the manual of ideas: value opportunities in banks?

Value-oriented Equity Investment Ideas for Sophisticated Investors

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Investing In The Tradition of Graham, Buffett, Klarman

Year III, Volume X October 29, 2010

When asked how he became so successful, Buffett answered: “We read hundreds and hundreds of annual reports every year.”

Top Five Ideas In This Report

Barclays (London: BARC, NYSE: BCS) ….. 62 Deutsche Bank (XETRA: DBK, NYSE: DB) ……... 66 Mitsubishi UFJ Financial (Tokyo: 8306, NYSE: MTU) …….. 70 Roma Financial (Nasdaq: ROMA) ………………… 74 Waterstone Financial (Nasdaq: WSBF) …………………. 78

Also Inside

Editor’s Commentary ………………... 4 Superinvestor Holdings Update ……15 Todd Combs’ Favorite Banks ……….16 Banking Crisis Assessment ………... 20 Thrift Conversions …………………..50 Exclusive Interview: Scott Proper … 41 Exclusive Interview: Mike Godby … 56 100 Profitable Banks …………….. 114

About The Manual of Ideas

Our goal is to bring you investment ideas that are compelling on the basis of value versus price. In our quest for value, we analyze the top holdings of top fund managers. We also use a proprietary methodology to identify stocks that are not widely followed by institutional investors. Our research team has extensive experience in industry and security analysis, equity valuation, and investment management. We bring a “buy side” mindset to the idea generation process, cutting across industries and market capitalization ranges in our search for compelling equity investment opportunities.

VALUE OPPORTUNITIES IN BANKS?

► The crisis: Where we are, where we are headed

► Five ways of identifying opportunities in banking ► Thrift conversions: Is anyone paying attention?

► 100 profitable banks — and other banking screens ► Top 5 ideas, based on proprietary MOI methodology

► Plus: Superinvestor holdings update ► Plus: Favorite stock screens for value investors

► Plus: Exclusive interview with Scott Proper ► Plus: Exclusive interview with Michael Godby

Banks mentioned in this issue include Arrow Financial, BancFirst, Bancolombia, BancorpSouth, Bank of America, Bank of Hawaii,

Bank of Marin, Bar Harbor Bank, Barclays, BB&T Corp., BBVA Frances, BNP Paribas, Boston Private, Brookline Bancorp,

Century Bancorp, CIT Group, Citigroup, Citizens & Northern, City Holding, City National, CNB Financial, Columbia Banking, Comerica,

Community Bank System, Community Trust, Credicorp, CVB Financial, Danvers Bancorp, Deutsche Bank, Dime Community, East West Bancorp,

F.N.B., Fifth Third Bancorp, First Bancorp, First Bancorp, First Busey, First Commonwealth, First Community, First Financial, First Financial Bank,

First Interstate, First Merchants, First Midwest, First Niagara, FirstMerit, Fulton Financial, German American, Hancock Holding, HSBC Holdings,

Huntington, Iberiabank, ING Group, JPMorgan Chase, KeyCorp, M&T Bank, MB Financial, Meridian Interstate, Mitsubishi UFJ Financial, NASB Financial,

National Penn, NBT Bancorp, NewAlliance, Northern Trust, Northwest Bancorp, NY Community, Old National Bancorp, Park National, Peapack-Gladstone, People's United, Prosperity Bancshares, Renasant, Rockville

Financial, Roma Financial, Royal Bank of Scotland, S&T Bancorp, Santander Brasil, Santander Chile, SCBT Financial, Signature Bank,

Southwest Bancorp, State Bancorp/NY, State Street, Sterling Bancorp, Susquehanna, TFS Financial, Tompkins Financial, TrustCo Bank NY,

UMB Financial, Umpqua Holdings, Univest Corp. of PA, Valley National, Wainwright B & T, Washington Federal, Waterstone Financial, Webster

Financial, Wells Fargo, WestAmerica, Wintrust Financial, and more.

(analyzed companies are underlined)

LAST-MINUTE EXTRA:

Favorite Bank Investments of Buffett Pick Todd Combs

p. 16

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Table of Contents EDITORIAL COMMENTARY ..........................................................................4 SUPERINVESTOR HOLDINGS UPDATE ................................................... 15

EXTRA: BUFFETT PICK TODD COMBS’ FAVORITE BANKS .................. 16

BANKING CRISIS: WHERE WE ARE, WHERE WE ARE HEADED .......... 20 SUMMARY STATISTICS ON FDIC-INSURED BANKS .................................................................... 20 SELECTED STATISTICS BY BANK ............................................................................................. 27 U.S. REAL ESTATE PRICING TRENDS – RESIDENTIAL ............................................................... 32 U.S. REAL ESTATE PRICING TRENDS – COMMERCIAL ............................................................... 37 EXCLUSIVE INTERVIEW WITH SCOTT PROPER .......................................................................... 41 IN THEIR OWN WORDS: BANK CEOS ON BUSINESS CONDITIONS .............................................. 47

THRIFT CONVERSIONS: IS ANYONE PAYING ATTENTION? ................. 50 CHEAPEST BASED ON ADJUSTED MARKET VALUE TO TANGIBLE ASSETS.................................... 54 CHEAPEST BASED ON TANGIBLE BOOK VALUE TO ADJUSTED MARKET VALUE ............................ 55 EXCLUSIVE INTERVIEW WITH MICHAEL GODBY ......................................................................... 56

TOP 5 INVESTMENT IDEAS IN BANKING INDUSTRY ............................. 62 BARCLAYS (LONDON: BARC, NYSE: BCS) ............................................................................. 62 DEUTSCHE BANK (XETRA: DBK, NYSE: DB) ......................................................................... 66 MITSUBISHI UFJ FINANCIAL (TOKYO: 8306, NYSE: MTU) ........................................................ 70 ROMA FINANCIAL (NASDAQ: ROMA) ....................................................................................... 74 WATERSTONE FINANCIAL (NASDAQ: WSBF) ............................................................................ 78

OTHER INVESTMENT CANDIDATES IN BANKING INDUSTRY .............. 82 BANK OF AMERICA (NYSE: BAC) ........................................................................................... 82 BNP PARIBAS (PARIS: BNP, OTC: BNPQY) ........................................................................... 86 CITIGROUP (NYSE: C) ........................................................................................................... 90 HSBC HOLDINGS (LONDON: HSBA, NYSE: HBC, HONG KONG: 005) ...................................... 94 ING GROUP (AMSTERDAM: INGA, NYSE: ING) ...................................................................... 98 JPMORGAN CHASE (NYSE: JPM) ........................................................................................ 102 ROYAL BANK OF SCOTLAND (LONDON: RBS, NYSE: RBS) .................................................... 106 WELLS FARGO (NYSE: WFC) .............................................................................................. 110

100 PROFITABLE BANKS TRADED IN THE U.S. ................................... 114 IN ALPHABETICAL ORDER ..................................................................................................... 114 BY MARKET VALUE .............................................................................................................. 116 BY STOCK PRICE PERFORMANCE ......................................................................................... 118 BY ESTIMATED FORWARD P/E .............................................................................................. 120 BY AVERAGE ANNUAL ROE (PAST SEVEN YEARS) .................................................................. 122 BY MARKET VALUE TO TOTAL ASSETS .................................................................................. 124

BANKING GLOSSARY AND DEFINITIONS ............................................. 126

FAVORITE STOCK SCREENS FOR VALUE INVESTORS ...................... 128 “MAGIC FORMULA,” BASED ON TRAILING OPERATING INCOME ................................................. 129 “MAGIC FORMULA,” BASED ON THIS YEAR’S EPS ESTIMATES ................................................. 130 “MAGIC FORMULA,” BASED ON NEXT YEAR’S EPS ESTIMATES ................................................ 131 CONTRARIAN: BIGGEST YTD LOSERS (DELEVERAGED & PROFITABLE) ..................................... 132 VALUE WITH CATALYST: CHEAP REPURCHASERS OF STOCK ................................................... 133 PROFITABLE DIVIDEND PAYORS WITH DECENT BALANCE SHEETS............................................ 134 DEEP VALUE: LOTS OF REVENUE, LOW ENTERPRISE VALUE ................................................... 135 DEEP VALUE: NEGLECTED GROSS PROFITEERS .................................................................... 136 ACTIVIST TARGETS: POTENTIAL SALES, LIQUIDATIONS OR RECAPS ......................................... 137

THIS MONTH’S TOP 10 WEB LINKS ....................................................... 138




Editorial Commentary Our task this month has seemed quite daunting at times: We set out to rummage

through the wreckage of the banking sector in search of investment opportunities for value-oriented investors. While doing so, we were mindful that many of the latter have viewed banks with suspicion, branding them as “black boxes” whose asset quality is impossible to ascertain. In a time of weak real estate prices and unusual strains on consumers, asset quality has become perhaps more important than ever.

While the “black box” critique of banks has merit, we did not simply want to dismiss the beaten-down sector and move on. After all, the following superinvestors have found apparent value in banks: David Tepper in Bank of America (BAC), Citigroup (C), Wells Fargo (WFC), Royal Bank of Scotland (RBS), Fifth Third Bancorp (FITB), and SunTrust Banks (STI); John Griffin and Steve Mandel in JPMorgan Chase (JPM); Glenn Greenberg in U.S. Bancorp (USB); Francis Chou in BAC; Eddie Lampert in Capital One (COF); Bruce Berkowitz in C and BAC; Phil Falcone and Bill Ackman in C; John Paulson in BAC, C, JPM, COF, and STI; Tom Brown in Synovus (SNV) and several other banks; Mason Hawkins in Bank of NY Mellon (BK); and Prem Watsa and Warren Buffett in WFC and USB. All of these positions are among the top ten largest holdings of each investor, suggesting meaningful commitments to the sector by these investment managers.

Our research effort has yielded five potential ways of approaching the banking sector in search of compelling investment ideas:

1. Too-big-to-fail “national champions” that remain historically cheap;

2. Strong institutions poised to benefit from the weakness of others;

3. Troubled banks with the most upside in a survival scenario, as gauged primarily by equity market value to total assets;

4. Banks that may outperform in an inflationary scenario due to relatively large long-term, fixed-rate liabilities; and

5. All-but-forgotten thrift conversions, with shareholder value yet to be unlocked in a second-step conversion.

The following is a snapshot of companies highlighted this month, along with classification by above category:

Top 5 Investment Ideas in This Report

“National Champion”

“Strong Get Stronger”

Low MV to Assets

Inflation Beneficiary

Thrift Conversion

Barclays / BCS London, United Kingdom Deutsche Bank / DB Frankfurt, Germany

Mitsubishi UFJ / MTU Tokyo, Japan

Roma Financial / ROMA Robbinsville, New Jersey

Waterstone Financial / WSBF Wauwatosa, Wisconsin

Source: The Manual of Ideas.




Historically Cheap “National Champions”

Much has been made about institutions perceived to be “too big to fail.” While the latter does not mean that common stockholders will be made whole in a bailout, such too-big-to-fail banks do enjoy advantages that may help them accrete value at an above-average rate over time. The perception that a bank is too big to fail may boost confidence among those providing it with money, whether it is lenders or depositors. Such institutions also enjoy significant political clout in their respective countries, putting them in a position to tilt regulation in their favor.

We slot the following banks, among others, into this category: BAC, C and JPM in the U.S.; Barclays (BCS) and RBS in the U.K.; BNP Paribas (Paris: BNP) and Credit Agricole (Paris: ACA) in France; DB in Germany; ING Group (ING) in the Netherlands; Mitsubishi UFJ Financial (MTU) in Japan; and Credit Suisse (CS) and UBS (UBS) in Switzerland.

Selected “National Champions” (sorted by estimated P/E for 2011) Price MV Assets MV/ EPS ($) 1 P/E 1

($) ($bn) ($bn) Ass. 2010 2011 2010 2011

ING Group / ING NED 11.15 42 1,782 2% 1.68 2.33 7x 5x Deutsche Bank / DB GER 58.69 36 2,696 1% 5.16 9.11 11x 6x Barclays / BCS GBR 17.89 52 2,492 2% 2.04 2.74 9x 7x Credit Agricole / CRARY FRA 8.34 40 2,472 2% 0.77 1.25 11x 7x Credit Suisse / CS SUI 42.00 50 1,089 5% 5.00 5.89 8x 7x BNP Paribas / BNPQY FRA 37.00 88 3,132 3% 4.38 4.87 8x 8x Bank of America / BAC USA 11.44 115 2,364 5% 1.08 1.47 11x 8x JPMorgan Chase / JPM USA 37.70 149 2,014 7% 3.84 4.62 10x 8x UBS / UBS SUI 17.93 68 1,488 5% 1.88 2.18 10x 8x Citigroup / C USA 4.11 119 1,938 6% 0.39 0.46 11x 9x Mitsubishi UFJ / MTU 2 JAP 4.71 67 2,512 3% 0.34 0.45 14x 10x Royal Bank Scotland / RBS GBR 14.48 78 2,482 3% 0.31 0.94 46x 15x 1 Based on consensus analyst estimates as of October 25, 2010. 2 Fiscal years ending March 31, 2011 and 2012. Sources: Company filings, Manual of Ideas analysis.

Strong Institutions Poised to Benefit From the Crisis

The saying “the strong get stronger” has much applicability to today’s banking landscape. Institutions with significant troubled assets are simply struggling to stay ahead of the demands of regulators, forced to raise capital at unfavorable terms. In many cases, weak banks are gently—or not so gently—shepherded into the hands of stronger competitors.

Sometimes this has occurred even before banks were forced to take writedowns that would render them critically undercapitalized. For instance, in April the FDIC shut down Westernbank Puerto Rico, which had $1 billion of equity and $13 billion of assets, “gifting” large deposits to Puerto Rico’s “strong” bank, Popular (BPOP). John Paulson and Roberto Mignone are among BPOP’s largest shareholders.1

Strong institutions exploiting the weakness of others include JPM, WFC, Northern Trust (NTRS), and Toronto Dominion Bank (TD), among others.

1 A Value Investors Club write-up on BPOP, dated December 2009, is available at http://bit.ly/aMApiR (no registration required). A more recent VIC write-up on BPOP, dated September 2010, is available at http://bit.ly/94A17L (free guest registration required).


http://bit.ly/aMApiR�

http://bit.ly/94A17L�



Troubled Banks with Attractive Risk-Reward Tradeoffs

Whereas the previous two categories have received ample attention by investors looking for “safe” values in the banking sector, investors continue to shun troubled institutions. They are doing so virtually without regard for the at times enticing risk-reward tradeoffs implied by battered stock prices. Naturally, we find this category worthy of closer investigation.

In an exclusive interview inside this report, former Colorado community banker Scott Proper comments on the opportunity in troubled small banks:

“I think that significant concentration within a particular community bank is risky, but that a significant concentration within a basket of community banks is attractive. I am surprised we have not yet seen a community bank ETF for banks with tangible equity of less than $1 billion. They are the most significantly mispriced class of banks… I think that worst case, 20% of them will fail, but that these worst-case losses will be more than offset by appreciation in the others. As always, only time can tell. Most of these community banks are currently trading at ten-year, if not historic, lows.”

How to identify banks with potentially asymmetric risk-reward profiles? To do so, we borrow a page from the reclusive but highly successful Chandler brothers. According to a 2006 title story in Institutional Investor magazine, “Over the past 20 years, the New Zealand-born brothers [Richard and Christopher Chandler] have turned a modest family fortune of $10 million into a powerful $5 billion fund — all of it their own money — by making bold bets in risky markets around the world.”2

“Japanese banks had no earnings on which to base multiples, and uncertainty about the extent of bad loans made it difficult to forecast a turnaround. So Richard and his analysts looked at market capitalization as a percentage of assets; on this basis they determined that UFJ and other megabanks traded at about 3 percent, compared with 15 percent for Citigroup at the time.

One such “bet” was an investment in the troubled Japanese banking sector. Wrote II:

3

On page 28 of this report, we present a table ranking U.S.-traded banks by the Chandler metric, market capitalization as a percentage of assets. The idea is to identify banks that would have large upside in a normalization scenario (assuming no massively dilutive equity offering in the meantime). If a bank can earn a 1% net spread on assets, then a 3% MV-to-asset ratio implies a “normalized” P/E of 3x. Indeed, the Chandlers may envy the opportunity in today’s banking sector, as numerous small banks trade at MV-to-asset ratios of 1% and 2%, implying greater potential upside than the Chandlers had enjoyed in Japan.

The Chandlers concluded that Japan would have to nationalize the banks or reflate the economy with low interest rates, and bet — correctly, as it turns out — on the latter scenario. ‘Most fund managers are focused on what can go wrong rather than on what can go right and were too afraid to make that call,’ says Richard. ‘We were not.’”

Of course, many banks trade at MV-to-asset ratios of 1-3% because dilutive equity offerings may be imminent, rendering the pro forma MV-to-asset ratios much higher than 1-3%. Nonetheless, there are still plenty of institutions that meet the regulators’ “well-capitalized” thresholds, suggesting a non-negligible probability that those banks may escape material equity dilution.

2 Institutional Investor magazine, “Secrets of Sovereign,” March 2006. 3 Emphasis added.




Playing into this investment case is the thesis that the government, broadly defined, wants to slow the pace of bank failures to minimize the adverse impact on lending and employment. The Fed has subsidized banks with nearly free money, allowing them to earn attractive spreads by investing in longer-dated Treasuries. The FDIC and other regulators are undercapitalized and understaffed to deal aggressively with the problem of “zombie” banks. Everyone seems to be waiting — and hoping and praying — that “quantitative easing” and other Fed measures will prove somewhat inflationary, helping to stabilize real estate prices. The latter would mark a turning point for troubled banks, as collateral values would stop falling and perhaps start creeping higher, eliminating many banks’ imperative for more capital.

In a recent confirmation of the regulators’ “kid gloves” approach, on October 19 the FDIC canceled a scheduled bank fee increase. “I am pleased that we are able to provide some (insurance fee) relief now in light of our lower loss projections,” stated FDIC Chairman Sheila Bair.4

Investing in community banks in the face of bad fundamentals reminds us a bit of the approach David Tepper took in the spring of 2009 when he bought large stakes in several U.S. banks. Tepper’s thesis rested simply on what he believed regulators would do, or as Tepper puts it, on what they told him (and others) they would do. The FDIC’s cancellation of a scheduled fee hike, coupled with the justification of lower loss projections, tells us quite strongly which path regulators are taking. Mr. Market’s valuation of many small banks still reflects on entirely different path.

An industry expert told us the following: “The spinning of the message is pretty telling. The real bottom line is that after requiring banks to prepay three years’ worth of FDIC insurance fees last year, they don’t think banks can handle the expense again, according to my regulator friends.”

Banks that may have attractive risk-reward tradeoffs based on low ratios of MV to assets include BankAtlantic (BBX), Capitol Bancorp (CBC), Commonwealth Bankshares (CWBS), First Bancorp (FBP), First Place Financial (FPFC), United Community Financial (UCFC), and United Western Bancorp (UWBK).

Small Banks, Big Rewards? (sorted by market value to total assets)

Price ∆ Market MV/ Tang. TBV/

Since Value Total Book/ Tang. Insider State 12/29/06 ($mn) Assets MV Assets Own. First Bancorp PR / FBP PR -97% 30 .2% 1563% 2.6% 16% FNB United / FNBN NC -97% 7 .3% 292% 1.0% 7% Superior Bancorp / SUPR AL -98% 11 .3% 1191% 4.0% 15% United Western / UWBK CO -98% 11 .5% 999% 5.0% 6% Capitol Bancorp / CBC MI -98% 25 .5% 69% .4% 12% BNCCORP / BNCC ND -87% 6 .6% 664% 4.1% 14% Centrue Financial / TRUE IL -93% 9 .7% 536% 3.8% 28% PAB Bankshares / PABK GA -97% 9 .8% 294% 2.3% 36% Cascade Bancorp / CACB OR -98% 15 .8% 42% .3% 15% Intervest Banc / IBCA NY -94% 18 .8% 923% 7.6% 33% Carver Bancorp / CARV NY -80% 8 1.0% 522% 5.0% 4% Tidelands Banc / TDBK SC -91% 6 1.0% 286% 2.9% 34% First Mariner Banc / FMAR MD -96% 15 1.1% 296% 3.2% 23% Broadway Financial / BYFC CA -67% 6 1.1% 330% 3.6% 31% Fentura Financial / FETM MI -93% 5 1.1% 351% 3.9% 24% Northern States Fin. / NSFC IL -92% 6 1.2% 372% 4.3% 44% BankAtlantic / BBX FL -99% 54 1.2% 119% 1.4% 55% Village B & T / VBFC VA -88% 7 1.2% 693% 8.0% 20% Patriot Nation. Banc / PNBK CT -92% 10 1.2% 333% 3.9% 50% Bank of Granite / GRAN NC -96% 12 1.2% 295% 3.5% 7% Sources: Company filings, Manual of Ideas analysis.

4 Marcy Gordon, “FDIC lowers expected cost of bank failures by $8B,” The Washington Post, October 19.




Potential Inflation Beneficiaries

Inflation is not generally considered beneficial to the health of banks. Long-term fixed-rate loan assets may collapse in value while the cost of deposits may skyrocket, destroying bank equity and profitability. Nonetheless, under current circumstances, rising prices may benefit certain banking institutions in two primary ways:

First, price inflation, whether accurately reflected in the CPI or not, may help to stabilize real estate prices. As many U.S. banks have in effect morphed into non-operating REITs, a turnaround in real estate prices is critical to the recovery of the banking sector. Banks with large residential real estate portfolios in areas in which prices would respond most favorably to inflation stand to benefit the most from the Fed’s reflationary efforts. For example, a depreciating dollar may induce non-U.S. residents to buy cheap vacation homes in states such as Florida, potentially helping to reverse the dynamic of declining prices. Similarly, banks operating in areas that would benefit from a boom in commodity prices could see inflation positively impacting the health of their depositors and borrowers.

