are they and what are they

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