Second, inflation would have a positive impact on banks sitting on variable-rate loans, funded in part with long-term, fixed-rate borrowings. Some banks sold large amounts of trust preferred securities (TruPS) when capital markets were receptive to such issuances. TruPS are generally long term in nature and often carry fixed interest rates. Banks with material long-term, fixed-rate borrowings include CBC, KeyCorp (KEY), PNC Financial Services (PNC), SunTrust (STI), and USB.

Overlooked Thrift Conversions

Grizzled value investors will recognize thrift conversions as one of the more conservative, time-tested ways of earning positive risk-adjusted returns in banking.

In a first-step thrift conversion, an institution that has been technically owned by its depositors may become a stock corporation and raise capital in an IPO. In these offerings, new investors are essentially “buying” their own capital and getting the existing institution’s assets and business for “free.”

Meanwhile, in a second-step thrift conversion, an institution that is partly owned by a mutual holding company (MHC) typically completes a transition to full public ownership by offering MHC-owned shares to investors.

For purposes of this report, we are particularly keen on institutions that have completed a first-step conversion but have yet to announce a second-step conversion. Shares in these thrifts are readily available for purchase in the public markets. Still, some of them appear to be inefficiently priced. “While thrifts are often most undervalued at the time of conversion, they occasionally fall to acceptable discounts because of market forces,” according to Seth Klarman.

Ideally, the vast majority of the common stock of a publicly traded thrift is held by an MHC. While those shares are considered to be outstanding, the economics belong entirely to the non-MHC shareholders. The analogy would be treasury stock held by a corporation that had completed a share repurchase. The major difference is that treasury stock is not considered to be outstanding. This MHC-related peculiarity causes many investors to overlook thrift conversions, as the relevant institutions may not appear to be particularly cheap at first glance.

Thrift conversions had their zenith in the 1980s and ‘90s. Some savvy investors such as Seth Klarman, who had participated in conversions, have since moved on to




bigger opportunities as their funds have grown in size. In addition, bank-focused investment funds as a category were decimated in the recent financial crisis, making it plausible that thrift conversions may not be as closely followed as before.

We are particularly pleased to bring you an exclusive interview with an analyst who follows thrift conversions, perhaps more closely than anyone in the industry — Mike Godby of FIG Partners. We have devoted a meaningful portion of this report to thrift conversions, and two of this month’s five featured ideas — Roma Financial (ROMA) and Waterstone Financial (WSBF) — fall into this category.

Selected Thrift Conversions (sorted by market value to tangible assets) Price ∆ MHC-adjusted Metrics TBV/

Since MHC MV TBV/ MV/ Insider Tang. State YE'06 Own. ($mn) MV TA Own. Assets Atlantic Coast Fed / ACFC GA -90% 65% 9 623% .9% 15% 6% Brooklyn Federal / BFSB NY -86% 72% $7 1087% 1.3% 17% 14% Magyar Bancorp / MGYR NJ -75% 56% 9 489% 1.7% 15% 8% Waterstone Financial / WSBF WI -78% 74% 33 531% 1.7% 17% 9% Pathfinder Bancorp / PBHC NY -37% 64% 7 282% 1.9% 14% 5% PSB Holdings / PSBH CT -67% 57% 10 357% 2.1% 23% 8% Naugatuck Valley / NVSL CT -59% 60% 14 354% 2.6% 13% 9% Malvern Federal / MLVF PA n/m 56% 18 383% 2.6% 2% 10% Heritage Financial / HBOS GA -50% 76% 21 282% 3.2% 25% 9% Hometown Bancorp / HTWC NY n/m 56% 5 366% 3.4% 6% 12% Laporte Bancorp / LPSB IN n/m 55% 15 270% 3.5% 6% 9% SI Financial / SIFI CT -44% 62% 31 249% 3.5% 13% 9% Prudential Banc / PBIP PA -49% 71% 20 283% 3.7% 10% 10% FedFirst Financial / FFCO PA -45% 57% 14 301% 4.0% 9% 12% Oneida Financial / ONFC NY -42% 55% 24 134% 4.2% 21% 6% Lake Shore Bancorp / LSBK NY -36% 60% 20 293% 4.3% 18% 13% MSB Financial / MSBF NJ n/m 59% 16 252% 4.4% 10% 11% Alliance Bancorp / ALLB PA -67% 59% 20 242% 4.5% 9% 11% United Community / UCBA IN -39% 59% 23 240% 4.7% 21% 11% Charter Financial / CHFN GA -84% 61% 60 180% 5.2% 6% 9% Meridian Interstate / EBSB MA n/m 58% 99 196% 5.8% 4% 11% Roma Financial / ROMA NJ -36% 73% 88 247% 6.0% 4% 15% Greene County Banc / GCBC NY 11% 56% 31 143% 6.3% 24% 9% Capitol Federal / CFFN KS -36% 70% 541 178% 6.3% 9% 11% Rockville Financial / RCKB CT -35% 55% 102 157% 6.4% 8% 10% Investors Bancorp / ISBC NJ -25% 57% 589 146% 6.7% 8% 10% Kearny Financial / KRNY NJ -45% 75% 152 266% 6.7% 22% 18% Northeast Community / NECB NY -52% 55% 35 304% 6.8% 1% 21% TFS Financial / TFSL OH n/m 74% 741 238% 6.8% 1% 16% Beneficial Mutual / BNCL PA n/m 56% 323 164% 6.8% 5% 11% Clifton Savings / CSBK NJ -30% 64% 80 219% 7.2% 20% 16% Cheviot Financial / CHEV OH -36% 62% 29 243% 8.2% 22% 20% Northfield Bancorp / NFBK NJ n/m 56% 216 178% 9.8% 7% 17%

Sources: Company filings, Manual of Ideas analysis.

With that context to our search for bank investments in mind, we highlight the following five ideas for closer consideration:




Barclays (London: BARC, NYSE: BCS; $17 per ADR; MV $50 billion)

Barclays is one of the three largest banks in the U.K., along with RBS and HSBC (London: HSBA, NYSE: HBC), which are also profiled in this report. With $2.5 trillion in assets, Barclays also ranks among the ten biggest banks in the world. Deposits are growing, and customer accounts amounted to $575 billion on June 30th.

Retail banking, however, is not the company’s primary earnings engine, as the investment bank, Barclays Capital, has accounted for a majority of assets and, more recently, income. In H1 2010, Barclays Capital ranked #1 in global debt (8% market share), #3 in global forex (11%) and #4 in global, completed M&A (15%).

Key Contributor: Barclays Capital FYE December 31 2007 2008 2009 1H10 Assets (in trillions) £1.0 £1.2 £2.1 £1.4 % of total assets by selected segment: Barclays Capital 68% 79% 74% 76% U.K. retail banking 7% 5% 8% 8% Pretax income by selected segment (in billions): Barclays Capital £2.3 £1.3 £2.5 £3.4 Other businesses (incl. overhead) 3.9 3.8 2.1 0.5 Total pretax income £6.2 £5.1 £4.6 £3.9 Sources: Company filings, Manual of Ideas analysis.

The downside, of course, to Barclays’ deriving such a large portion of profits from Barclays Capital is the cyclicality of the investment banking businesses. On the other hand, one could argue that the other businesses — U.K. retail banking, Barclaycard multi-brand credit card and consumer lending, and South African financial services leader Absa — have simply been under-earning relative to their potential. If those businesses can improve their profitability, the parent’s dependence on Barclays Capital will decrease while overall income should increase.

Importantly, unlike some other U.K.-based banks, Barclays has managed through the financial crisis without requiring government aid. The company did raise funds from Qatar and Abu Dhabi in 2008/09, but these investors rank equally with other common stockholders. Since it did not take government aid, Barclays is free to operate outside the confines of the U.K. Asset Protection Scheme.

Barclays’ financial position has improved in important ways over the past three years. Core Tier 1 capital has grown from 4.7% in 2007 to 10% in 2010, gross leverage has fallen from 33x to 20x, while the “liquidity buffer” has grown from £19 billion to £160 billion. With shares trading at just under 80% of tangible book value and less than 7x 2011E EPS of $2.74 per ADR, we find the risk-reward interesting.

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Deutsche Bank (Frankfurt: DBK, NYSE: DB; $56 per ADR; MV $55 billion)

Deutsche Bank, with $2.7 trillion in assets, is the top corporate and investment bank in Germany and one of the five largest investment banks in the world.

The bank completed a €10 billion ($14 billion) rights offering at €33 per share ($46 per ADR) in October, strengthening the capital base ahead of the pending Postbank (XETRA: DPB) acquisition.

Postbank is one of Germany’s largest retail banks, with 1,100 branches and $340 billion in assets. Deutsche’s offer for the 70% of Postbank it does not already own implies a $7.5 billion equity value for an entity that will boost Deutsche’s retail deposits by ~$150 billion to ~$350 billion. The deal will not only move Deutsche’s funding and earnings mix toward the more stable retail banking business, but it may also provide some medium-term capital relief, as Postbank has close to $170 billion in non-core assets that will be put into runoff. Management is targeting synergies of €1 billion, which could prove conservative given the two entities’ large overlap in non-revenue generating functions.

Our valuation analysis suggest that, after adjusting for deal synergies, a potential capital release from running off Postbank’s non-core assets, and Deutsche’s roughly $15 billion in principal investments, the “core” investment banking franchise may be trading at an implied low single-digit multiple of run-rate earnings. Pro forma for the Postbank acquisition, Deutsche Bank trades roughly in line with tangible book value, which we find quite attractive given the combined entity’s potential to earn mid-teens normalized returns on equity. Finally, consensus estimates call for Deutsche to earn $9.11 per share in 2011, implying a forward P/E of 6.3x.

Mitsubishi UFJ (Tokyo: 8306, NYSE: MTU; $4.60 per ADS; MV $65 billion)

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Mitsubishi UFJ Financial (MTU) enjoys an enviable position in Japanese retail banking, where it is the dominant player with roughly ¥100 trillion (>$1 trillion) in deposits. The company was formed in 2005 via the merger of Japan’s second-largest banking group, Mitsubishi Tokyo, and number-four UFJ Holdings, based in Osaka.

Unlike the other two megabanks among this month’s five featured ideas—Barclays and Deutsche Bank—MUFJ is primarily a retail and commercial bank and only secondarily an investment bank. This makes the franchise relatively more valuable, in our view, as customer deposits tend to be a higher-quality asset than line items such as trading securities and derivatives.

MUFJ has had a foothold in the U.S. banking industry ever since Mitsubishi Bank acquired The Bank of California in 1984. That investment has evolved into full ownership of Union Bank, which ranks fifth and twenty-first in deposits in California and the U.S., respectively. In its pursuit of the U.S. market, MUFJ has departed somewhat from Japanese banks reputation for paying top dollar for acquisitions at cycle peaks. Rather, MUFJ made a $9 billion preferred equity investment in Morgan Stanley in 2008, giving it a 20% diluted equity stake. MUFJ aims for a “global strategic alliance” with the investment bank. This year, Union Bank took over FDIC-seized Everett, WA-based Frontier Bank and San Rafael, CA-based Tamalpais Bank.

One of the reasons MUFJ shares have remained cheap, trading at roughly 80% of tangible book value, is the bank’s history of relatively low returns on equity—not dissimilar from other large Japanese companies. While it is impossible to predict when returns may start creeping toward their considerably higher potential, we note the appointment of Katsunori Nagayasu as CEO in April. While Nagayasu has been with MUFJ since 1970, he has communicated an intention to “shift focus from risk management to growth acceleration.” Now certainly seems to be a better time to do so than it was a few years ago.

In our valuation exercise, we arrive at an equity value range of $6 to $10 per ADS by examining fair value under the following three valuation assumptions: (1) value in line with tangible common equity; (2) value based on ten times net income, assuming an admittedly optimistic 15% return on tangible common equity; and (3) value based on six times pre-provision, pretax profit for the past twelve months.

Roma Financial (Nasdaq: ROMA; $10 per share; MV $310 million*) * includes MHC-owned shares

Robbinsville, New Jersey-based Roma Financial is the parent of Roma Bank, a federally-chartered stock savings bank with $1.1 billion in deposits. The parent company is nearly three-fourths owned by an MHC, implying that the economics attributable to non-MHC shareholders are more attractive than they initially appear.

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When adjusting for the MHC ownership and the post-Q2 acquisition of roughly $370 million in assets from troubled Sterling Bank, Roma trades at a market value to total asset ratio of less than 5%. We find this valuation attractive for a well-capitalized, well-managed bank in New Jersey.

Roma has remained profitable throughout the crisis and is not subject to a regulatory order. The bank pays a dividend, and has been buying back stock at prices well below estimated fair value. We view the investment case as compelling.

Waterstone Financial (Nasdaq: WSBF; $3.80 per share; MV $117 million*) * includes MHC-owned shares

Wauwatosa, Wisconsin-based Waterstone Financial is the parent of Waterstone Bank, a Wisconsin chartered savings bank with $1.2 billion in deposits.

Waterstone is one of the most intriguing “thrift conversions” we have come across, as the related MHC holds nearly 74% of shares outstanding, implying large “leverage” for the true owners of the company.

When adjusted for the MHC ownership, Waterstone trades at a market value to tangible asset ratio of less than 2%. This implies large upside for equity holders in a more normalized earnings environment.

A second-step conversion in which shares held by the MHC would be sold in a public offering would strengthen Waterstone’s capital ratios, which remain above the regulatory “well capitalized” thresholds (notwithstanding a cease-and-desist order in 2009). While a second-step conversion would in all likelihood represent a positive catalyst, there is some residual risk that the Lamplighter shares could be offered at a “below-market” price, diluting the upside for current holders.

We view the risk-reward as compelling but acknowledge that this opportunity likely comes with more risk than any of the other four ideas featured this month.

The following two tables compare the large banks profiled and analyzed in this report. First, we present key statistics on asset size and balance sheet strength. We then compare the relative market valuations of the various banks.

It is interesting to note that the major banks as a group trade at less than 4x recent pre-provision pretax income and roughly 7x “normalized” net income. The median market value to tangible book value multiple is 1.0x, with Wells Fargo trading at 2.1x tangible book value on the high end and Barclays and Mitsubishi UFJ trading at 0.8x tangible book at the low end.

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Capital Position, Asset Quality and Returns on Equity 1 (TCE + Tier 1 Local Assets TCE / LLR)3 / Capital Recent

Ticker (billions) Assets Assets Ratio4 ROTCE5 Bank of America BAC $2,328 4.9% 6.8% 11.2% 11% Barclays BARC £1,587 2.6% 3.3% 13.2% 14% BNP Paribas BNP € 2,237 2.6% 3.9% 10.6% 14% Citigroup C US $1,983 6.3% 8.5% 12.5% 11% Deutsche Bank DBK € 1,043 3.7% 4.1% 11.3% 22% HSBC HSBA $2,419 4.5% 5.4% 9.9% 12% ING INGA € 1,273 1.8% n/m 11.2% 23% JPMorgan Chase JPM $2,142 4.8% 6.4% 11.9% 15% Mitsubishi UFJ 8306 ¥200,084 3.5% 4.1% 10.6% 6% Royal Bank Scotland RBS £1,581 3.6% 4.6% 10.5% n/m Wells Fargo WFC $1,221 5.3% 7.3% 10.9% 10% Average: 4.0% 5.4% 11.3% 14% Median: 3.7% 5.0% 11.2% 13%

Trading Multiples and Dividend Yield Market Market Value /

Value

Pre-prov. Norm.7 Recent8 Dividend (billions) TCE2 Profit6 Net Inc. Net Inc. Yield9 Bank of America $115 1.0x 2.8x 6.7x 10.4x .3% Barclays £34 .8x 2.4x 5.6x 7.0x 1.4% BNP Paribas €63 1.1x 3.3x 7.2x 7.5x 2.8% Citigroup $119 1.0x 3.2x 6.4x 13.8x – Deutsche Bank €39 1.0x 5.5x 6.7x 8.4x 1.8% HSBC £183 1.7x 4.9x 11.3x 13.8x .7% ING €31 1.3x n/a 8.7x 7.0x – JPMorgan Chase $150 1.5x 3.8x 9.7x 9.3x .5% Mitsubishi UFJ ¥5400 .8x 2.8x 5.2x 13.5x 3.1% Royal Bank Scotland £50 .9x 3.7x 5.8x n/m – Wells Fargo $137 2.1x 4.0x 14.1x 10.8x .8%

Average: 1.2x 3.7x 7.9x 10.2x 1.0% Median: 1.0x 3.5x 6.7x 9.9x .7%

1 Balance sheet figures as of September 30, 2010 or latest available date. Deutsche Bank data reflects October 2010 rights offering. Deutsche Bank assets stated on U.S. GAAP basis. Mitsubishi UFJ figures on U.S. GAAP basis, except for Tier 1 capital and net income-driven data, which is based on JGAAP. 2 TCE: tangible common equity. 3 LLR: loan loss reserve. 4 Tier 1 capital divided by risk-weighted assets, as reported by each company for the latest respective balance sheet date. RBS based on “core” Tier 1. ING based on Basel II Tier 1 for banking segment. 5 ROTCE: return on tangible common equity. Based on annualizing returns from latest available interim period. Mitsubishi UFJ figure based on ROTCE using FYE 3/11 JGAAP net income guidance. 6 Based on annualizing pre-provision profit for a recent interim period. Pre-provision profit is stated before the provision for credit losses, income taxes, minority interests, and preferred dividends. 7 Based on the implied net income to common assuming a 15% return on tangible common equity. 8 Based on annualized net income to common for a recent interim period. 9 Based on annualized dividends for recent interim period, except Mitsubishi UFJ (FYE 3/11 guidance). Sources: Company filings, Manual of Ideas analysis.

Next month we’ll be back with our quarterly “Superinvestor Issue,” tracking the portfolio activity of 50+ respected investment managers and analyzing their latest purchases in search of winning ideas. Until then,

Sincerely,

John Mihaljevic, CFA and The Manual of Ideas research team




Superinvestor Holdings Update In the August issue of The Manual of Ideas, we profiled the top holdings of 50+ investment managers, based on Schedule 13F-HR filings with the SEC. On this page, we provide an update on the latest disclosed purchase and sale activity by the same set of investors. This information is based on Schedule 13G or 13D filings and Form 3 or 4 filings. Increases in Superinvestor Holdings

Latest Market Stock Price ($) Shares Owned Holdings Trade/ Filing Value Latest Filing ∆ since Latest ∆ since as % of Filing Type Investor Company / Ticker ($mn) Date Date Filing (mn) 6/30/10 Company

10/21/10 4 Second Curve Taylor Capital / TAYC 228 12.46 12.56 -1% 2.0 27% 11% 10/20/10 4 Leucadia Jefferies / JEF 4,100 23.88 23.83 0% 49.3 1% 29% 10/19/10 4 Second Curve Primus Guaranty / PRS 184 4.83 4.71 3% 6.4 6% 17% 10/13/10 13D Fairholme St. Joe / JOE 1,880 20.26 27.57 -27% 26.9 0% 29% 10/12/10 13G Scout Coca-Cola Enter. / CCE 12,460 24.62 22.85 8% 16.7 35% 3% 10/8/10 13D Fairholme AIG / AIG 27,890 41.70 40.91 2% 36.7 12% 24% 10/4/10 3 Pershing Sq. Fortune Brands / FO 8,500 55.77 49.60 12% 16.7 new 11% 10/4/10 3 Pershing Sq. J.C. Penney / JCP 7,720 32.66 27.57 18% 34.9 new 15% 10/4/10 13G Lone Pine Polo Ralph Lauren / RL 8,960 93.50 91.25 2% 3.3 56% 3% 9/30/10 13F Edinburgh Intel / INTC 110,550 19.83 19.20 3% 12.1 39% 0% 9/30/10 13F Edinburgh General Dynamics / GD 24,550 64.55 62.81 3% 2.9 14% 1% 9/29/10 13G Lone Pine TransDigm / TDG 3,200 64.93 63.06 3% 2.5 new 5% 9/27/10 4 Icahn Take-Two / TTWO 874 10.28 9.90 4% 9.9 5% 3% 9/22/10 4 Second Curve CompuCredit / CCRT 214 5.97 4.96 20% 4.1 11% 12% 9/10/10 13D Harbinger Harbinger Group / HRG 103 5.36 5.95 -10% 3.9 19% 21% 8/24/10 13G Lone Pine Vanceinfo / VIT 1,386 34.97 26.79 31% 2.6 128% 7% 8/23/10 13G MSD Domino's Pizza / DPZ 902 15.23 13.15 16% 3.7 new 6% 8/12/10 13G Lone Pine Dick's Sporting / DKS 3,365 29.04 27.14 7% 5.1 new 4% 8/12/10 13G Lone Pine Equinix / EQIX 3,400 74.66 89.96 -17% 2.7 54% 6%

Source: SEC filings, The Manual of Ideas compilation and analysis. Decreases in Superinvestor Holdings

Latest Market Stock Price ($) Shares Owned Holdings Trade/ Filing Value Latest Filing ∆ since Latest ∆ since as % of Filing Type Investor Company / Ticker ($mn) Date Date Filing (mn) 6/30/10 Company

10/21/10 4 Berkshire Moody's / MCO 6,040 26.79 27.01 -1% 28.4 -8% 13% 10/19/10 13D Harbinger New York Times / NYT 1,100 7.57 7.79 -3% 10.7 -18% 7% 10/18/10 4 ESL AutoZone / AZO 10,570 234.27 232.80 1% 12.4 -8% 28% 10/6/10 13G Pabrai Harvest Natural / HNR 397 11.83 11.16 6% 3.1 -30% 9% 9/30/10 13G Pabrai Pinnacle Airlines / PNCL 103 5.55 5.43 2% 2.0 0% 11% 9/29/10 13D Southeastern Telephone & Data / TDS 3,590 34.14 32.78 4% 10.5 -21% 10% 9/29/10 13D Southeastern Pioneer Natural / PXD 8,370 72.13 65.37 10% 15.6 -23% 13% 8/31/10 13G Fairholme Hertz / HTZ 4,380 10.64 8.51 25% 10.8 -63% 3% 8/31/10 13G Fairholme Humana / HUM 9,650 57.04 47.79 19% 7.1 -46% 4% 8/31/10 13G Fairholme Winthrop Realty / FUR 271 12.76 13.70 -7% 3.9 -8% 18%

Source: SEC filings, The Manual of Ideas compilation and analysis. The Manual of Ideas follows the portfolio moves of the following investors: Bill Ackman, Pershing Square; Lee Ainsle, Maverick; Chuck Akre, Akre Capital; Zeke Ashton, Centaur Capital; Brian Bares, Bares Capital; Bruce Berkowitz, Fairholme; Richard Breeden, Breeden Capital; Tom Brown, Second Curve; Warren Buffett, Berkshire Hathaway; Francis Chou, Chou Associates; Chase Coleman, Tiger Global; James Crichton, Scout; Ian Cumming and Joe Steinberg, Leucadia; Boykin Curry, Eagle; David Einhorn, Greenlight; Phil Falcone, Harbinger; Alan Fournier, Pennant; Glenn Fuhrman and John Phelan, MSD Capital; Jeffrey Gates, Gates Capital; Tom Gayner, Markel Gayner; Kian Ghazi, Hawkshaw; Ed Gilhuly and Scott Stuart, Sageview; Glenn Greenberg, Brave Warrior; John Griffin, Blue Ridge; Howard Guberman, Gruss; Andreas Halvorsen, Viking Global; Mason Hawkins, Southeastern; Lance Helfert and Paul Orfalea, West Coast; Chris Hohn, Children’s Investment Fund; Carl Icahn, Icahn; Rehan Jaffer, H Partners; Seth Klarman, Baupost; John Kleinheinz, Kleinheinz Capital; Eddie Lampert, ESL Investments; Dan Loeb, Third Point; Steve Mandel, Lone Pine; Sandy Nairn, Edinburgh Partners; Mohnish Pabrai, Pabrai Funds; John Paulson, Paulson & Co.; Boone Pickens, BP Capital; Mark Rachesky, MHR; Lisa Rapuano, Lane Five; Larry Robbins, Glenview; Bob Rodriguez and Steven Romick, First Pacific; Wilbur Ross, WL Ross; Chris Shumway, Shumway Capital; David Tepper, Appaloosa; Peter Thiel, Clarium; Prem Watsa, Fairfax; Wally Weitz, Weitz Funds; and David Winters, Wintergreen.




Extra: Buffett Pick Todd Combs’ Favorite Banks

On October 25th, Berkshire Hathaway announced the hiring of Todd Combs.

Warren E. Buffett, Berkshire’s CEO, commented “For three years Charlie Munger and I have been looking for someone of Todd’s caliber to handle a significant portion of Berkshire’s investment portfolio. We are delighted that Todd will be joining us.”

Todd is 39 and has been managing Castle Point Capital for the past five years. Simultaneously with the issuance of our announcement, Todd issued a letter to the limited partners of Castle Point Capital announcing his decision to join Berkshire.

Combs has focused on financial services investments and may be joining Berkshire due to GEICO investment chief Lou Simpson’s retirement this December.

According to the website of Stone Point Capital, which provided capital to Comb’s investment partnership, “Castle Point Capital is a long/short equity hedge fund focused exclusively on the financial services sector. Formed in 2005, the fund is based in Greenwich, Connecticut and is managed by Todd Combs. Trident III provided the hedge fund’s seed capital in November 2005.”

Combs managed $395 million on July 1st, according to a letter obtained by Reuters. Combs’ fund has generated a gross return of 33% since inception in November 2005, compared to a 49% drop in the SPDR Financial Services fund.

Carol Loomis provides additional insight into Combs in a Fortune article:

Buffett described Combs as an “all-American type” who is not the least bit interested in publicity, an attitude unlikely to shield him from it. Now a resident of Darien, Conn., Combs is by birth a Floridian who graduated in 1993 from Florida State University with majors in finance and multinational business operations.

Once out of school he worked for Florida’s comptroller and later moved to Progressive Insurance, where he was involved in the all-important activity of setting automobile insurance rates. Progressive is an arch-competitor of Berkshire's GEICO.

Combs’ direct route to Berkshire began in 2005 when he began to manage Castle Point, a new long/short hedge fund set up to take positions in financial services companies. Castle Point was seeded with capital by Trident III, one of four Trident funds established over the years by private equity firm Stone Point Capital. Castle Point raised $500 million over two years and began full scale investing in late 2007.

A more traumatic moment to start any kind of fund, much less one focused on financial services, can hardly be imagined. The stock market had just months before hit a peak and begun to sink into the chaos of 2008. Had Castle Point been only a “long” fund, it would have met immediate disaster.

But the fund’s short positions apparently saved it. Buffett describes Combs’ record through the financial crisis as “pretty good.”

Read more about Todd Combs at The Rational Walk (www.rationalwalk.com).


http://money.cnn.com/2010/10/25/news/todd_combs_berkshire.fortune/index.htm�

http://www.rationalwalk.com/�



The following is a snapshot of Todd Combs’ favorite investments in the financial services sector. In the banking industry, Combs recently added to an already sizable position in U.S. Bancorp (USB) and initiated a new position in PNC Financial (PNC). He has also been buying shares in State Street (STT) and CIT Group (CIT). MOI Signal Rank™ – Top Ideas of Castle Point Capital Management5

Market Price Shares Owned Holdings P/E (Est.) Price/

Value Recent ∆ from Recent ∆ from as % of This Next Tang. Company / Ticker ($mn) ($) Jun. 30 (‘000) Mar. 31 Co. Fund* FY FY Book 1 MasterCard / MA 31,751 242.64 22% 102 70% <1% 8% 18x 15x 9.2x 2 State Street / STT 20,264 40.40 19% 561 60% <1% 7% 12x 11x 2.2x 3 U.S. Bancorp / USB 45,226 23.59 6% 1,020 28% <1% 8% 14x 11x 2.9x 4 RenaissanceRe / RNR 3,325 60.60 8% 255 21% <1% 5% 7x 8x 1.1x 5 Western Union / WU 11,816 17.90 20% 1,224 36% <1% 7% 13x 12x n/m 6 CIT Group / CIT 8,086 40.38 19% 357 new <1% 5% 19x 16x 1.0x 7 PNC Financial / PNC 28,783 54.72 -3% 185 new <1% 3% 11x 9x 1.5x 8 CME Group / CME 19,069 283.69 1% 51 2% <1% 5% 18x 17x n/m 9 Chubb / CB 18,219 57.92 16% 255 28% <1% 5% 11x 10x 1.2x 10 Chatham Lodging / CLDT 150 18.52 4% 107 new 1% <1% 56x 17x n/m

Top Holdings of Castle Point Capital Management – By Dollar Value

Market Price Shares Owned Holdings P/E (Est.) Price/ Value Recent ∆ from Recent ∆ from as % of This Next Tang. Company / Ticker ($mn) ($) Aug. 30 ('000) May. 28 Co. Fund* FY FY Book 1 MasterCard / MA 31,751 242.64 22% 102 70% <1% 8% 18x 15x 9.2x 2 U.S. Bancorp / USB 45,226 23.59 6% 1,020 28% <1% 8% 14x 11x 2.9x 3 State Street / STT 20,264 40.40 19% 561 60% <1% 7% 12x 11x 2.2x 4 Western Union / WU 11,816 17.90 20% 1,224 36% <1% 7% 13x 12x n/m 5 RenaissanceRe / RNR 3,325 60.60 8% 255 21% <1% 5% 7x 8x 1.1x 6 Starwood Property / STWD 961 20.20 19% 740 23% 2% 5% 16x n/a 1.1x 7 Chubb / CB 18,219 57.92 16% 255 28% <1% 5% 11x 10x 1.2x 8 CME Group / CME 19,069 283.69 1% 51 2% <1% 5% 18x 17x n/m 9 CIT Group / CIT 8,086 40.38 19% 357 new <1% 5% 19x 16x 1.0x 10 PennyMac Mortgage / PMT 291 17.30 9% 816 9% 5% 4% 11x 7x .9x

New Positions Sold Out Positions Broadridge Financial / BR Chatham Lodging / CLDT CIT Group / CIT

Hartford Financial / HIG Leucadia National / LUK PNC Financial / PNC

Assurant / AIZ First Citizens / FCNCA Reinsurance Gr. America / RGA

Signature Bank / SBNY TD Ameritrade / AMTD Two Harbors Investment / TWO

Portfolio Metrics * Sector Weightings *

Portfolio size $316 million

Top 10 as % of portfolio 58%

Median market value $11 billion

Average market value $21 billion

Median P/E (this FY) 14x

Median P/E (next FY) 11x

Median P / tangible book 1.3x

* Based on equity holdings disclosed in 13F-HR filings with the SEC. Excludes portfolio cash, leverage, certain non-U.S. holdings, and non-equity securities.

5 MOI Signal Rank™ answers the question, “What are this investor’s top ten ideas right now?” Rather than simply presenting each investor’s largest holdings as of the recently filed quarter end, the MOI’s proprietary methodology ranks the companies in each investor’s portfolio based on the investor’s current level of conviction in each holding, as judged by the MOI. Our proprietary methodology takes into account a number of variables, including the size of a position in an investor’s portfolio, the size of a position relative to the market value of the corresponding company, the most recent quarterly change in the number of shares owned, and the change in the stock price of a position since the most recent quarterly filing date.

Financial81%

Services17%

Conglomerates2%




The following is a quick look at each of the four banking-related institutions among Todd Combs’ top ten holdings: U.S. BANCORP (USB) Minneapolis-based U.S. Bancorp, with $291 billion in assets, is the parent of U.S. Bank, the 5th-largest commercial bank in the U.S. The company operates 3,013 banking offices in 24 states and 5,323 ATMs and provides banking, brokerage, insurance, investment, mortgage, trust and payment services products.

Source: Company presentations dated October 20th and September 15th, available at http://bit.ly/bgSKy5 PNC FINANCIAL SERVICES GROUP (PNC) Pittsburgh-based PNC Financial Services Group is a diversified financial services organization providing retail and business banking; residential mortgages; specialized services for corporations and government entities, including banking, real estate finance and asset-based lending; wealth and asset management.

Source: Company presentations dated October 21st and September 14th, available at http://bit.ly/blIiTA


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http://bit.ly/blIiTA�



STATE STREET (STT) State Street provides services to institutional investors, including investment servicing, management, research and trading. With $19 trillion in assets under custody and administration and $1.8 trillion in AUM as of June 30th, State Street operates in 25 countries and employs 29,000 people.

Source: Company presentation dated July 30th, available at http://bit.ly/bn5lyV CIT GROUP (CIT) Founded in 1908, CIT is a bank holding company with $35+ billion in finance and leasing assets. It provides financing and leasing capital to one million small business and middle market clients and their customers across 30+ industries. CIT maintains leadership positions in small business and middle market lending, factoring, retail finance, aerospace, equipment and rail leasing, and global vendor finance.

Source: Company presentation dated October 14th, available at http://bit.ly/bQ7uEr


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http://bit.ly/bQ7uEr�



Banking Crisis: Where We Are, Where We Are Headed In this section, we present selected statistics on the state of the U.S. banking sector.

Summary Statistics on FDIC-Insured Banks QUARTERLY NET INCOME

BANKS REPORTING EARNINGS GAINS

NET INTEREST MARGIN BY BANK SIZE

NONCURRENT LOANS AND NET CHARGE-OFFS

12-MONTH CHANGES IN BANK LIABILITIES

NUMBER OF FDIC-INSURED “PROBLEM” BANKS




SELECTED PERFORMANCE DATA *

YTD June 30, Years Ended December 31, 2010** 2009** 2009 2008 2007 2006 2005 Number of institutions reporting 7,830 8,195 8,012 8,305 8,534 8,680 8,833 Return on assets (%) .6 .0 .1 .0 .8 1.3 1.3 Return on equity (%) 5.5 .3 .7 .4 7.8 12.3 12.4 Core capital (leverage) ratio (%) 8.8 8.2 8.6 7.5 8.0 8.2 8.2 Noncurrent assets plus OREO to assets (%) 3.3 2.8 3.4 1.9 1.0 .5 .5 Net charge-offs to loans (%) 2.7 2.3 2.5 1.3 .6 .4 .5 Asset growth rate (%) (.6) .0 (5.3) 6.2 9.9 9.0 7.6 Net interest margin (%) 3.8 3.4 3.5 3.2 3.3 3.3 3.5 Net operating income growth (%) 567.1 (77.2) 50.8 (90.7) (27.6) 8.5 11.4 Percentage of unprofitable institutions (%) 20.3 27.7 30.7 24.9 12.1 7.9 6.2 Number of problem institutions 829 416 702 252 76 50 52 Assets of problem institutions (in billions) $403 $300 $403 $159 $22 $8 $7 Number of failed institutions 86 45 140 25 3 0 0

* Excludes insured branches of foreign banks (IBAs). ** Through June 30, ratios annualized where appropriate. Asset growth rates are for 12 months ending June 30. Source: Federal Deposit Insurance Corporation, The Manual of Ideas.

AGGREGATE FINANCIAL CONDITION

% Change ($ in millions) Q2 2010 Q1 2010 Q2 2009 2Q09-2Q10 Number of institutions reporting 7,830 7,934 8,195 (4.5) Total employees (full-time equivalent) 2,033,662 2,027,247 2,093,066 (2.8) Total assets $13,220,551 $13,356,798 $13,300,007 (0.6)

Loans secured by real estate 4,336,825 4,401,538 4,651,638 (6.8) 1-4 Family residential mortgages 1,874,335 1,887,551 2,012,537 (6.9)

Nonfarm nonresidential 1,081,004 1,090,644 1,086,496 (0.5) Construction and development 383,313 418,017 535,733 (28.5) Home equity lines 654,450 659,871 672,906 (2.7)

Commercial & industrial loans 1,174,939 1,187,070 1,364,713 (13.9) Loans to individuals 1,359,543 1,380,445 1,037,135 31.1

Credit cards 699,404 716,998 398,233 75.6 Farm loans 58,270 55,600 58,352 (0.1) Other loans & leases 468,562 480,905 516,323 (9.3) Less: Unearned income 2,794 2,711 2,903 (3.7) Total loans & leases 7,395,345 7,502,849 7,625,258 (3.0) Less: Reserve for losses 251,290 263,065 211,157 19.0 Net loans and leases 7,144,055 7,239,783 7,414,102 (3.6) Securities 2,527,735 2,531,647 2,336,957 8.2 Other real estate owned 49,285 46,265 33,928 45.3 Goodwill and other intangibles 409,757 424,879 431,395 (5.0) All other assets 3,089,719 3,114,224 3,083,625 0.2 Total liabilities and capital 13,220,551 13,356,798 13,300,007 (0.6) Deposits 9,140,980 9,198,770 9,021,146 1.3

Domestic office deposits 7,667,695 7,692,326 7,555,214 1.5 Foreign office deposits 1,473,285 1,506,444 1,465,932 0.5

Other borrowed funds 1,911,837 2,051,791 2,159,362 (11.5) Subordinated debt 150,986 150,540 168,125 (10.2) All other liabilities 510,148 476,035 529,986 (3.7) Total equity capital (includes minority interests) 1,506,599 1,479,662 1,421,388 6.0

Bank equity capital 1,487,435 1,459,993 1,403,711 6.0 Loans and leases 30-89 days past due 125,191 141,492 141,247 (11.4)

Noncurrent loans and leases 385,805 405,395 331,899 16.2 Restructured loans and leases 71,614 64,412 46,577 53.8 Mortgage-backed securities 1,381,160 1,386,427 1,365,416 1.2 Earning assets 11,389,950 11,554,019 11,436,792 (0.4) FHLB Advances 445,400 480,364 634,642 (29.8) Unused loan commitments 6,007,195 6,104,579 6,305,132 (4.7) Trust assets 17,606,001 18,096,538 16,975,455 3.7 Assets securitized and sold 1,411,808 1,413,926 1,865,371 (24.3) Notional amount of derivatives 225,433,522 218,068,203 208,656,901 8.0

Source: Federal Deposit Insurance Corporation, The Manual of Ideas.

Asset quality is still an issue, but expanding interest margins are helping banks turns profitable

Real estate loans are hard to come by, but consumers have re-discovered their credit cards

Foreclosures have left banks with more real estate inventory

Equity capital is growing again

Loan restructurings have been a popular way of avoiding non-accrual




AGGREGATE INCOME DATA

($ in millions) H1 2010 H1 2009 % Change Q2 2010 Q2 2009 % Change Total interest income 273,091 279,906 (2) 135,182 137,832 (2) Total interest expense 56,617 81,498 (31) 27,648 38,786 (29)

Net interest income 216,474 198,409 9 107,534 99,047 9 Provision for loan and lease losses 91,145 128,197 (29) 40,303 67,370 (40) Total noninterest income 122,275 136,630 (11) 60,865 68,419 (11) Total noninterest expense 192,790 196,686 (2) 97,930 99,449 (2) Securities gains (losses) 3,737 839 346 2,148 (927) n/m Applicable income taxes 17,928 4,900 266 10,307 315 n/m Extraordinary gains, net (174) (3,655) n/m (232) (3,624) n/m

Total net income (includes minority interests) 40,449 2,440 n/m 21,775 (4,221) n/m Bank net income 40,080 2,022 n/m 21,597 (4,376) n/m

Net charge-offs 100,747 86,723 16 48,959 49,173 (0) Cash dividends 17,317 13,374 30 12,934 6,139 111 Retained earnings 22,763 (11,352) n/m 8,662 (10,515) n/m

Net operating income 37,904 5,682 567 20,487 (161) n/m Source: Federal Deposit Insurance Corporation, The Manual of Ideas.

Q2 2010, BY ASSET CONCENTRATION GROUP

Asset Concentration Groups * Credit Inter- Agri- Com- Mort- Con-

All Card national cultural mercial gage sumer Banks Banks Banks Banks Lenders Lenders Lenders Number of institutions reporting 7,830 20 4 1,579 4,265 745 83 Total assets ($ in billions) 13,221 719 3,059 189 4,358 795 97 Total deposits ($ in billions) 9,141 272 1,981 155 3,323 530 81 Bank net income ($ in millions) 21,597 2,582 7,737 489 2,271 1,287 304 Performance Ratios (annualized, %) Yield on earning assets 4.7 12.6 3.5 5.3 4.9 4.5 5.8 Cost of funding earning assets 1.0 1.4 .7 1.4 1.2 1.4 1.3

Net interest margin 3.8 11.2 2.7 4.0 3.8 3.1 4.5 Noninterest income to assets 1.8 2.9 2.2 .7 1.4 1.0 2.0 Noninterest expense to assets 3.0 4.1 2.8 2.7 3.1 2.1 2.7 Loan and lease loss provision to assets 1.2 6.4 .4 .5 1.3 .7 1.6 Net operating income to assets .6 1.3 .9 1.0 .2 .7 1.3 Pretax return on assets 1.0 2.2 1.4 1.2 .4 1.1 2.0 Return on assets .7 1.4 1.0 1.0 .2 .7 1.3 Return on equity 5.9 8.7 11.1 9.2 1.9 6.6 12.0 Net charge-offs to loans and leases 2.6 11.6 1.8 .7 2.0 1.1 2.2 Loan and lease loss provision to net charge-offs 82.3 64.9 68.5 114.1 99.5 102.8 93.4 Efficiency ratio 56.5 30.8 61.3 61.3 63.6 53.1 42.5

Structural Changes New Charters 0 0 0 0 0 0 0 Banks absorbed in M&A 57 0 0 8 46 0 0 Failed Institutions 45 0 0 1 42 0 0

Prior Second Quarters Return on assets (%) 2009 (.1) (.7) (.5) .8 (.2) .6 .6 2007 1.2 3.3 1.0 1.3 1.2 .9 3.0 2005 1.3 3.2 .7 1.4 1.4 1.2 1.4 Net charge-offs to loans & leases (%) 2009 2.6 10.8 3.1 .6 2.1 1.3 2.8

2007 .5 3.9 .6 .2 .3 .3 1.9 2005 .4 4.2 .7 .2 .2 .1 1.1

* Excludes various “Other” categories. Credit-card lenders: institutions whose credit-card loans plus securitized receivables exceed 50% of total assets plus securitized receivables. International banks: banks with assets greater than $10 billion and more than 25% of total assets in foreign offices. Agricultural banks: banks whose agricultural production loans plus real estate loans secured by farmland exceed 25% of their total loans and leases. Commercial lenders: institutions whose commercial and industrial loans, plus real estate construction and development loans, plus loans secured by commercial real estate properties exceed 25% of total assets. Mortgage lenders: institutions whose residential mortgage loans, plus mortgage-backed securities, exceed 50% of total assets. Consumer lenders: institutions whose residential mortgage loans, plus credit-card loans, plus other loans to individuals, exceed 50% of total assets. Source: Federal Deposit Insurance Corporation, The Manual of Ideas.

Prima facie evidence of regulators’ intention to help existing banks rather than allow new entrants to benefit from Fed/FDIC policies

Roughly Flat y-y

Declining provisions are helping boost reported income

Large variability in NIM, but everyone is doing okay




Q2 2010, BY ASSET SIZE AND GEOGRAPHIC REGION

Asset Size Distribution Geographic Regions * < $100 mn $1 bn > NY ATL CHI KC DAL SF $100 mn - $1 bn - $10 bn $10 bn Number of institutions reporting 2,745 4,425 555 105 969 1,064 1,619 1,852 1,643 683 Total assets ($ in billions) 155 1,325 1,429 10,312 2,693 2,987 2,866 1,656 788 2,231 Total deposits ($ in billions) 129 1,089 1,083 6,839 1,743 2,099 1,952 1,207 618 1,522 Bank net income ($ in millions) 217 948 506 19,926 5,000 1,649 5,538 3,029 1,419 4,962 Performance Ratios (annualized, %) Yield on earning assets 5.3 5.2 5.0 4.6 5.4 4.4 3.9 5.8 5.0 4.6 Cost of funding earning assets 1.3 1.4 1.3 .9 1.1 .9 .8 .8 1.0 1.1

Net interest margin 3.9 3.8 3.7 3.8 4.3 3.5 3.0 5.0 3.9 3.5 Noninterest income to assets 1.4 .9 1.2 2.1 1.7 1.6 2.1 2.2 1.7 1.8 Noninterest expense to assets 3.8 3.2 2.9 2.9 2.8 2.8 3.0 3.6 3.4 2.6 Loan and lease loss provision to assets .5 .8 1.2 1.3 1.5 1.3 .8 1.9 .9 .9 Net operating income to assets .5 .2 .1 .7 .7 .2 .7 .7 .7 .9 Pretax return on assets .7 .4 .3 1.1 1.1 .4 1.1 1.1 .9 1.3 Return on assets .6 .3 .1 .8 .8 .2 .8 .7 .7 .9 Return on equity 4.6 2.8 1.3 6.9 5.8 2.0 8.6 6.3 6.9 7.7 Net charge-offs to loans and leases .7 1.1 1.9 3.0 4.1 2.6 1.9 2.9 1.2 2.1 Loan loss provision to net charge-offs 115.6 110.7 100.5 78.6 66.5 92.1 81.0 92.7 105.4 86.3 Efficiency ratio 76.0 71.5 63.1 53.8 49.8 60.9 62.8 51.8 65.8 53.1 Structural Changes

New Charters 0 0 0 0 0 0 0 0 0 0 Institutions absorbed by mergers 16 31 10 0 3 30 5 13 5 1 Failed Institutions 9 26 9 1 4 11 12 6 2 10

Prior Second Quarters Return on assets (%) 2009 0.04 -0.17 -0.83 -0.03 -0.56 -0.05 0.18 0.74 0.21 -0.71

2007 0.85 1.14 1.11 1.25 1.05 1.25 1.05 1.54 1.15 1.41 2005 1.09 1.24 1.35 1.28 1.29 1.34 0.93 1.55 1.28 1.63

Net charge-offs to loans (%) 2009 0.91 1.14 2.23 2.89 2.91 2.26 2.4 2.56 1.32 3.39 2007 0.14 0.18 0.33 0.57 0.84 0.26 0.37 0.63 0.23 0.59 2005 0.19 0.19 0.24 0.51 0.69 0.18 0.26 0.51 0.23 0.63

* Region codes: NY = New York: Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Puerto Rico, Rhode Island, Vermont, U.S. Virgin Islands. ATL = Atlanta: Alabama, Florida, Georgia, North Carolina, South Carolina, Virginia, West Virginia. CHI = Chicago: Illinois, Indiana, Kentucky, Michigan, Ohio, Wisconsin. KC = Kansas City: Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota. DAL = Dallas: Arkansas, Colorado, Louisiana, Mississippi, New Mexico, Oklahoma, Tennessee, Texas. SF = San Francisco: Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Pacific Islands, Utah, Washington, Wyoming. Source: Federal Deposit Insurance Corporation, The Manual of Ideas. H1 2010 FINANCIAL CONDITION RATIOS, BY ASSET CONCENTRATION GROUP

Asset Concentration Groups * All Credit Card International Agricultural Commercial Mortgage Consumer (in %) Banks Banks Banks Banks Lenders Lenders Lenders Earning assets to total assets 86.2 86.2 84.0 91.8 88.3 93.2 94.4 Loss Allowance to:

Loans and leases 3.4 9.9 4.0 1.6 2.6 1.5 2.9 Noncurrent loans and leases 65.1 377.2 59.8 78.8 56.0 33.1 227.8

Noncurrent assets & OREO to assets 3.3 2.2 2.6 1.7 3.9 3.0 1.0 Equity capital ratio 11.3 16.6 9.3 11.3 11.0 10.0 10.7 Core capital (leverage) ratio 8.8 11.5 7.2 10.1 9.1 9.3 10.4 Tier 1 risk-based capital ratio 12.4 13.4 12.2 14.1 11.8 19.0 14.1 Total risk-based capital ratio 15.1 16.4 15.3 15.2 14.0 20.1 15.9 Net loans and leases to deposits 78.2 198.5 52.8 77.6 86.8 87.4 87.5 Net loans to total assets 54.0 75.2 34.2 63.6 66.1 58.3 72.8 Domestic deposits to total assets 58.0 33.7 32.0 82.0 74.7 66.6 82.2

* Excludes various “Other” categories. See footnotes to table on previous page for institution type definitions. Source: Federal Deposit Insurance Corporation, The Manual of Ideas.

Consistent NIM

Bigger banks are more proactive with charge-offs

Commercial lenders and mortgage lenders are in relatively worse shape




H1 2010 FINANCIAL CONDITION RATIOS, BY ASSET SIZE AND GEOGRAPHIC REGION

Asset Size Distribution Geographic Regions * < $100 mn $1 bn > (in %) $100 mn - $1 bn - $10 bn $10 bn NY ATL CHI KC DAL SF Earning assets to total assets 91.1 91.4 90.4 84.8 86.1 83.9 86.2 87.0 90.2 87.0 Loss Allowance to:

Loans and leases 1.6 1.8 2.3 3.9 3.8 3.3 3.3 3.8 2.1 3.4 Noncurrent loans and leases 61.6 50.7 51.8 68.4 102.3 51.8 57.9 63.4 56.9 68.8

Noncurrent assets & OREO to assets 2.4 3.4 3.6 3.3 2.2 4.0 3.2 4.6 3.2 2.9 Equity capital ratio 12.2 10.2 11.1 11.4 13.0 11.4 9.2 11.6 10.6 11.7 Core capital (leverage) ratio 11.6 9.6 9.6 8.5 9.7 8.0 7.3 9.1 9.5 10.1 Tier 1 risk-based capital ratio 17.8 13.7 13.9 12.0 13.9 11.2 11.0 11.2 13.2 15.2 Total risk-based capital ratio 18.9 15.0 15.3 15.0 16.2 14.4 14.3 13.8 15.0 16.9 Net loans and leases to deposits 72.6 79.9 82.9 77.2 83.0 77.2 70.1 90.6 81.8 72.9 Net loans to total assets 60.7 65.7 62.9 51.2 53.8 54.3 47.8 66.1 64.1 49.7 Domestic deposits to total assets 83.6 82.2 75.3 52.1 57.4 62.6 53.9 67.0 77.9 44.2

* See footnotes to table on previous page for geographic region definitions. Source: Federal Deposit Insurance Corporation, The Manual of Ideas. LOAN PERFORMANCE, AS OF JUNE 30, 2010, BY ASSET CONCENTRATION GROUP

Asset Concentration Groups * All Credit Card Int’l Agricultural Commercial Mortgage Consumer Banks Banks Banks Banks Lenders Lenders Lenders % of Loans 30-89 Days Past Due All loans secured by real estate 2.0 1.3 2.8 1.1 1.6 1.9 1.1

Construction and development 2.4 .0 2.5 1.9 2.3 5.9 .5 Nonfarm nonresidential 1.1 .0 .6 1.0 1.2 1.5 1.8 Multifamily residential 1.1 .0 .6 1.3 1.3 1.7 3.9 Home equity loans 1.2 2.0 1.5 .6 .9 1.2 .9 Other 1-4 family residential 2.8 1.2 4.3 1.7 2.1 1.9 1.1

Commercial and industrial loans .8 2.6 .4 1.4 1.0 1.0 1.3 Credit card loans 2.2 2.2 2.6 1.5 1.7 3.2 1.1 Total loans and leases 1.7 2.2 1.9 1.1 1.4 1.9 1.5 % of Loans Noncurrent ** All real estate loans 7.3 4.9 10.6 2.4 5.8 4.8 1.2

Construction and development 16.9 .0 19.0 10.1 16.5 15.1 4.5 Nonfarm nonresidential 4.3 .0 5.6 2.9 4.0 3.7 2.6 Multifamily residential 4.2 .0 4.2 2.9 4.4 3.2 1.7 Home equity loans 1.7 2.3 1.9 .8 1.2 1.8 .8 Other 1-4 family residential 9.8 6.1 17.7 1.6 5.4 4.9 1.1

Commercial and industrial loans 2.9 3.0 5.3 2.3 2.5 3.0 .7 Credit card loans 2.6 2.6 2.6 .8 2.9 3.2 1.1 Total loans and leases 5.2 2.6 6.8 2.0 4.7 4.6 1.2 % of Loans Charged-off (net, YTD) All real estate loans 2.0 4.9 2.4 .5 1.9 1.0 1.7

Construction and development 5.1 .0 2.8 3.0 5.5 6.2 1.7 Nonfarm nonresidential 1.1 .0 1.1 .5 1.2 .7 .5 Multifamily residential 1.2 .0 1.0 .8 1.4 .9 1.7 Home equity loans 2.9 9.0 2.8 .7 1.4 3.7 2.3 Other 1-4 family residential 1.7 4.2 3.0 .3 1.5 .8 1.1

Commercial and industrial loans 1.9 17.2 1.5 1.3 1.7 1.5 5.6 Credit card loans 12.2 13.7 6.3 2.4 8.1 10.5 5.1 Total loans and leases 2.7 13.4 2.2 .5 1.9 1.2 2.4

* Excludes various “Other” categories. ** Noncurrent loan rates represent the percentage of loans in each category that are past due 90 days or more or that are in nonaccrual status. Source: Federal Deposit Insurance Corporation, The Manual of Ideas.

Somewhat surprising: Smaller banks have higher core capital ratio

Relatively large differences in loan performance




LOAN PERFORMANCE, AS OF JUNE 30, 2010, BY ASSET SIZE AND GEOGRAPHIC REGION

Asset Size Distribution Geographic Regions < $100 mn $1 bn > $100 mn - $1 bn - $10 bn $10 bn NY ATL CHI KC DAL SF % of Loans 30-89 Days Past Due All loans secured by real estate 1.7 1.5 1.3 2.3 1.5 2.1 1.9 2.3 1.6 2.1

Construction and development 2.2 2.1 2.0 2.6 2.9 1.9 2.4 2.9 1.9 3.0 Nonfarm nonresidential 1.5 1.3 1.1 1.1 1.2 1.2 1.3 1.0 1.0 .9 Multifamily residential real estate 1.1 1.3 1.0 1.0 .9 1.5 1.2 .9 1.3 .7 Home equity loans .9 .8 .8 1.2 .7 1.4 1.2 1.1 1.0 1.1 Other 1-4 family residential 2.1 1.7 1.5 3.2 1.8 3.1 2.8 3.6 2.4 3.1

Commercial and industrial loans 1.7 1.3 .9 .7 1.2 .6 .8 1.0 .9 .5 Credit card loans 2.4 2.5 2.1 2.2 2.0 2.4 1.9 2.7 1.0 2.2 Total loans and leases 1.6 1.4 1.3 1.8 1.6 1.8 1.6 2.1 1.4 1.6 % of Loans Noncurrent * All real estate loans 3.1 4.1 5.4 8.6 4.8 8.9 8.2 8.9 4.8 6.6

Construction and development 10.3 12.9 16.4 18.8 17.9 17.6 16.3 16.9 10.8 23.2 Nonfarm nonresidential 3.4 3.3 4.0 5.0 3.8 4.8 4.6 4.5 2.8 4.9 Multifamily residential real estate 2.8 3.5 4.6 4.2 3.1 4.9 4.6 3.6 3.8 4.9 Home equity loans 1.4 1.2 1.4 1.8 .9 1.9 1.6 2.4 1.1 1.4 Other 1-4 family residential 2.2 2.8 4.1 12.0 4.7 12.2 13.0 13.5 5.3 7.5

Commercial and industrial loans 2.7 2.4 2.5 3.0 2.9 2.3 2.6 2.8 1.7 4.8 Credit card loans 1.1 1.7 1.7 2.6 2.6 2.6 2.4 2.7 .9 2.6 Total loans and leases 2.7 3.6 4.5 5.7 3.7 6.3 5.7 6.0 3.8 5.0 % of Loans Charged-off (net, YTD) All real estate loans .6 .9 1.8 2.3 1.0 2.7 2.1 2.0 1.2 2.1

Construction and development 2.7 3.2 5.9 5.7 4.3 5.6 6.1 4.3 3.3 7.1 Nonfarm nonresidential .5 .6 1.2 1.4 .9 1.4 1.3 .8 .6 1.6 Multifamily residential real estate .8 .8 1.5 1.2 1.0 1.3 1.3 .8 .8 1.7 Home equity loans .7 .7 1.2 3.2 .8 4.3 2.1 3.8 1.6 2.6 Other 1-4 family residential .4 .6 .9 2.0 .7 2.2 2.0 1.8 .9 2.0

Commercial and industrial loans 1.3 1.4 1.5 2.0 3.3 1.5 1.9 1.9 1.1 1.6 Credit card loans 4.4 7.5 8.2 12.3 14.2 11.1 8.0 15.0 4.2 6.2 Total loans and leases .6 1.0 1.8 3.2 4.1 2.6 2.1 3.1 1.2 2.2 Loans Outstanding ($ in billions) All real estate loans 66 694 681 2,896 827 1,069 852 637 358 595

Construction and development 5 83 86 209 52 123 63 55 55 36 Nonfarm nonresidential 20 267 269 525 220 245 195 151 125 145 Multifamily residential real estate 2 32 42 139 58 34 62 18 9 33 Home equity loans 2 38 48 566 87 191 176 116 24 60 Other 1-4 family residential 28 240 224 1,382 404 460 340 272 132 267

Commercial and industrial loans 12 111 136 915 180 274 251 173 90 207 Credit card loans 0 2 19 678 325 79 48 141 15 92 Total loans and leases ** 95 887 921 5,496 1,504 1,676 1,415 1,137 516 1,150 Other Real Estate Owned ($ in millions) All other real estate owned 1,089 12,873 10,356 24,968 4,052 14,702 9,966 8,583 5,362 6,620

Construction and development 353 6,240 5,570 5,840 1,120 5,976 2,622 2,897 2,693 2,696 Nonfarm nonresidential 330 3,183 2,185 3,282 928 1,974 2,040 1,560 1,212 1,267 Multifamily residential real estate 37 445 413 1,895 258 437 421 531 151 992 1-4 family residential 342 2,833 2,028 8,519 1,500 4,682 2,794 2,189 1,188 1,369 Farmland 25 171 90 31 16 47 68 58 99 30 GNMA properties 2 5 71 5,202 218 1,587 2,019 1,349 19 90

* Noncurrent loan rates represent the percentage of loans in each category that are past due 90 days or more or that are in nonaccrual status. ** Includes unearned income. Source: Federal Deposit Insurance Corporation, The Manual of Ideas.

Are the big banks really in worse shape, or are small banks not taking the necessary write-downs in an attempt to preserve equity capital?




DISTRIBUTION OF COMMERCIAL BANKS AND SAVINGS INSTITUTIONS

Asset Size (as of June 30, 2010) ($ in billions)

Number of Institutions

Percent of Total

Institutions

Total Domestic Deposits

Percent of Total

Domestic Deposits

Total Assets Less Total

Tangible Equity *

Percent of Total Assets

Less Tangible Equity

Greater than $100 billion 19 0% 3,785 49% 7,243 60% $50 to $100 billion 16 0% 670 9% 1,012 8% $10 to $50 billion 70 1% 920 12% 1,262 10% $1 to $10 billion 555 7% 1,075 14% 1,293 11% Less than $1 billion 7,170 92% 1,218 16% 1,333 11%

Total 7,830 100% 7,668 100% 12,143 100% * Data is based on quarter-end balance sheet amounts as of June 30, 2010. These calculations are provided by the FDIC as a rough approximation of how industry assets less tangible equity are stratified by institution asset size; however these calculations are not the equivalent of the future deposit insurance assessment base as defined by the Dodd-Frank Act. The assessment base, with possible exceptions, will be based on an institution’s average consolidated assets during the assessment period; minus an institution’s average tangible equity during the assessment period. These terms have not yet been defined by regulation. Source: Federal Deposit Insurance Corporation, The Manual of Ideas. PROBLEM BANKS AND FAILED/ASSISTED BANKS

($ in millions) H1 2010 H1 2009 2009 2008 2007 2006 2005 Problem Institutions

Number of institutions 829 416 702 252 76 50 52 Total assets $403,203 $299,837 $402,782 $159,405 $22,189 $8,265 $6,607

Failed Institutions Number of institutions 86 45 140 25 3 0 0 Total assets $69,396 $35,868 $169,709 $371,945 $2,615 $0 $0

Assisted Institutions * Number of institutions 0 8 8 5 0 0 0 Total assets $0 $1,917,482 $1,917,482 $1,306,042 0 0 0

* Assisted institutions represent five institutions under a single holding company that received assistance in 2008, and eight institutions under a different single holding company that received assistance in 2009. Source: Federal Deposit Insurance Corporation, The Manual of Ideas.

VALUEX Inaugural Meeting of Value Investors

Zurich and Klosters/Davos, Switzerland

February 2-4, 2011

Organized locally by Guy Spier, Aquamarine Capital Management

John Mihaljevic, The Manual of Ideas

Attendance by invitation only. Email [email protected] for more information.

The headline numbers give ample reason for concern, but is such worry akin to looking in the rearview mirror?




Selected Statistics by Bank LOAN PORTFOLIO SNAPSHOT OF TOP 50 U.S. BANKS BY DEPOSITS *

Problem Loans / Total Loans Deposits 30-89 90+ In All Loan Portfolio Breakdown by Type *** to Days Days Non- Problem 1-4 Multi- Com- Other Per- All ($bn) Loans Past Due Accrual Loans ** Family Family mercial C&D RE C&I sonal Other

1 Bank of America 1,007 141% 1.8% 3.7% 4.4% 9.9% 49% 1% 7% 4% 0% 20% 11% 7% 2 JPM Chase 969 180% 1.9% 3.5% 4.8% 10.2% 44% 6% 4% 1% 0% 18% 16% 11% 3 Wells Fargo 817 116% 2.3% 4.7% 3.3% 10.3% 44% 1% 12% 5% 1% 16% 13% 9% 4 Citibank 771 164% 2.1% 1.9% 4.4% 8.5% 29% 1% 2% 0% 9% 18% 24% 16% 5 U.S. Bank 191 105% 1.8% 2.5% 2.5% 6.9% 30% 2% 13% 6% 0% 17% 21% 10% 6 PNC 182 120% 1.8% 3.2% 3.5% 8.5% 35% 2% 13% 4% 0% 26% 13% 7% 7 BNY Mellon 140 569% .9% 1.6% 1.4% 3.8% 17% 2% 1% 1% 2% 11% 0% 67% 8 HSBC USA 129 179% 2.2% 1.0% 3.1% 6.3% 25% 2% 6% 3% 0% 18% 35% 11% 9 TD Bank 122 209% 1.2% .5% 2.2% 3.8% 29% 2% 26% 5% 0% 16% 8% 13%

10 SunTrust 122 108% 1.4% 1.2% 4.2% 6.8% 41% 1% 12% 5% 0% 20% 12% 9% 11 BB&T 104 106% 1.9% 2.3% 3.0% 7.1% 32% 2% 23% 14% 0% 14% 9% 7% 12 Regions 101 120% 1.4% .8% 4.4% 6.7% 31% 5% 23% 7% 7% 16% 3% 8% 13 State Street 100 847% .0% 1.7% 1.2% 2.9% - - 5% - - 1% 1% 93% 14 Capital One 94 140% 2.3% 1.7% 2.1% 6.1% 22% 7% 15% 4% 0% 16% 28% 8% 15 Fifth Third 84 113% 1.0% .8% 3.6% 5.4% 27% 1% 13% 7% 0% 29% 16% 7% 16 ING Bank 77 196% 1.2% .0% 4.5% 5.8% 98% - 0% 0% - 1% 0% 0% 17 FIA Card 77 51% 3.1% 3.8% .0% 6.9% - 0% - - - 6% 93% 1% 18 RBS Citizens 72 96% 1.0% .1% 2.5% 3.6% 44% 2% 12% 2% 0% 15% 20% 5% 19 Union Bank 67 143% .9% .7% 2.9% 4.4% 44% 5% 15% 5% 0% 27% 0% 4% 20 KeyBank 66 113% 1.3% .6% 3.4% 5.3% 21% 3% 14% 6% 0% 23% 17% 17% 21 MS Bank 55 476% .0% .0% 4.1% 4.1% 0% 0% 0% - - 55% 27% 18% 22 Citibank (SD) 49 45% 3.2% 3.2% .0% 6.4% - - - - - 7% 93% 0% 23 Northern Trust 49 309% 1.1% .0% 1.0% 2.1% 26% 2% 5% 2% 0% 37% 8% 21% 24 Manu. & Traders 47 96% 1.0% .4% 2.2% 3.7% 23% 4% 28% 9% 0% 20% 10% 6% 25 Compass Bank 46 114% 2.5% 1.6% 5.2% 9.2% 26% 4% 17% 19% 0% 21% 7% 4% 26 Ch. Schwab Bank 46 584% .4% .0% .5% .8% 93% - - 1% - - 6% - 27 Sovereign Bank 42 87% 1.8% .0% 4.2% 6.0% 37% 11% 21% 3% - 21% 6% 1% 28 Huntington 41 113% 1.5% .5% 3.2% 5.2% 35% 3% 20% 5% 0% 18% 15% 4% 29 Chase Bank USA 41 36% 1.4% 1.8% .0% 3.2% - - - - - 5% 95% 0% 30 Comerica Bank 41 102% .9% .3% 2.8% 3.9% 9% 1% 22% 9% 0% 50% 1% 8% 31 Bank of the West 38 88% 1.3% .1% 3.6% 5.1% 28% 1% 16% 5% 3% 13% 23% 11% 32 USAA Federal 37 113% .9% .4% .2% 1.5% 36% - 0% 0% - 0% 63% - 33 Marshall & Ilsley 35 98% 1.2% .0% 4.7% 5.9% 24% 7% 22% 11% 2% 24% 4% 5% 34 Discover Bank 34 75% 2.0% 2.2% .9% 5.0% 0% - - - - 1% 99% 0% 35 Ally Bank 32 78% .5% .0% 1.1% 1.6% 35% - 4% - - 28% 28% 4% 36 Harris 32 143% 1.5% .5% 3.1% 5.2% 44% 2% 15% 2% 0% 12% 21% 3% 37 GS Bank 30 842% .0% .0% .0% .0% 21% - 0% 1% - 25% 5% 48% 38 E*TRADE Bank 28 129% 2.6% .0% 7.6% 10.2% 72% - 0% - - 1% 27% - 39 Capital One Bank 28 53% 2.6% 2.9% .0% 5.5% - - - - - 9% 90% 1% 40 Synovus Bank 26 116% 1.0% .1% 5.8% 6.8% 20% 3% 32% 23% 1% 15% 2% 4% 41 UBS Bank USA 26 161% .0% .0% .0% .0% 3% 0% 0% 0% - 46% 49% 2% 42 Hudson City Sav. 25 79% 1.8% .2% 2.3% 4.2% 100% 0% 0% 0% - 0% 0% - 43 Citizens Bank PA 23 150% .8% .1% 2.8% 3.8% 46% 1% 11% 5% - 24% 11% 3% 44 DB Americas 22 170% .0% .0% 4.3% 4.3% 30% 0% 6% 0% 0% 18% 8% 37% 45 NY Community 21 75% 1.0% 1.0% 2.1% 4.1% 20% 59% 17% 2% - 1% 0% 0% 46 RBC Bank (USA) 20 111% 2.5% .1% 7.2% 9.9% 35% 3% 25% 15% 0% 13% 1% 7% 47 Banco Popular 20 110% 6.9% 5.3% 9.5% 21.7% 19% 0% 29% 8% 10% 10% 16% 7% 48 AmEx Centurion 19 156% 1.0% .4% 3.3% 4.7% - - - - - 0% 100% 0% 49 City National 18 136% 1.0% 2.7% 2.0% 5.8% 32% 9% 18% 7% 0% 27% 3% 3% 50 Associated Bank 17 142% 1.3% .2% 7.9% 9.3% 35% 4% 23% 7% 0% 19% 6% 5%

* Shows data for individual banks and national associations rather than bank holding companies. Data as of June 30, 2010. ** Excludes other real estate owned (OREO). *** C&D = construction and development loans; C&I = commercial and industrial loans (non-real estate). Sources: FDIC, Manual of Ideas analysis.




BANKS TO AVOID? 50 BANKS WITH HIGH TROUBLED ASSET RATIOS *

Troubled Problem Loans / Loans % of Loan Portfolio *** Deposits Tier 1 Re- Assets** / 30-89 90+ In 1-4 Com- Per- to Cap. serves T1 Cap & Days Days Non- Fam- mer- so- State ($ bn) Loans ($mn) ($bn) Reserves Past Due Accrual ily cial C&D C&I nal

1 Hillcrest Bank KS 1.5 148% 10 35 572% 8.0% .0% 15.8% 2% 20% 57% 14% 0% 2 Premier Bank MO 1.0 134% 18 53 428% 6.6% .3% 21.4% 14% 31% 41% 4% 0% 3 ShoreBank IL 1.5 125% 4 90 352% 2.3% 1.3% 25.2% 23% 21% 11% 20% 0% 4 HomeStreet Bank WA 2.3 121% 136 95 196% 2.1% .2% 16.6% 43% 22% 25% 6% 0% 5 Metropolitan National AR 1.2 141% 76 36 191% 3.2% .0% 12.0% 20% 35% 20% 11% 3% 6 AmericanWest Bank WA 1.4 126% 38 39 180% .1% .0% 8.0% 15% 45% 10% 9% 1% 7 MidFirst Bank OK 7.5 83% 1,087 182 178% 9.4% 21.6% 2.6% 53% 24% 13% 8% 0% 8 Bank Midwest MO 3.6 189% 193 159 175% 1.5% .1% 22.8% 18% 30% 24% 17% 1% 9 First Community NM 2.1 130% 65 123 170% 1.8% .0% 16.4% 10% 47% 27% 12% 1%

10 Michigan Commerce MI 1.0 119% 24 61 167% 3.7% .2% 12.9% 19% 51% 7% 16% 0% 11 Community & Southern GA 1.5 184% 222 0 166% 6.5% 2.3% 27.4% 30% 27% 25% 9% 4% 12 State Bank and Trust GA 2.2 198% 322 4 163% 5.3% .5% 31.8% 18% 32% 34% 10% 2% 13 Sterling Savings Bank WA 6.8 116% 330 258 160% 1.1% .0% 14.0% 22% 40% 16% 10% 3% 14 Ocean Bank FL 3.6 129% 258 79 159% 1.8% .4% 11.9% 22% 41% 10% 13% 1% 15 Hampton Roads VA 2.3 120% 52 169 157% 1.0% .0% 16.8% 20% 28% 30% 16% 1% 16 Communityone Bank NC 1.7 116% 114 70 149% 1.3% .3% 15.2% 29% 30% 24% 7% 3% 17 Scotiabank de PR PR 3.3 65% 479 32 137% 5.5% 11.2% 1.0% 57% 16% 6% 6% 11% 18 AnchorBank WI 3.2 105% 163 167 136% 2.1% .0% 13.1% 33% 26% 8% 5% 11% 19 The Palmetto Bank SC 1.2 127% 60 28 134% 1.6% .0% 9.7% 20% 45% 18% 6% 7% 20 Bank of Smithtown NY 1.8 95% 118 58 130% 2.5% .0% 11.8% 11% 47% 16% 2% 0% 21 Doral Bank PR 4.9 94% 670 122 129% 2.7% 1.2% 16.8% 68% 13% 8% 8% 1% 22 United Central Bank TX 2.0 122% 261 28 129% 4.1% 17.6% 2.0% 2% 77% 13% 5% 0% 23 Superior Bank FL 2.8 115% 187 32 126% 1.8% .6% 8.7% 31% 29% 26% 8% 2% 24 TIB Bank FL 1.3 125% 66 28 124% 1.0% .0% 7.2% 29% 52% 6% 6% 3% 25 Great Florida Bank FL 1.4 125% 91 33 118% 1.0% .0% 9.9% 42% 23% 16% 8% 1% 26 Bank of Choice CO 1.1 141% 74 24 115% 5.2% 1.4% 9.6% 17% 34% 24% 14% 1% 27 BankUnited FL 7.6 179% 1,102 15 113% 3.2% .0% 25.8% 82% 9% 2% 5% 0% 28 Integra Bank IN 2.5 145% 136 107 109% 1.7% .5% 13.1% 24% 28% 17% 13% 6% 29 U. S. Century Bank FL 1.6 103% 168 52 107% 1.2% .1% 12.8% 14% 41% 21% 12% 0% 30 Pacific Capital Bank CA 5.4 124% 295 277 106% 1.3% .1% 12.5% 30% 42% 8% 10% 2% 31 Bank of Cascades OR 1.6 122% 75 58 106% .8% .0% 6.5% 8% 55% 14% 15% 4% 32 Banco Popular PR 19.9 110% 2,067 684 104% 6.9% 5.3% 9.5% 19% 29% 8% 10% 16% 33 Iberiabank LA 7.1 151% 655 76 104% 2.5% 1.9% 13.4% 31% 29% 11% 15% 7% 34 Old Second National IL 2.2 118% 188 81 104% 2.0% .0% 12.6% 26% 44% 10% 10% 0% 35 Central Pacific Bank HI 3.2 129% 267 202 100% .4% .1% 17.2% 26% 34% 23% 9% 4% 36 EverBank FL 9.0 136% 964 78 99% 4.3% 7.7% 5.7% 70% 12% 4% 5% 0% 37 Inter National Bank TX 1.7 166% 178 29 98% 2.0% .4% 11.5% 25% 33% 16% 20% 2% 38 Great Western Bank SD 6.5 120% 506 36 92% .7% 5.0% 2.0% 18% 32% 10% 15% 3% 39 Firstbank PR 12.8 107% 1,449 578 91% 4.0% 1.6% 13.2% 28% 25% 10% 16% 12% 40 Far East National CA 1.2 109% 172 67 90% 4.0% 4.1% 13.4% 10% 52% 16% 16% 0% 41 Parkway B&T IL 2.1 113% 216 40 90% 6.1% 1.0% 9.0% 4% 61% 22% 2% 0% 42 Cascade Bank WA 1.2 110% 99 26 90% .1% .0% 6.7% 23% 39% 14% 12% 0% 43 First Savings NW WA 1.0 106% 124 30 89% .9% .0% 12.5% 47% 24% 15% 0% 0% 44 Community Bks CO CO 1.6 126% 112 47 89% 3.0% .9% 7.4% 14% 24% 31% 17% 4% 45 Macatawa Bank MI 1.3 100% 106 56 89% 1.0% .2% 7.1% 25% 34% 12% 21% 2% 46 Amboy Bank NJ 2.0 125% 266 54 87% 3.9% .1% 8.6% 33% 22% 35% 6% 0% 47 PremierWest Bank OR 1.3 125% 126 44 85% 1.0% .0% 12.4% 6% 49% 16% 16% 4% 48 First Mariner Bank MD 1.1 116% 84 12 84% 2.8% 1.2% 5.2% 41% 31% 13% 8% 3% 49 Reliance Bank MO 1.1 114% 103 30 83% 3.5% .1% 7.9% 6% 62% 12% 9% 0% 50 Flagstar Bank MI 8.4 96% 1,263 377 82% 2.2% .2% 11.4% 76% 10% 3% 8% 1%

* Shows data for individual banks and national associations rather than bank holding companies. Data as of June 30, 2010 for banks with $1+ bn in deposits. ** Troubled assets are calculated as the sum of loans 90+ days past due, non-accrual loans and other real estate owned (OREO) divided by the sum of Tier 1 capital and loan loss reserves. *** Selected loan types only. C&D = construction and development loans; C&I = commercial and industrial loans (non-real estate). Sources: FDIC, Manual of Ideas analysis.




100 CHEAPEST BANK HOLDING COMPANIES (all market caps), by Market Value to Total Assets

The following table presents companies trading at exceedingly low ratios of market value to total assets. These are generally distressed institutions, and many will have to raise additional capital, likely leading to significant equity dilution. Nonetheless, the list represents a potential way of identifying companies with asymmetric risk-reward profiles.

Stock ∆ Market Total MV/ Tang. TBV/ Assets/ MV/ Price Since Value Assets Total Book TBV/ Tang. Empl. Empl. Insider Ticker Company State ($) 12/29/06 ($mn) ($mn) Assets ($mn) MV Assets ($mn) ($'000) Own. FBP First Bancorp PR .32 -97% 30 18,116 .2% 464 1563% 2.6% 7 11 16% AIB Allied Irish Banks IRE 1.19 -98% 761 235,730 .3% 11,905 1564% 5.1% 10 33 1% FNBN FNB United NC .58 -97% 7 2,023 .3% 19 292% 1.0% 5 15 7% SUPR Superior Bancorp AL .90 -98% 11 3,358 .3% 135 1191% 4.0% 4 14 15% TIBB TIB Financial FL .42 -97% 6 1,691 .4% 10 159% .6% 4 16 12% BFCF BFC Financial FL .35 -95% 26 6,150 .4% 119 452% 2.0% 1 5 35% UWBK United Western CO .38 -98% 11 2,221 .5% 111 999% 5.0% 10 50 6% CBC Capitol Bancorp MI 1.15 -98% 25 4,749 .5% 17 69% .4% 4 19 12% BNCC BNCCORP ND 1.70 -87% 6 903 .6% 37 664% 4.1% 3 18 14% TRUE Centrue Financial MO 1.40 -93% 9 1,227 .7% 46 536% 3.8% 4 28 28% PABK PAB Bankshares GA .63 -97% 9 1,111 .8% 26 294% 2.3% 4 32 36% CACB Cascade Bancorp OR .54 -98% 15 1,919 .8% 6 42% .3% 4 32 15% IBCA Intervest Banc NY 1.95 -94% 18 2,164 .8% 164 923% 7.6% 30 247 33% CRZBY Commerzbank GER 8.99 -77% 10,620 1,225,614 .9% 32,691 308% 2.7% 20 174 47% CARV Carver Bancorp NY 3.11 -80% 8 804 1.0% 40 522% 5.0% 6 55 4% TDBK Tidelands Banc SC 1.37 -91% 6 585 1.0% 17 286% 2.9% 7 71 34% FMAR First Mariner Banc MD .81 -96% 15 1,342 1.1% 43 296% 3.2% 2 21 23% BYFC Broadway Financial CA 3.43 -67% 6 552 1.1% 20 330% 3.6% 7 76 31% FETM Fentura Financial MI 2.25 -93% 5 455 1.1% 18 351% 3.9% 4 49 24% NSFC Northern States Fin. IL 1.57 -92% 6 556 1.2% 24 372% 4.3% 4 47 44% BBX BankAtlantic FL .88 -99% 54 4,656 1.2% 64 119% 1.4% 3 38 55% VBFC Village B & T VA 1.65 -88% 7 607 1.2% 49 693% 8.0% 3 36 20% PNBK Patriot Nation. Banc CT 2.00 -92% 10 817 1.2% 32 333% 3.9% 6 65 50% GRAN Bank of Granite NC .76 -96% 12 988 1.2% 35 295% 3.5% 5 59 7% OSBC Old Second Banc IL 2.10 -93% 29 2,463 1.2% 86 293% 3.5% 4 51 15% CBKN Capital Bank NC 1.56 -91% 20 1,694 1.2% 83 413% 4.9% 4 53 23% WBNK Waccamaw Bank NC 1.30 -91% 7 574 1.3% 18 253% 3.2% 4 56 12% DEAR Dearborn Bancorp MI 1.63 -91% 13 933 1.3% 30 240% 3.2% 5 64 16% GRBS Greer Bancshares SC 2.50 -90% 6 458 1.4% 17 277% 3.8% 6 78 18% FFBH First Federal Banc AR 1.92 -92% 9 678 1.4% 28 303% 4.2% 3 39 27% IMCB Intermountain Banc ID 1.75 -92% 15 1,066 1.4% 46 313% 4.4% 3 40 30% CBCO Coastal Banking SC 2.40 -89% 6 436 1.4% 27 431% 6.1% 4 60 15% PNBC Princeton Nat. Banc IL 4.90 -85% 16 1,131 1.4% 50 307% 4.4% 4 57 6% FSGI First Security TN 1.18 -90% 19 1,334 1.5% 104 536% 7.8% 4 58 10% CECB Cecil Bancorp MD 2.00 -79% 7 505 1.5% 27 361% 5.3% 6 81 50% MBR Mercantile Bancorp IL 1.70 -89% 15 1,009 1.5% 36 244% 3.6% 3 49 55% FUNC First United Corp. MD 4.45 -80% 27 1,776 1.5% 55 202% 3.1% 5 73 3% CWBS Commonwealth Bank VA 2.75 -89% 19 1,222 1.5% 77 405% 6.3% 6 96 19% CADE Cadence Financial MS 2.45 -89% 29 1,886 1.5% 76 260% 4.0% 4 68 11% HMNF HMN Financial MN 3.51 -90% 15 975 1.5% 65 427% 6.6% 5 71 24% SCMF Southern Community NC 1.61 -84% 27 1,660 1.6% 76 279% 4.6% 5 89 8% HCFB HCSB Financial SC 3.49 -80% 13 796 1.7% 27 205% 3.4% 5 84 13% FFKT Farmers Capital KY 4.76 -86% 35 2,093 1.7% 120 342% 5.8% 4 64 7% CAFI Camco Financial OH 2.00 -84% 14 844 1.7% 57 398% 6.8% 4 64 4% RBS Royal Bank Scotland SC 14.80 n/a 42,897 2,522,044 1.7% 99,348 232% 4.0% 16 273 69% FCVA First Capital Banc VA 3.12 -83% 9 546 1.7% 44 471% 8.0% 7 119 20% BTC Community Bankers VA .96 -87% 21 1,204 1.7% 76 367% 6.4% 4 71 4% TNCC TN Commerce Banc TN 4.25 -86% 24 1,390 1.7% 86 358% 6.2% 14 247 11% DRL Doral Financial PR 1.55 -97% 167 9,397 1.8% 309 185% 3.3% 8 145 2% IRE Bank of Ireland IRE 3.41 -96% 4,518 246,883 1.8% 9,871 218% 4.0% 17 312 0%




Stock ∆ Market Total MV/ Tang. TBV/ Assets/ MV/ Price Since Value Assets Total Book TBV/ Tang. Empl. Empl. Insider Ticker Company State ($) 12/29/06 ($mn) ($mn) Assets ($mn) MV Assets ($mn) ($'000) Own. YAVY Yadkin Valley Fin. NC 2.58 -87% 42 2,240 1.9% 96 229% 4.3% 5 97 5% GFED Guaranty Federal MO 5.18 -82% 14 732 1.9% 37 272% 5.1% 5 98 19% ACFC Atlantic Coast Fed GA 1.27 -93% 17 901 1.9% 53 313% 5.9% 6 111 69% SMMF Summit Financial WV 3.89 -80% 29 1,520 1.9% 76 264% 5.0% 7 125 23% FPFC First Place Fin. OH 3.55 -85% 60 3,153 1.9% 174 288% 5.5% 4 72 10% EVBS Eastern VA Bank VA 3.55 -84% 21 1,100 1.9% 60 283% 5.5% 3 67 5% FFKY First Financial KY 5.05 -82% 24 1,239 1.9% 66 274% 5.3% 4 76 15% UCFC United Community OH 1.47 -88% 45 2,314 2.0% 212 467% 9.2% 4 80 13% PVSA Parkvale Financial PA 6.65 -79% 37 1,842 2.0% 59 159% 3.2% 5 99 27% VYFC Valley Financial VA 3.30 -75% 15 762 2.0% 39 253% 5.1% 6 118 46% FMFC First M & F MS 3.50 -82% 32 1,568 2.0% 74 231% 4.7% 3 64 22% PFBC Preferred Bank CA 1.68 -96% 27 1,323 2.0% 114 423% 8.6% 11 213 20% MBWM Mercantile Bank MI 4.28 -88% 37 1,804 2.0% 119 323% 6.6% 7 148 13% RBNF Rurban Financial OH 2.75 -74% 13 649 2.1% 27 199% 4.3% 2 50 16% MCBC Macatawa Bank MI 1.93 -90% 34 1,650 2.1% 33 97% 2.0% 4 87 7% UBMI United Bancorp MI 3.50 -84% 18 849 2.1% 56 316% 6.6% 4 82 17% PBCE Peoples Bancorp SC SC 1.61 -85% 11 538 2.1% 41 364% 7.6% 5 98 29% CSBQ Cornerstone Banc TN 1.70 -89% 11 523 2.1% 27 241% 5.1% 5 106 17% FBIZ First Business Fin. WI 9.00 -61% 23 1,074 2.1% 54 238% 5.1% 9 188 28% BCS Barclays EN 18.22 -69% 54,879 2,524,448 2.2% 64,842 118% 2.6% 17 374 12% BRBI Blue River Banc IN 1.50 -75% 5 237 2.2% 14 271% 6.0% 4 93 28% RBPAA Royal Banc PA PA 2.04 -92% 26 1,184 2.2% 72 272% 6.1% 8 169 45% MBTF MBT Financial MI 1.75 -89% 28 1,264 2.2% 86 304% 6.8% 4 80 8% FSRL First Reliance SC 3.25 -79% 13 593 2.3% 33 243% 5.5% 4 92 21% BKOR Oak Ridge Financial NC 4.37 -66% 8 343 2.3% 21 273% 6.2% 4 96 32% BCAR Bank of Carolinas NC 3.22 -78% 13 540 2.3% 32 258% 6.0% 4 104 21% MCBI MetroCorp Banc TX 3.08 -85% 38 1,624 2.3% 94 248% 5.8% 5 128 33% QCRH QCR Holdings IL 9.30 -47% 43 1,836 2.3% 129 301% 7.0% 5 123 12% DCBF DCB Financial OH 4.06 -86% 15 644 2.3% 48 315% 7.4% 4 86 4% CZBS Citizens Bancshares GA 4.39 -62% 9 394 2.4% 32 340% 8.1% 3 69 38% PFED Park Bancorp IL 4.26 -87% 5 214 2.4% 22 425% 10.1% 4 85 41% FBMI Firstbank Corp. MI 4.61 -78% 36 1,477 2.4% 78 216% 5.4% 3 77 4% FSBI Fidelity Bancorp PA 5.66 -70% 17 708 2.4% 39 224% 5.5% 5 132 21% ABVA Alliance Bankshares VA 2.97 -81% 15 620 2.5% 36 235% 5.8% 8 188 24% KSBI KS Bancorp NC 6.50 -75% 9 344 2.5% 19 228% 5.6% 5 118 25% SMTB Smithtown Bancorp NY 3.83 -84% 57 2,307 2.5% 91 159% 4.0% 8 191 5% FCFL First Community Bank FL 2.40 -87% 13 516 2.5% 20 150% 3.8% 5 136 53% CRFN Crescent Financial NC 2.60 -78% 25 986 2.5% 63 251% 6.4% 7 166 18% SFST Southern First Banc SC 6.02 -72% 19 741 2.5% 45 237% 6.0% 7 180 25% BTFG BancTrust Financial AL 2.99 -88% 53 2,058 2.6% 113 215% 5.5% 4 95 9% PLBC Plumas Bancorp CA 2.79 -81% 13 506 2.6% 27 199% 5.2% 3 74 22% MCFI MidCarolina Fin. NC 3.00 -81% 15 561 2.6% 36 244% 6.4% 7 180 19% PEBK Peoples Bancorp NC NC 5.25 -72% 29 1,088 2.7% 77 264% 7.1% 4 109 22% CWBC Community West Banc CA 3.05 -81% 18 672 2.7% 45 251% 6.7% 6 148 46% BOVA Bank of Virginia VA 1.95 -74% 6 217 2.7% 17 285% 7.7% 4 116 15% MTU Mitsubishi UFJ TK 4.63 -63% 65,412 2,402,406 2.7% 83,175 127% 3.5% 30 828 5% SCGLY Societe Generale FRA 11.56 -66% 42,895 1,568,961 2.7% 52,578 123% 3.4% 10 274 7% PMBC Pacific Mercantile CA 3.02 -81% 32 1,149 2.7% 56 177% 4.8% 6 152 8% FCZA First Citizens Banc OH 4.00 -80% 31 1,119 2.8% 49 160% 4.5% 4 109 8% CFFC Community Financial VA 3.52 -70% 15 552 2.8% 37 242% 6.7% 4 99 33%

Sources: Company filings and other data, Manual of Ideas analysis.




We take a quick look at selected companies in the previous table in order to identify ideas that warrant further inquiry:

Stock ∆ Market Total MV/ Tang. TBV/ Assets/ MV/ Price Since Value Assets Total Book TBV/ Tang. Empl. Empl. Insider Ticker Company State ($) 12/29/06 ($mn) ($mn) Assets ($mn) MV Assets ($mn) ($'000) Own. FBP First Bancorp PR .32 -97% 30 18,116 .2% 464 1563% 2.6% 7 11 16%

firstbankpr.com FBP’s FirstBank subsidiary is Puerto Rico’s second-largest bank behind Banco Popular (BPOP). FBP’s loan portfolio is concentrated primarily in Puerto Rico, with a small portion in Florida. The above MV-to-asset ratio of 0.2% must be adjusted for the exchange of preferred for common stock, completed in late August. $487 million, or 89%, of the relevant preferred stock was tendered into the exchange offer, resulting in the issuance of 227 million common shares. Positively, the company essentially issued stock at $2.15 per share, or multiples of the recent stock price, resulting in a large one-time gain for common shareholders. The completed exchange offer increases FBP’s tangible common equity and Tier 1 common ratios to 5.21% and 6.62%, respectively, from 2.57% and 2.86%, respectively, and shares outstanding from 93 million to 320 million, implying a “true” current market value of roughly $100 million. The MV-to-assets ratio rises accordingly from 0.2% to 0.5%. This is still exceedingly low, so the question becomes how much more common equity issuance the bank will be forced to undertake. Here, the news is sobering, but let’s look at the math: The U.S. Treasury continues to hold $400 million of FBP preferred stock from a TARP investment. FBP can compel conversion of the preferred into common if it separately raises $500 million in new common stock. As management is both pursuing a $500 million equity raise and the $400 million conversion, let’s assume that FBP must issue $900 million of stock at $0.30 per share. This would bring the total share count to roughly 3.3 billion, resulting in a pro forma market value of $1 billion. Consequently, the MV-to-assets ratio would increase from 0.5% to 5.5%. Considering the risks involved in the pending equity issuance and FBP’s balance sheet, an MV-to-assets ratio of 5.5% is insufficient to make this an attractive opportunity, in our view.

FNBN FNB United NC .58 -97% 7 2,023 .3% 19 292% 1.0% 5 15 7%

MyYesBank.com FNB signed a regulatory consent order in July, agreeing to raise new capital. According to CEO Larry Campbell, the bank is “actively engaged with financial advisors to assist us in developing a capital raising plan over the coming months to stabilize our financial position.” As the bank only meets “adequately capitalized” thresholds even after receiving $51 million in TARP money, we believe common equity dilution could be very substantial going forward. As a result, we pass on FNBN.

SUPR Superior Bancorp AL .90 -98% 11 3,358 .3% 135 1191% 4.0% 4 14 15%

superiorbank.com Superior Bancorp has a troubled asset ratio (troubled assets divided by the sum of Tier 1 capital and loan loss reserves) of 125%. This puts the bank at risk of shutdown by the FDIC while requiring management to scramble to raise equity capital. Shareholders have approved an increase in authorized common shares to 200 million, compared to fewer than 13 million shares outstanding. Assuming an increase in shares outstanding to 200 million and no change in the stock price, Superior would have a market value of $180 million, implying an MV-to-asset ratio of 5.3%. We view this as too high given the risks.

TRUE Centrue Financial MO 1.40 -93% 9 1,227 .7% 46 536% 3.8% 4 28 28%

centrue.com St. Louis, Missouri-based Centrue Bank has been providing banking services for 135 years. Capital ratios at the bank and the holding company continue to exceed regulatory “well capitalized” threshold, at least on paper. The company sold a branch during Q2, resulting in a small gain. Management has also “implemented an aggressive cost reduction program that includes streamlining operational functions, reducing marketing and other discretionary expenses, freezing officer salaries, eliminating annual bonuses for 2010 and reducing Board of Director fees.” These action suggest that insiders, who own 26% of the company, are at least attempting to help the bank survive the crisis. Centrue had a troubled asset ratio of roughly 75% as of June 30th, up slightly from March 31st. While this ratio is high, it does not put Centrue at imminent risk of closure and indeed may allow management to continue optimizing capital without a large near-term equity raise. We find Centrue worthy of a closer look.

IBCA Intervest Banc NY 1.95 -94% 18 2,164 .8% 164 923% 7.6% 30 247 33%

intervestnatbank.com New York City-based commercial real estate lender Intervest completed a sale of 10.6 million common shares for $1.95 per share on October 14th. The offering included some participation by company insiders. Following the equity raise, Intervest has roughly 20 million shares outstanding, implying a market value of roughly $40 million. Market value to total assets is therefore 1.8% — quite attractive assuming the company can escape further equity dilution. Intervest’s troubled asset ratio actually decreased in Q2, from 56% as of March 31st to 31% as of June 30th. As a result, we find the shares worthy of some consideration.

FMAR First Mariner Banc MD .81 -96% 15 1,342 1.1% 43 296% 3.2% 2 21 23%

1stmarinerbank.com Baltimore-based First Mariner raised $11 million at $1.15 per share in Q2. The company previously extinguished $20 million of trust preferred debt by issuing $2 million of stock at $1.23 per share to chairman and CEO Edwin Hale, Sr., who had purchased the debt for $2 million in cash. We believe Hale’s actions show he is committed to continuing to strengthen the capital base of First Mariner in a way that should not unnecessarily dilute shareholders. While First Mariner continues to have a troubled asset ratio in the 80s, we are intrigued by Hale’s success in keeping the bank off the brink of failure.

OSBC Old Second Banc IL 2.10 -93% 29 2,463 1.2% 86 293% 3.5% 4 51 15%

oldsecond.com Aurora, Illinois-based Old Second had a troubled asset ratio of 103% as of June 30th, up from 78% as of March 31st. This seems to necessitate an equity raise, although capital ratios remain above “well capitalized” thresholds. Old Second is not regarded as “well capitalized” because it is subject to a regulatory order to increase the Tier 1 leverage capital ratio to 8.75% and the total risk-based capital ratio to 11.25% (the bank’s Tier 1 leverage capital ratio was 7.76% and the total risk-based capital ratio was 10.73% as of June 30th). CEO Skoglund is attempting to avoid major equity dilution, but it is unclear whether he will be successful. According to Skoglund, “Like many financial institutions, we would like to be in a position to augment our capital position and we continue to pursue every avenue to do so. However, we remain confident that Old Second National Bank has sufficient capital and projected strong core earnings that are more than sufficient to support our operations and to weather the current challenging economic climate. We’ve been operating for nearly 140 years and have navigated many previous economic downturns and we intend to do so again now.” It will be interesting to review Old Second’s Q3 results (to be released after our print deadline).

Sources: Company filings and other data, Manual of Ideas analysis.




U.S. Real Estate Pricing Trends – Residential In this section, we briefly survey real estate prices in order to assist us in formulating a thesis on the likelihood and magnitude of additional write-downs U.S. banks may have to take on their real estate-related loan portfolios. As the latter comprise a majority of the total assets of U.S. banks, developing an understanding of real estate price trends should be a worthwhile exercise.

Stabilization of real estate prices would suggest that loan loss provisions and charge-offs may moderate, while continuing price declines may suggest a need for further write-downs, potentially necessitating additional capital raises by U.S. financial institutions. The latter, of course, have been particularly destructive to shareholder value at publicly traded banks, as many banks have been forced to raise equity capital at severely depressed valuations.

U.S. housing prices fell 32% from the peak in the second quarter of 2006 to the trough in the first quarter of 2009. Housing prices have stopped their four-year descent and appear to be stabilizing around the 2009 trough. According to the S&P/Case-Shiller U.S. National Home Price Index6

, housing prices in the second quarter of 2010 increased 7% from the 2009 trough and are up 4% sequentially from the first quarter of 2010. Following the steep drop over the last four years, recent housing prices approximate the price level in 2003.

S&P/Case-Shiller National Home Price Index, 1987-2010

Source: Standard & Poor’s. Prior to April 2006, the S&P Case-Shiller Home Price Index was known as the Case-Shiller Home Price Index. An index is an unmanaged statistical composite.

While average U.S. housing prices have declined by roughly a third from peak to trough, a more detailed look reveals big differences in performance by city. “Best performers” such as Dallas and Denver had peak-to-trough price declines of 11% and 14%, respectively, and have recently seen prices rebound by nearly 10% relative to the troughs reached in February 2009. On the other hand, worst performers such as Las Vegas and Phoenix had peak-to-trough price declines of around 55%. In fact, Las Vegas was the only major city that recorded a new trough in June 2010, with prices down 1% from June 2009.

6 The S&P/Case-Shiller U.S. National Home Price Index tracks the value of single-family housing within the United States. The index is a composite of single-family home price indices for the nine U.S. Census divisions and is calculated quarterly. It captures approximately 75% of U.S. residential housing stock by value. For further information visit http://bit.ly/6Ivqgq

50

75

100

125

150

175

200

1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009


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Figure 2 shows peak-to-trough declines for 20 major metropolitan areas and their price performance through June 2010. These 20 major metro areas are aggregated to form the S&P/Case-Shiller Composite-20 housing price index7

.

City by City Peaks, Troughs and Recent Data *

* Data available as of August 31, 2010. Source: Standard & Poor’s. Prior to April 2006, the S&P Case-Shiller Home Price Index was known as the Case-Shiller Home Price Index. An index is an unmanaged statistical composite.

Recent Performance

The S&P/Case-Shiller Composite-20 index was up 1% y-y in July, confirming that the price rebound from the second quarter continued into the third quarter.

As the figure on the following page shows, performance diverged again by market. Twelve cities experienced price increases, seven had price declines, while prices in one market remained unchanged. The positive recent price performance appears supported by the home buyer tax credit, which covered purchases closing through September 30, 2010.

It remains unclear how housing prices will develop following expiry of the tax credit and in the absence of new government support programs. According to David Blitzer, Chairman of the Index Committee at Standard & Poor’s, “While we could still see some residual support from the homebuyers’ tax credit… anyone looking for home prices to return to the lofty 2005-2006 might be disappointed. Judging from the recent behavior of the housing market, stable prices seem more likely.”

7 The S&P/Case-Shiller Composite-20 index measures the average change in home prices in 20 major metropolitan areas and is calculated monthly.




July Housing Price Level by Metropolitan Area *

* Data through July 2010. Source: Standard & Poor’s and Fiserv.

Outlook

As the figure below shows, housing prices are slightly below the “pre-bubble” trend line of the S&P/Case-Shiller U.S. National Home Price Index. The trend line is based on an extrapolation of index values from 1987 through 1999, with the latter year marking the start of the most recent housing boom. If one excludes the aberration of housing prices since 1999, recent prices are approximately in-line with the historical pricing trend since the late 1980s. While this does not mean prices will not decline further, it puts the recent boom and bust in residential real estate into historical perspective.

S&P/Case-Shiller Index and Survey of Professional Forecasters

Sources: Standard & Poor’s, Fiserv (historical data), MacroMarkets (mean future expectations data).




With regard to an outlook for U.S. housing prices, we note the existence of a home price futures market.8

Based on recent futures prices, the consensus is for prices to remain relatively stable at recent levels through 2014. While the futures market in housing is relatively new, it may be as good an indicator as any for the future direction of housing prices.

S&P/Case-Shiller Index and CME Futures

Sources: Standard & Poor’s.

It is usually instructive to compare housing prices to per-capita income as a measure of housing affordability. As the below figure shows, the median house price to median household income has averaged around 3.5x in the decade leading up to the start of the housing boom in 2000. While the ratio reached nearly 5.0x in 2005/06, it has declined closer to 4.0x recently. Assuming household incomes do not rise, house price declines are needed for the ratio to revert to the “pre-bubble” level of 3.5x. Again, the ratio differs widely by major metro area, reflecting local peculiarities. In New York, for example, the ratio reached a high of almost 10x in 2005/06 before declining to ~7x in 2010. As this remains modestly above the trend-line level of 6x, it may indicate further price declines ahead. On the other hand, the price-to-income ratio of under 5x for Arizona is at the lowest level since at least 1975. This may indicate that housing prices in Arizona are too low assuming incomes do not deteriorate further.

Median House Price to Median Household Income

Source: Harvard JCHS, http://calculatedrisk.blogspot.com

8 See http://bit.ly/cg1OMb


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House Price to Per-Capita Income, New York

Note: House price is calculated as the Case-Shiller state house price index multiplied by the 2000 Census mean value for owner-occupied housing units. Source: Standard & Poor’s.

House Price to Per-Capita Income, Arizona

Note: House price is calculated as the Case-Shiller state house price index multiplied by the 2000 Census mean value for owner-occupied housing units. Source: Standard & Poor’s.

Conclusion

The U.S. housing market has experienced a boom and bust since 2000, with prices recently returning roughly in-line with the historical trendline.

While price performance and housing affordability diverges widely by market, it appears quite clear that on both measures the major adjustment in prices has already occurred. On average, it is therefore reasonable to expect that prices remain at least stable around the 2009 trough levels. This is supported by recent house price performance as well as implied futures prices through 2014.

While a sustained rise in real estate prices likely requires an increase in average household income, a material house price decline from recent levels appears unwarranted if household incomes remain stable.




U.S. Real Estate Pricing Trends – Commercial According to the Moody’s Commercial Property Price Index (CPPI),9

U.S. commercial real estate prices fell 44% from the peak of October 2007 to the trough in October 2009. Prices have remained relatively stable since then, with July 2010 data showing prices 1% above the October 2009 trough. This puts recent prices roughly in-line with prices in 2002, the start of the commercial real estate boom. Prices nearly doubled from 2002 to 2007.

All Commercial Real Estate Properties Index – U.S. National

Sources: MIT Center for Real Estate, http://mit.edu/cre; Real Capital Analytics, www.rcanalytics.com

A look at the four major commercial real estate property types reveals diverging pricing trends. Whereas apartment and office property prices are on an upward trend, retail property prices appear not to have found a bottom yet. Meanwhile, industrial property prices are relatively stable around the recent bottom.

Apartment Properties Index – U.S. National


9 The Moody’s Commercial Property Price Index (CPPI) is a periodic same-property round-trip investment price change index of the U.S. commercial property market based on data from the MIT Center for Real Estate and industry partner Real Capital Analytics. For more, visit http://bit.ly/cBGLl


http://mit.edu/cre�

http://www.rcanalytics.com/�



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Industrial Properties Index – U.S. National


Office Properties Index – U.S. National


A Cautionary Note

While the above indices are helpful to put the boom and bust in commercial real estate prices in historical perspective, recent data may be misleading in assessing the state of the market and prospects for a recovery. This is because commercial real estate transaction volume declined nearly 90% from 2007 to 2009 and has remained low during 2010.

In addition, the CPPI index is based on repeat transactions, and therefore excludes many distressed properties that have not traded yet. As a result, it appears reasonable to assume recent pricing trends are more a reflection of the market for “healthy” properties and may be too optimistic as a proxy for the overall market including the most distressed properties.








Retail Properties Index – U.S. National


The figures below provide a further breakdown of commercial real estate pricing trends by geographic region and property type.

West Region, 2001-2010 (quarterly)

Apartments

Industrial

Office

Retail









East Region, 2001-2010 (quarterly)

Apartments

Industrial

Office

Retail


South Region, 2001-2010 (quarterly)

Apartments

Industrial

Office

Retail









Exclusive Interview with Scott Proper We present an interview with former community banker Scott Proper, who headed the Vail, Colorado operations of Millennium Bank, a Colorado state-based and chartered bank, for five years. In September, Scott left Millennium to start Proper Investments and Consulting, a firm specializing in debt restructuring services and distressed real estate workouts. We find Scott’s perspective on the problems plaguing U.S. community banks — and on how to analyze them — invaluable, as he was an active industry participant until very recently. Scott is a Yale graduate and former captain of the Yale Heavyweight Crew Team.

The Manual of Ideas: You experienced the boom and bust in U.S. community banking first-hand. Obviously, it appears banking executives and regulators learned little from the S&L crisis of the 1980s and ‘90s. Are we as a political and economic system doomed to keep repeating past excessive behavior, or is there a way to get things under control permanently?

Scott Proper: I think these economic cycles will continue. I do not have confidence that there is a way to get things under control permanently. I also do not have confidence that all of a sudden human beings will start paying more attention to the lessons of history than they generally do. Whether that means we are “doomed” or whether it simply means that we ought to anticipate more exaggerated economic peaks and troughs is a matter of perspective. I think that people are eager to forget about the exaggerated peaks and troughs, and get back to “business as usual.” In contrast, I now believe that these exaggerated peaks and troughs are business as usual.

MOI: Analyzing the quality of the loan assets on a bank’s balance sheet can be a daunting task, since investors typically don’t have access to data on individual loans. What do you focus on when trying to assess the quality of the loan portfolio of a publicly traded bank?

Proper: The most thorough tool for evaluating a U.S. bank’s financial circumstances is the Uniform Bank Performance Report (UBPR), available at www.ffiec.gov/ubpr.htm (a user’s guide is available at ffiec.gov/ubprguide.htm). To evaluate the quality of a bank’s loan portfolio, not only is the information in an individual UBPR important, but so are the trends from UBPRs over time. Sudden increases in the loan loss reserve may indicate that the increase was mandated by a regulator and was not a voluntary decision of management (management tends to try to gradually appropriate a proper loan loss reserve over time). Currently past due loans, which are identified by category in a UBPR, can signal loan losses to come. Furthermore, historically, certain loan categories present more risk and, therefore, likelihood of loss than others.

MOI: Which metrics of loan portfolio quality are particularly prone to management judgment, i.e., can be made to look better than they really are?

“Sudden increases in the loan loss reserve may

indicate that the increase was mandated by a regulator and was not a voluntary decision of management (management

tends to try to gradually appropriate a proper loan loss reserve over time).”


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http://www.ffiec.gov/ubprguide.htm�



Proper: GAAP permit substantial interpretation and manipulation of the loan loss reserve. It is theoretically supposed to be calculated based upon historical loan performance. However, the last two years have rendered historical loan performance information basically irrelevant for many banks.

When a loan is booked, a loss reserve expense must be taken on the income statement immediately. That loss reserve for the individual loan is then added to the bank’s cumulative loan loss reserve on its balance sheet. As an amortizing loan performs over time, the loan loss reserve expense can be recovered as the loan’s principal is paid down. For a revolving loan, the loan loss reserve taken can be recovered when the loan matures and is closed out (not renewed). Keep in mind that the loss reserve means that booking a new loan normally leads to a loss on the income statement that is offset over time by interest revenue.

The loan loss reserve that must be set aside on the financial statements is based upon how lenders have graded their loans, and what management perceives appropriate reserves to be for each grade. For example, a CD-secured loan won’t require any loan loss reserve at all. However, a used car loan may require a 3% reserve. Lenders have a conflict of interest in grading loans, because they are evaluated heavily based upon their loan origination skills. This is supposed to be offset by lenders’ superiors, but they are often incentivized the same way. That leaves the policing up to the compliance and audit departments. If those departments do not oversee loan grading and reserve amounts correctly, the last defense is regulators, who can mandate that a bank increase its reserves. I have never heard of a regulator requiring that a bank decrease its reserves.

When the loan loss reserve is being manipulated drastically from month to month or quarter to quarter or even year to year, it’s probably inaccurate. Substantial fluctuations in the loan loss reserve — in percent, not absolute dollars, because loan loss reserves fluctuate as aggregate outstanding loan balances change — mean that management really didn’t understand the risks of the loans the lenders were originating, which is why it needed to modify the loan loss reserve down the road. Several big increases can mean that loans are weakening but management is just hoping and hoping that something would get figured out. Finally, a sudden, very large increase in the loan loss reserve reflects management exhaustion for a deal that is basically uncollectible. I would interpret any of these things as a major red flag in my evaluation of overall bank health: if management did not understand the loan risks adequately earlier, it probably does not understand them now, either.

A number of banks have doubled or tripled their loan loss reserves over the past two years; this is ultimately totally arbitrary and most likely done to appease regulators. It makes getting an honest sense of the strength of a bank’s loan portfolio very challenging. I have seen banks with 15% equity that are ultimately worthless when one evaluates their loan portfolio and adjusts their loan loss reserve fairly. This is because overconfidence about the bank’s loan portfolio — or outright dishonesty, in some instances — had led management to avoid taking losses by avoiding setting aside appropriate loan loss reserves. In result, the balance sheet is more an interpretive dance than it is communicative of anything meaningful. In contrast, I have seen banks with 6% book equity that are run by very conservative bankers who arguably overstate their loan loss reserves because they are very critical in their loan grading as well as in their reserve percentages for loans by grade.

“The loan loss reserve that must be set aside on the

financial statements is based upon how lenders have

graded their loans, and what management perceives

appropriate reserves to be for each grade. […] I have never heard of a regulator

requiring that a bank decrease its reserves.”




MOI: How does information on the loan-to-value (LTV) of mortgage loans help investors gauge the solidity of a loan portfolio? Let’s assume a bank is sitting on loans that were made at the peak of the real estate bubble in Arizona, where prices in some areas have been cut in half. If the original LTV of the loans was 75%, would it be fair to assume that the bank would be looking at a 25% hit to bring the loans in line with market? Is there a rule of thumb on how much a bank must spend to market and sell a foreclosed property?

Proper: In your example, you are correct, except that the bank has to pay sales commissions and other transaction costs. It is also not in a strong position as seller; I think an appropriate estimate is that the bank will receive 85% to 90% of the property’s market value in actual cash proceeds. I am reluctant to put out this ballpark figure, though, because the appropriate loss to forecast depends most heavily on the location, location, location of the property. When the bank is the owner of record, the property is often not kept up well. There have been many instances where borrowers who have been foreclosed upon intentionally trash the property out of spite to pass a less valuable property on to the bank. A bank worth its salt is monitoring the values of its collateral actively. This includes ordering new appraisals when significant shifts in real estate values have occurred, and adjusting loan loss reserves accordingly. It’s appropriate, especially when you consider that a bank monitors the value of the collateral for a revolving line of credit secured by accounts receivable at least monthly. How could it be prudent to monitor the value of real estate as collateral only once at origination? When a bank forecloses on a property, it is then responsible for ongoing maintenance, property taxes, insurance, owners’ association dues, etc. These carrying costs can be substantial.

MOI: Explain for us the difference between loan loss provisions and charge-offs… At what point is a bank required to charge off a problem loan? Are banks resisting charge-offs simply because they want to keep their reserves looking strong in order to appease regulators, or are there other reasons?

Proper: A parallel can be drawn between a bank’s loan loss provision and a manufacturing company’s reserve for accounts receivable losses (bad debt). The bank sets aside a provision as individual loan performance as well as market conditions suggest. As previously mentioned, this provision is malleable and is constantly being interpreted by management. A charge-off occurs when management decides that the deal, or a portion of it, is a goner.

Suppose a bank has a $500,000 loan to a client and it had previously taken $150,000 in provision on the loan because the value of the collateral had deteriorated. At that point, the bank has a $500,000 loan asset on its balance, offset by the $150,000 provision. If management decides that there is no way that the $150,000 provision is recoverable and opts to take a $150,000 loss on the loan, the asset’s value on the balance sheet decreases to $350,000, and the $150,000 provision goes away. There is no loss on the income statement, because the $150,000 expense was already taken when the $150,000 provision was established to begin with. This illustrates the importance of the provision as a predicting tool.

If a bank realizes it must take a loss on a loan but has not set aside adequate provision, it will use up the provision and then some when it takes the loss.

“When the bank is the owner of record, the property is

often not kept up well. There have been many instances where borrowers who have

been foreclosed upon intentionally trash the

property out of spite to pass a less valuable property on to

the bank.”




Sometimes, a bank sets aside excessive provision. It can recover this provision, so it is not permanently punished for overestimating its provision. In the current economic climate, recoveries on the loan loss provision are basically nonexistent. The excess provision is retained by management so that further increases to provisions down the road are less likely.

MOI: It seems that some banks have adopted an “extend and pretend” strategy of restructuring loans, particularly commercial real estate loans, in order to keep them classified as performing. In July, the Wall Street Journal pointed to Winston-Salem, NC-based BB&T Corp.: “Its total of one type of restructured commercial loan hit $969 million in recent months, the bank reported in April. That was a huge jump from six months earlier, when the figure was just $68 million.” The Journal added that, “BB&T’s report showed a significant number of cases where it was extending loan maturities and allowing interest rates not widely available in the market for loans of similar risk.” Do you view these types of loan restructurings as an “extend and pretend” strategy, and how prevalent is this behavior?

Proper: To me, “pretend and extend” is the imprudent modification of an existing loan to avoid an increase in the loan loss reserve or to avoid a write-off of principal. I have seen all types of this behavior, whether it’s modifying a loan from amortizing to interest-only, drastically lowering a loan’s interest rate so the rate does not appropriately reflect risk, allowing the release of collateral so the borrower can generate cash proceeds to keep his head above water and cover another six months’ of payments, etc.

The most egregious case I observed was a bank that had a $900,000 nonperforming mortgage on a single family home worth about $750,000. The bank offered to have a third-party client set up an LLC to buy the property for $900,000. That $900,000 would be financed 100%, and the loan had no personal recourse. The client moved into the house and had to pay 2% interest monthly on the $900,000 loan. After five years, the client could sell the house. Any proceeds left after the $900,000 loan was paid off were the LLC’s to keep. Any shortfall in proceeds would be written off by the bank. This is a straw man transaction and is a prime example of surreptitiously structuring a deal to delay the inevitable. The counter-argument is that it buys the bank time. But that’s the thing in business: Time is always of the essence. It was shocking to me when I learned the bank had modified loans this way many times, and with regulatory approval!

Basically, if a loan is not performing and is in the proverbial emergency room, a “pretend and extend” renewal puts it on permanent life support. The hope is that there will be a miraculous medical invention that will get the patient off life support. This avoids write-offs of principal or appropriate loan downgrades and overstates the strength of a bank’s loan portfolio. Ultimately, the bank needs a reality check and needs to pull the proverbial plug on the loan that’s in the emergency room. “Pretend and extend” is what leads to zombie banks. Such banks have tons of basically nonperforming loans and assets, but thanks to a mixture of regulatory encouragement and liberal interpretation of GAAP, they continue to limp along. Banks that are hopping on the “pretend and extend” bandwagon, and regulators who are turning their heads the other way or even endorsing it, are all praying every night that inflation will rear its head soon.

“…’pretend and extend’ is the imprudent modification of an existing loan to avoid an

increase in the loan loss reserve or to avoid a write-off of principal. I have seen all types of this behavior,

whether it’s modifying a loan from amortizing to interest-only, drastically lowering a loan’s interest rate so the

rate does not appropriately reflect risk, allowing the

release of collateral so the borrower can generate cash proceeds to keep his head

above water and cover another six months’ of

payments, etc.”




MOI: It’s clear that inflation would be a boon for banks’ loan portfolios in terms of helping to stabilize and ultimately increase the market prices of the real estate collateralizing the loans. However, if inflation does take off in earnest, long-term interest rates would likely rise substantially as well. This could be great for home owners who owe money on 30-year fixed mortgages, but those holding such mortgages as assets could see the mark-to-market value of the assets impaired substantially. Help us understand who would take the hit in the case of much higher long-term interest rates — would it be the banks themselves, Fannie and Freddie, or someone else?

Proper: Since late 2008, the primary purchaser of long-term fixed-rate residential mortgages has been the Federal Reserve. It has been accepting a yield 1% to 2.5% less than the next highest bidder at pooled debenture auctions. The Fed has not yet been able to extricate itself from this predicament, in a manner somewhat similar to the corner China has backed itself into with its purchases of U.S. government debt. If the market value of these pooled mortgage bonds gets blown out of the water by increasing long-term interest rates, the Fed would have to deal with the mark-to-market problem. However, because these bonds are presently illiquid, there’s no real way of valuing them currently and, unlike any other entity on the planet, the Fed can always just print more dollars to cover its losses. The same asset value write downs would apply for Fannie and Freddie and any holder of such mortgage-backed bonds.

MOI: The behavior of regulators seems to be one of the biggest wild cards in the banking industry today. Not only does Washington seem to have an incentive to keep “zombie” banks alive in order to avoid further foreclosures, layoffs, etc., but institutions like the FDIC may not be physically able to deal with all the problem institutions out there. The FDIC’s employee count has gone from 4,476 at the end of 2006 to 7,393 as of June 30th of this year, while the number of problem institutions has gone from 50 to 829 in the same period. This implies a ratio of fewer than nine FDIC employees per problem bank, the lowest level since data has been available (1990). What is your view of the approach regulators have taken and are likely to take in the future?

Proper: Regulators have been absolutely overwhelmed by the problems in the banking industry. The implosion has reflected very poorly on regulators. To me personally, this cannot be overstated and has left me with a permanent sense that very few, if any, regulators and bankers have a comprehensive understanding of what they are doing. They are just along for the ride, tossed about by the waves of market forces, with inadequate tools to redirect the waves.

If regulators insisted tomorrow to put an end to the extend-and-pretend, ostrich-head-in-the-sand approach, and seized all the banks that ought to be seized, the losses would be so substantial that the FDIC would deplete its reserves and be insolvent. If the FDIC were insolvent, perhaps the U.S. government would come to the rescue to provide emergency reserves, but who can say? The mere exercise would have substantial and destabilizing economic and political repercussions. This is why regulators have enabled banks that ought to fail to stay alive: the problems are so prevalent and significant that regulators have been forced to rewrite the rules and their own economic standards in order to prevent a collapse of the FDIC.

“If regulators insisted tomorrow to put an end to the extend-and-pretend, ostrich-head-in-the-sand approach, and seized all the banks that ought to be seized, the losses would be so substantial that the FDIC would deplete its reserves and be insolvent.”




MOI: For the reasons you mention, there seems to be little doubt the FDIC would ever be allowed to fail. The government and the Fed have made it clear – with actions, not just with words – that they will keep supporting the economy and large failing institutions virtually without regard for the cost. Investors like David Tepper of Appaloosa have made no secret of the fact that their investments have depended on and benefited from the “Bernanke put” etc. Yet, many small publicly traded community banks now sell at valuations that imply a high likelihood of failure. Does this create asymmetric risk-rewards in some situations, and if so, how would you go about identifying the most attractive opportunities?

Proper: What you outline is critical. The current capitulation within the banking industry is the kind that yields profoundly attractive mispriced assets. A basic approach is to screen banks based upon their market capitalization relative to their tangible equity — first, goodwill on a bank’s balance sheet is utterly worthless and second, there are banks with market caps of only 5% of book equity.

Some very rudimentary review of the bank’s UBPR to evaluate its loan loss provision and the adequacy of the provision relative to its peers (all of this is communicated within a UBPR), along with a review of what types of loans make up a bank’s loan portfolio can give the investor a good sense of whether a bank’s stock is worth buying. It’s always important to read the bank’s annual report and to review news headlines related to the company. These days, the CEO and CFO will take a call from any investor, and I consider it worthwhile talking to them, even if just to discuss the economy in general, to see what they say and how they say it. Some bankers are so paranoid about potential shareholder lawsuits that they’ll speak very openly about their bank and its problems.

I think that significant concentration within a particular community bank is risky, but that a significant concentration within a basket of community banks is attractive. I am surprised we have not yet seen a community bank ETF for banks with tangible equity of less than $1 billion. They are the most significantly mispriced class of banks, in my view. I personally invested a fixed dollar amount equally in about 250 community banks. I think that worst case, 20% of them will fail, but that these worst-case losses will be more than offset by appreciation in the others. As always, only time can tell. Most of these community banks are currently trading at ten-year, if not historic, lows.

MOI: Scott, thank you very much.

“I am surprised we have not yet seen a community bank ETF for banks with tangible equity of less than $1 billion.

They are the most significantly mispriced class

of banks, in my view. I personally invested a fixed dollar amount equally in

about 250 community banks. I think that worst case, 20%

of them will fail, but that these worst-case losses will

be more than offset by appreciation in the others.”




In Their Own Words: Bank CEOs on Business Conditions JPMorgan Chase – Chairman and CEO Jamie Dimon From 3Q10 earnings release and conference call (October 13, 2010):

• “Our mortgage delinquency trends remained relatively flat compared with the prior quarter, and we expect mortgage credit losses to remain at these high levels for the next several quarters. If economic conditions worsen, mortgage credit losses could trend higher.”

• “With respect to our credit card portfolio, delinquencies and net charge-offs continued to improve, and we reduced loan loss reserves by $1.5 billion this quarter as estimated losses declined. We expect credit card net charge-offs to continue to improve next quarter.”

• “On track to hire over 10,000 people in the U.S. this year.”

• “I think it’s reasonably hopeful that sometime in the first quarter [of 2011] we can reinstall a dividend or something like that. I think it makes sense to do. I think some banks will start retaining far too much excess capital at one point next year.”

• “We’re completely comfortable with capital. I think we showed you a number that in 2013, when Basel III starts to roll in, we will have, even under adverse circumstances [11% tier 1 common] – a huge number.”

• “I think at one point going forward, when everything clarifies around Basel, we could be an aggressive buyer of our own stock if we think the price is cheap. We’re not going to do it at any price. We’re not like everybody else. At a low price we’d do it, at the high price we don’t.”

• Question: “Do you have any sense of timing of when the U.S. regulators will be deciding on the additional buffer to be required of systemically important institutions?” Dimon: “Not specifically. They’re waiting for this thing in Korea on November 20, and then at one point we hope to get some guidance.”

Citigroup – CEO Vikram Pandit From 3Q10 earnings release and conference call (October 18, 2010):

• “Provisions for credit losses and for benefits and claims declined $746 million sequentially to $5.9 billion, the lowest level since the second quarter of 2007, reflecting continued improvement in credit quality.”

• “Citi remained one of the best capitalized banks with $125.4 billion of Tier 1 Capital and a Tier 1 Common ratio of 10.3% at the end of the third quarter 2010.”

• Question: “It does look like you are sitting on a lot of capital. You indicated at the beginning of the call that 2011 is going to be a year of calibration, return to shareholders starts in 2012. Is that a function of what you’ve kind of talked about with regulators and the feedback you’re getting from them, or is it a function of kind of the numbers that you are running and what you are comfortable holding?” Pandit: “We think 8% to 9% Tier 1 common is about the right number. It reflects base of Basel, as we understand it... that’s sort of the number that we think is prudent given our business model, which is much more of a services and a customer-friendly model for a bank… But there is also – it’s also very clear that as these Basel rules and calibrations and guidelines become clear, I think it would not be unusual to expect




guidance from the regulators for the industry in terms of how they are thinking about dividend policy and return to our shareholders. I think that to us is going to be the key driving guideline in terms of timing of return. But as I said, 2011 is going to be a year where a lot of this stuff is going to be determined. And so really 2012 is the year where we think we would be in position to return capital, of course, given any guidance we get from the regulators.”

• Question: “Currently [Citigroup’s] Tier 1 common is 10.3%. Any sense what that 10.3% figure would be today under Basel III, as we know it?” Pandit: “The 10.3% is a right number today, and that measure is no longer the right measure steadily over time. But we’re also saying the right measure for us is Tier 1 common as defined by the Basel II and III, 2.5, all of that stuff coming together and that’s 8% to 9%.”

Bank of America – CEO Brian Moynihan From 3Q10 earnings release and conference call (October 19, 2010):

• “BAC does not expect to issue common stock to meet new standards of Basel III.”

• “Tier 1 common equity ratio estimated to remain above 8% through all periods assuming the following effective dates: Basel II and Market Risk 100% effective 12/31/11, Basel III 100% effective 12/31/12 (assumes no Basel III phase-in effect when in fact there is one).”

• “Deposits continue to grow and loans moving closer to stabilization.” • On foreclosure issues:

o “Currently conducting a voluntary internal review of foreclosure process across all 50 states. For the 23 judicial states, we are amending and re-filing 102,000 foreclosure affidavits.”

o “Ongoing assessment supports conclusion that our past foreclosure decisions were accurate.”

o “Foreclosure sales are suspended until assessment is complete, but foreclosure process for delinquent borrowers continues. We anticipate that [fewer] than 30,000 foreclosure sales will be delayed as a result of our decision to suspend foreclosure sales.”

• BofA delinquency statistics for completed foreclosure sales in 3Q10: o “80% of borrowers had not made a mortgage payment for more

than one year.” o “33% of properties were vacant.” o “50% of borrowers were unemployed or had income reduced.”

• On mortgage repurchase requests: o “If you think about people who come back and say, I bought a

Chevy Vega, but I want it to be a Mercedes with a 12-cyclinder, we’re not putting up with that. We will be very ardent to protect the shareholders’ interest.”

o “…we will diligently fight this. It has worked to our benefit. We have thousands of people who will understand and look at everyone’s loans.”




Mitsubishi UFJ Financial – CEO Katsunori Nagayasu From September 2010 investor presentation:

• “Gross profits increased [in Q2] due to an increase in market product income such as net gains on debt securities, partially offset by a decrease in net interest income caused by a decline of interest-rates and a decrease in loan balance.”

• “Total credit costs decreased significantly due to a decrease in provision for credit losses reflecting the improvement of economic environment. Credit costs of the subsidiaries… also improved.”

• “Loans decreased from end of March 2010 due to lower demand of domestic and overseas corporate loans.”

• “Deposits decreased from end of March 2010 due to a decrease in corporate deposits of domestic and overseas branches, partially offset by an increase in individual deposits.”

Royal Bank of Scotland – CEO Stephen Hester From 2Q10 earnings release and conference call (August 6, 2010):

• “Recovery in NIM [net interest margin] continues, outlook remains positive for rest of 2010.”

• “Non-core asset reduction on plan, targeting more in H2.”

• “Customer franchises remain strong, with core businesses generally increasing or holding steady their customer numbers during [Q2]. …on course to meet UK mortgage and business lending targets.”

• Bruce Van Saun (CFO): “…of the impairments in Non-Core, about 75%-80% of the number in the quarter was associated with commercial property, so that’s really where we’re kind of taking the pain.”

• Question: “If I could get a better handle on the Non-Core run-off… you mentioned potentially proceeding ahead of plan for the full year.” Van Saun: “I think there’s sufficient interest in the market, and we have a good handle on the portfolios and ways to accelerate some of these positions, and so it boils down to a question as to what’s the liquidity discount you’d need to trade those assets today versus what you think that would be further down the road. And so far, at this point, we think there’s reasonable interest at reasonable liquidity discounts… we want to certainly lay the notion out there that there is a pretty good pipeline now. It does appear that risk appetite has improved post the CEBS stress test, and you know, we’ll see where we go from there.”

HSBC – CEO Michael Geoghegan From 1H10 conference call (August 2, 2010):

• Question: “…in relation to your attitude to loan growth, it’s very pleasing to see that you’ve been able to offset the drag from the U.S. business. I was wondering if you could comment on the impact of pricing…” Geoghegan: “Clearly we are seeing pricing strain in certain markets, particularly in Asia. […] We do look to market share in the UK here, where we have grown our mortgage new business by about 8% of all new mortgages. We do see a reasonable return on that.”




Thrift Conversions: Is Anyone Paying Attention? Thrift conversions are one of the more conservative, time-tested ways of earning attractive risk-adjusted returns in banking. According to famed value investor Seth Klarman of The Baupost Group, “…the opportunity to buy significantly overcapitalized, conservatively managed thrifts between 50% and 75% of book value and at reasonable earnings multiples offer a low-risk investment with significant return potential.”10

Main Types of Conversions Among Depository Institutions

Sources: James A. Wilcox, “Credit Union Conversions to Banks.”

In a first-step thrift conversion, an institution that has been technically owned by its depositors may become a stock corporation and raise capital in an IPO. In these offerings, new investors are essentially “buying” their own capital and getting the existing institution’s assets and business for “free.” Klarman illustrated the mechanics of a thrift conversion as follows:

“A thrift institution with a net worth of $10 million might issue one million shares of stock at $10 per share. …ignoring costs of the offering, the proceeds of $10 million are added to the institution’s preexisting net worth, resulting in pro forma shareholders’ equity of $20 million. Since the one million shares sold on the IPO are the only shares outstanding, pro forma net worth is $20 per share. The preexisting net worth of the institution joins the investors’ own funds, resulting immediately in a net worth per share greater than the investors’ own contribution.”11

Meanwhile, in a second-step thrift conversion, an institution that is partly owned by a mutual holding company (MHC) typically completes a transition to full public ownership by offering MHC-owned shares to investors.

Ideally, the vast majority of the stock of a publicly traded thrift is held by an MHC. While those shares are considered to be outstanding, the economics belong entirely to the non-MHC shareholders. The analogy would be treasury stock held by a corporation that had completed a share repurchase. The major difference is that treasury stock is not considered to be outstanding. This MHC-related peculiarity causes many investors to overlook thrift conversions, as the relevant institutions may not appear to be particularly cheap at first glance.

Thrift conversions had their zenith in the 1980s and ‘90s. Some savvy investors such as Klarman, who had actively participated in conversions, have since moved on to bigger opportunities as their funds have grown in size. In addition, bank-focused investment funds as a category were decimated in the recent financial crisis, making it plausible that thrift conversions may not be as

10 Seth Klarman, Baupost Group letter, December 1999. 11 Seth Klarman, Margin of Safety, p. 183-184.




closely followed as they had been in the past. Writes Klarman, “The arithmetic of a thrift conversion is surely compelling. Yet except for brief interludes when investing in thrifts was popular among individual investors, this area has been virtually ignored. Only a small number of professional investors persisted in identifying this source of value-investment opportunities and understanding the reasons for its existence over a number of years.”12

Thrift Conversions: Most Popular in Mid-1980s to Mid-‘90s

Sources: OTS, FDIC, James A. Wilcox, “Credit Union Conversions to Banks.”

As the following table shows, investments in thrift conversions continued to generate “alpha” long after their attractiveness had been recognized by value-oriented investors. While we have not come across reliable recent data on the stock performance of thrifts pursuing conversions, we have no reason to believe that the return profile has changed significantly from the one shown here:

Median First Day Stock Price Increases in Thrift Conversions *

* James Wilcox on standard, first and second steps: “First-and second-step conversions each have some conceptual similarities to and differences from standard conversions. Standard and second-step conversions are similar in that they both involve final steps away from mutuality. As such, they typically involve uncompensated transfers of claims from non-buying members to buying members and external investors. First-step conversions differ in that mutual members retain formal ownership of at least 51 percent of the stock subsidiary. Standard and first-step conversions are similar in that they both involve the IPO of shares that then put a market price on the value of residual claims (shares of stock) on their entities. Second-step conversions differ in that shares of stock in their entities (albeit with formally different legal rights) traded prior to the conversion.” Sources: James A. Wilcox, “Credit Union Conversions to Banks;” Luse and Gorman 2005: 13-14.

12 Seth Klarman, Margin of Safety, p. 127.




Regulators have known about the “windfall” that may be available in thrift conversions for some time, and have tried to address it in a way that makes it easier for depositors to capture a piece of the pie.

We came across the following interesting slide in an FDIC presentation:

Regulators’ Critique of Thrift Conversions

• Incentives are to keep offering prices relatively low! All parties benefit; (insiders /depositors /investors)

• Results may not necessarily be associated with accounting adjustments!

• Underwriters often low ball IPO price especially for small/unknown firms to assure successful subscription offering and capture rents during subsequent trading for insiders /investors

• Stock options to insiders: keep strike price low

• Fighting a “head wind” in the model

Sources: FDIC; Adams, Carow and Perry, “Earnings Management and Initial Public Offerings: The Case of the Depository Industry,” CFR Workshop.

Despite the regulators’ efforts to level the playing field, they have largely failed, in our view. Opportunities for outsized risk-adjusted returns in thrift conversions remain readily available.

OTS-regulated Mutual-to-Stock Conversion Applications; MHC Stock Issuance

Sources: Office of Thrift Supervision / 2009 Fact Book.




The table on the previous page reveals an interesting fact: While the number of thrift conversions has dropped sharply since the 1980s, the dollar amount of capital raised has remained relatively stable or has even increased. Recent mutual-to-stock conversions and MHC stock issuances have been materially larger in dollar volume per deal than in the 1980s. As a result, those willing to do the work still have an ability to deploy meaningful amounts of capital in thrift conversion opportunities.

Comparison of Credit Unions, Mutual Thrifts, Stock Thrifts, Commercial Banks

Sources: James A. Wilcox, “Credit Union Conversions to Banks.”




Cheapest Based on Adjusted Market Value to Tangible Assets The following table shows banks that have completed a first-step conversion and IPO but have yet to complete a second-step conversion, in which shares held by an MHC would be sold to the public. We adjust metrics such as market value by stripping out MHC shares, as the economics associated with those shares belong to the non-MHC current shareholders.

For example, the fourth-ranked bank in the table, Wauwatosa, Wisconsin-based Waterstone Financial (WSBF) has 74% of the common stock held by Lamplighter Financial, MHC. Those shares are not actually “outstanding” for economic purposes, as the economics associated with those shares belong entirely to the holders of the remaining 26% of WSBF shares. As a result, the bank’s “apparent” market value of $124 million compares to “true” market value of only $33 million. Given WSBF’s tangible assets of nearly $1.9 billion, we conclude that the bank’s market value equals only 2% of tangible assets.

Finally, we note that a few banks shown in the table have announced a second-step conversion that has not been completed. As the final terms of such conversions may be unavailable, we have made no adjustments to reflect the pending conversions. For example, first-ranked Atlantic Coast Federal Corporation (ACFC) has commenced a second-step offering in which current shares would convert into new shares at an exceedingly low exchange ratio, thereby hurting existing holders. Despite exceptions such as ACFC, we view the following table as a good list of potentially dramatically undervalued banks.

($ in millions, ∆ “Apparent” Metrics “True” Metrics Other Data except per share data) Price (unadjusted for MHC) (adjusted for MHC) TBV/ Tang.

Since MHC TBV/ Insider TBV/ MV/ Insider Tangible Assets/ Institution / Ticker State Price YE'06 Own. MV MV Own. MV MV TA Own. Assets Empl. Atlantic Coast Fed / ACFC GA $1.82 -90% 65% $24 218% 5% $9 623% 1% 15% $901 6% $6 Brooklyn Federal / BFSB NY 1.85 -86% 72% 24 306% 5% 7 1087% 1% 17% 524 14% 7 Magyar Bancorp / MGYR NJ 3.49 -75% 56% 20 218% 7% 9 489% 2% 15% 544 8% 6 Waterstone Financial / WSBF WI 3.98 -78% 74% 124 139% 4% 33 531% 2% 17% 1,881 9% 4 Pathfinder Bancorp / PBHC NY 8.20 -37% 64% 20 102% 5% 7 282% 2% 14% 393 5% 4 PSB Holdings / PSBH CT 3.65 -67% 57% 24 153% 10% 10 357% 2% 23% 482 8% 6 Naugatuck Valley / NVSL CT 5.10 -59% 60% 36 143% 5% 14 354% 3% 13% 565 9% 5 Malvern Federal / MLVF PA 6.57 n/m 56% 40 171% 1% 18 383% 3% 2% 695 10% 8 Heritage Financial / HBOS GA 8.38 -50% 76% 87 69% 6% 21 282% 3% 25% 659 9% 5 Hometown Bancorp / HTWC NY 5.24 n/m 56% 12 160% 3% 5 366% 3% 6% 157 12% 3 Laporte Bancorp / LPSB IN 7.27 n/m 55% 33 122% 3% 15 270% 3% 6% 429 9% 4 SI Financial / SIFI CT 6.89 -44% 62% 81 95% 5% 31 249% 3% 13% 885 9% 4 Prudential Banc / PBIP PA 6.82 -49% 71% 68 82% 3% 20 283% 4% 10% 538 10% 8 FedFirst Financial / FFCO PA 11.20 -45% 57% 34 128% 4% 14 301% 4% 9% 355 12% 4 Oneida Financial / ONFC NY 7.45 -42% 55% 53 60% 10% 24 134% 4% 21% 572 6% 2 Lake Shore Bancorp / LSBK NY 8.03 -36% 60% 49 118% 7% 20 293% 4% 18% 460 13% 5 MSB Financial / MSBF NJ 7.41 n/m 59% 38 104% 4% 16 252% 4% 10% 359 11% 7 Alliance Bancorp / ALLB PA 7.35 -67% 59% 49 99% 4% 20 242% 4% 9% 448 11% 6 United Community / UCBA IN 7.25 -39% 59% 57 98% 9% 23 240% 5% 21% 492 11% 5 Charter Financial / CHFN GA 8.26 -84% 61% 154 70% 3% 60 180% 5% 6% 1,141 9% 6 Meridian Interstate / EBSB MA 10.57 n/m 58% 238 82% 2% 99 196% 6% 4% 1,717 11% 11 Roma Financial / ROMA NJ 10.56 -36% 73% 325 67% 1% 88 247% 6% 4% 1,457 15% 7 Greene County Banc / GCBC NY 17.17 11% 56% 71 63% 11% 31 143% 6% 24% 495 9% 5 Capitol Federal / CFFN KS 24.68 -36% 70% 1,826 53% 3% 541 178% 6% 9% 8,543 11% 14 Rockville Financial / RCKB CT 11.56 -35% 55% 226 71% 4% 102 157% 6% 8% 1,601 10% 8 Kearny Financial / KRNY NJ 8.90 -45% 75% 605 67% 6% 152 266% 7% 22% 2,258 18% 8 Beneficial Mutual / BNCL PA 9.00 n/m 56% 733 72% 2% 323 164% 7% 5% 4,747 11% 6 Investors Bancorp / ISBC NJ 11.86 -25% 57% 1,363 63% 3% 589 146% 7% 8% 8,834 10% 13 Northeast Community / NECB NY 5.85 -52% 55% 77 137% 1% 35 304% 7% 1% 515 21% 5 TFS Financial / TFSL OH 9.13 n/m 74% 2,815 63% 0% 741 238% 7% 1% 10,940 16% 12 Clifton Savings / CSBK NJ 8.55 -30% 64% 224 79% 7% 80 219% 7% 20% 1,114 16% 12 Cheviot Financial / CHEV OH 8.44 -36% 62% 75 94% 8% 29 243% 8% 22% 351 20% n/m Northfield Bancorp / NFBK NJ 11.35 n/m 56% 494 78% 3% 216 178% 10% 7% 2,192 17% 11

Acronyms: MHC = mutual holding company; MV = market value; TA = tangible assets; TBV = tangible book value. Excludes banks with no MHC ownership and banks with deposits of less than $100 million. Source: Company SEC filings, Manual of Ideas analysis.




Cheapest Based on Tangible Book Value to Adjusted Market Value The following table ranks our universe of MHC-owned thrifts by tangible book value to adjusted market value.

While institutions with relatively higher ratios of tangible book to market may also be relatively more undervalued, such institutions may also be perceived to have greater loan portfolio quality issues or inadequate levels of equity to total assets, potentially necessitating a future capital raise at unfavorable terms. Obviously, the only way to determine whether an institution with a high ratio of book to market is indeed undervalued would be to assess the solidity of book value in light of metrics such as loan loss provisions and the ratio of non-performing loans to total loans.

($ in millions, ∆ “Apparent” Metrics “True” Metrics Other Data except per share data) Price (unadjusted) (adjusted for MHC) TBV/ Tang.

Since MHC TBV/ Insider TBV/ MV/ Insider Tangible Ass./ Institution / Ticker State Price YE'06 Own. MV MV Own. MV MV TA Own. Assets Empl. Brooklyn Federal / BFSB NY $1.85 -86% 72% $24 306% 5% $7 1087% 1% 17% $524 14% $7 Atlantic Coast Fed / ACFC GA 1.82 -90% 65% 24 218% 5% 9 623% 1% 15% 901 6% 6 Waterstone Financial / WSBF WI 3.98 -78% 74% 124 139% 4% 33 531% 2% 17% 1,881 9% 4 Magyar Bancorp / MGYR NJ 3.49 -75% 56% 20 218% 7% 9 489% 2% 15% 544 8% 6 Malvern Federal / MLVF PA 6.57 n/m 56% 40 171% 1% 18 383% 3% 2% 695 10% 8 Hometown Bancorp / HTWC NY 5.24 n/m 56% 12 160% 3% 5 366% 3% 6% 157 12% 3 PSB Holdings / PSBH CT 3.65 -67% 57% 24 153% 10% 10 357% 2% 23% 482 8% 6 Naugatuck Valley / NVSL CT 5.10 -59% 60% 36 143% 5% 14 354% 3% 13% 565 9% 5 Northeast Community / NECB NY 5.85 -52% 55% 77 137% 1% 35 304% 7% 1% 515 21% 5 FedFirst Financial / FFCO PA 11.20 -45% 57% 34 128% 4% 14 301% 4% 9% 355 12% 4 Lake Shore Bancorp / LSBK NY 8.03 -36% 60% 49 118% 7% 20 293% 4% 18% 460 13% 5 Prudential Banc / PBIP PA 6.82 -49% 71% 68 82% 3% 20 283% 4% 10% 538 10% 8 Pathfinder Bancorp / PBHC NY 8.20 -37% 64% 20 102% 5% 7 282% 2% 14% 393 5% 4 Heritage Financial / HBOS GA 8.38 -50% 76% 87 69% 6% 21 282% 3% 25% 659 9% 5 Laporte Bancorp / LPSB IN 7.27 n/m 55% 33 122% 3% 15 270% 3% 6% 429 9% 4 Kearny Financial / KRNY NJ 8.90 -45% 75% 605 67% 6% 152 266% 7% 22% 2,258 18% 8 MSB Financial / MSBF NJ 7.41 n/m 59% 38 104% 4% 16 252% 4% 10% 359 11% 7 SI Financial / SIFI CT 6.89 -44% 62% 81 95% 5% 31 249% 3% 13% 885 9% 4 Roma Financial / ROMA NJ 10.56 -36% 73% 325 67% 1% 88 247% 6% 4% 1,457 15% 7 Cheviot Financial / CHEV OH 8.44 -36% 62% 75 94% 8% 29 243% 8% 22% 351 20% n/m Alliance Bancorp / ALLB PA 7.35 -67% 59% 49 99% 4% 20 242% 4% 9% 448 11% 6 United Community / UCBA IN 7.25 -39% 59% 57 98% 9% 23 240% 5% 21% 492 11% 5 TFS Financial / TFSL OH 9.13 n/m 74% 2,815 63% 0% 741 238% 7% 1% 10,940 16% 12 Clifton Savings / CSBK NJ 8.55 -30% 64% 224 79% 7% 80 219% 7% 20% 1,114 16% 12 Meridian Interstate / EBSB MA 10.57 n/m 58% 238 82% 2% 99 196% 6% 4% 1,717 11% 11 Charter Financial / CHFN GA 8.26 -84% 61% 154 70% 3% 60 180% 5% 6% 1,141 9% 6 Northfield Bancorp / NFBK NJ 11.35 n/m 56% 494 78% 3% 216 178% 10% 7% 2,192 17% 11 Capitol Federal / CFFN KS 24.68 -36% 70% 1,826 53% 3% 541 178% 6% 9% 8,543 11% 14 Beneficial Mutual / BNCL PA 9.00 n/m 56% 733 72% 2% 323 164% 7% 5% 4,747 11% 6 Rockville Financial / RCKB CT 11.56 -35% 55% 226 71% 4% 102 157% 6% 8% 1,601 10% 8 Investors Bancorp / ISBC NJ 11.86 -25% 57% 1,363 63% 3% 589 146% 7% 8% 8,834 10% 13 Greene County Banc / GCBC NY 17.17 11% 56% 71 63% 11% 31 143% 6% 24% 495 9% 5 Oneida Financial / ONFC NY 7.45 -42% 55% 53 60% 10% 24 134% 4% 21% 572 6% 2

Acronyms: MHC = mutual holding company; MV = market value; TA = tangible assets; TBV = tangible book value. Excludes banks with no MHC ownership and banks with deposits of less than $100 million. Source: Company SEC filings, Manual of Ideas analysis.




Exclusive Interview with Michael Godby

We are pleased to present an exclusive interview with thrift conversion expert Michael Godby, principal at Atlanta, Georgia-based FIG Partners. Mike has close to fifteen years of extensive mutual-to-stock conversion experience. He served as a vice president in an eight-year career at Capital Resources, managing over two dozen mutual thrift conversions and participating in at least 25 more conversions. Mike served as a vice president of investments for Legg Mason for three years prior to joining ASG Securities. His background includes extensive experience serving high net-worth and institutional clients who primarily invest in banks and thrifts. He is a graduate of the University of Pittsburgh.

The Manual of Ideas: For those of us who may not be experienced with thrift conversions, could you give us a primer on the types of conversions and why you think they are generally fertile ground for finding value investment opportunities?

Michael Godby: First, let’s just make sure that your reader understands what a thrift conversion is. It is when a mutual thrift sells some or all of their mutual interest to the public in a stock offering. These shares are offered first to the depositors of the thrift, and then to the community or through a syndicate offering. Subscription rights are given to the depositors of the thrift and those rights are governed by federal regulations that were written to protect those depositors. These priority rights are non-transferable, and violators of that have been prosecuted in the past.

Depositors who have carved a niche in investing in these conversions have been seeding accounts over the course of the last 25+ years. Their deposit balances influence the amount of stock they receive when a conversion oversubscribes. Professional depositors in the early days could simply mail a check to the thrift, and the thrift was happy to open an account for them. However, since the mid-1990s most thrifts have placed local restrictions to keep professional depositors out. As of this past quarter there were roughly 700 mutual thrifts in 45 states.

There are multiple types of conversions: the standard or full conversion where 100% of the thrift converts to a public company, a mutual holding company (MHC) conversion where a minority stake converts to a public company, a partial MHC where additional minority shares are sold in the public company, and a second-step MHC where the remaining majority of an MHC converts and is sold in the public company.

Post Conversion % Company Types of Conversion Mutual Status Public Standard No 100% Mutual Holding Companies (MHC) Yes < 49.99% Partial Second MHC Yes < 49.99% Second Step MHC No 100%

“Professional depositors in the early days could simply

mail a check to the thrift, and the thrift was happy to open

an account for them. However, since the mid-1990s most thrifts have

placed local restrictions to keep professionals out.”




Number of Thrift Conversions

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total As %

Total Conversions 16 13 13 15 24 24 15 27 8 7 19 181 100%

Type of Conversion Standard 9 8 7 6 4 2 2 7 3 3 11 62 34%

Mutual Holding Companies 5 3 3 3 17 15 9 12 4 2 0 73 40%

Second Step MHCs 2 2 3 5 3 7 4 7 1 2 8 44 24%

Partial Seconds 0 0 0 1 0 0 0 1 0 0 0 2 1%

Current Public Status Still Public 5 6 7 8 20 22 14 27 8 7 19 143 79%

Acquired 11 6 5 6 4 2 0 0 0 0 0 34 19%

FDIC Seized 0 1 1 1 0 0 1 0 0 0 0 4 2%

Source: Michael Godby, FIG Partners.

The statistics supporting this niche for the last twenty years make conversions reasonably predictable and attractive investments depending on the type of conversion, the pricing cycle and market conditions. Only during very bullish times do all types of conversions work from an IPO pop perspective.

The pricing cycle vacillates like any other depending on appraisals. If in a given quarter appraisals for conversions are too high, the appraisals are lowered the next quarter and so on until the conversions are priced accordingly with market conditions. Market forces win out as the buyers post-offering support only those offerings that are priced with reasonable value. Sometimes a conversion fails to raise the funds needs as stated in the prospectus and at that point management may choose to cancel the conversion, or reappraise and re-solicit those who previously subscribed for the offering, as is currently occurring for Capital Federal (CFFN).

The number of professional depositors that have meaningful deposit accounts has varied in the sector for years based on the success or failure of first-day pops over periods of quarters. Quite often, if a conversion is priced reasonably, the professional depositors will oversubscribe the offering. This is also magnified when the local depositors subscribe heavily due to market conditions and/or expectations that the bank is only converting to sell out sooner than later.

MOI: Is there a way to generalize which types of conversions are best to own, and whether it is better to invest in a conversion-related capital raise or to buy stock in the open market. Are there any studies that have looked at the historical data?

Godby: The best types of conversions to participate in are typically based on which part of the cycle we’re in. The last time we had a major credit cycle similar to today was during the early 1990s. There were a limited amount of professional depositors at the time, and the values were lower than we have today. Currently, the pricing of offerings is at pre-1994/95 levels.

Standard conversions have typically offered the greatest value over the years. The statistics not only support that, but whether or not you’re a subscriber, the greater returns occur for investors who hold them past the first-

“…naturally, the time to own [thrift conversions] is no

different than any other stock — buy them when no one

wants them.”




day pop, or purchase them in the market post-conversion. Also, standard conversions move the earliest in a recovery as they are offered at greater discounts to their peers. The MHCs will follow eventually, but naturally the time to own them is no different than any other stock — buy them when no one wants them. For the patient investor today, there are deeply discounted micro-cap MHCs that trade at implied low valuations. Although, I would suggest waiting until at least pricing has bottomed in second-step MHC conversions first, given that valuations for MHCs are driven by second-step valuations and their supply and demand. Because MHCs are leveraged plays on increasing valuations for their second-stage conversion price, the lower the public shares as a percentage of the total MHC shares, the greater the leverage on increasing valuations.

Thrift Conversion Investment Returns, 2000 – 2010

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Average

All Conversions Day 1 IPO Pop or Return 12% 21% 13% 27% 17% 7% 11% 6% 4% 12% 4% 12%

Return Since IPO Date 100% 28% -4% -33% -40% -25% -33% -11% 3% 26% 4% 1%

Standard Conversions Day 1 IPO Pop or Return 23% 11% NA NA 16% 27% 26% 13% 4% 17% 8% 16%

Return Since IPO Date 90% 42% NA NA -31% -35% -3% 2% 41% 39% 6% 17%

MHC's Day 1 IPO Pop or Return 0% 37% 20% 35% 18% 5% 11% 3% 3% 1% NA 13%

Return Since IPO Date 110% 7% 51% -34% -47% -29% -39% -29% -15% -5% NA -3%

Second Steps MHC's Day 1 IPO Pop or Return NA NA 7% 27% 7% 3% 1% 2% 5% 11% 1% 7%

Return Since IPO Date NA NA -28% -26% -21% -17% -44% -2% -8% 21% 0% -14%

S&P 500 Annual Return -9% -12% -22% 29% 11% 5% 16% 5% -37% 26% 0% 1%

Source: Michael Godby, FIG Partners; SNL Securities.

MOI: Once a second-step conversion has occurred and an MHCs owns no more shares of a thrift, is there generally still a window of opportunity to invest because the market may not be fairly valuing the post-conversion thrift?

Godby: Yes, at times, but what has occurred for the last two years, is that there is a declining market for their pricing, led by excess supply and weaker demand in general by syndicate buyers for second-step MHCs. This has led to most professional depositors stepping away from investing in second-step MHCs.

Due to the fact that the OTS [Office of Thrift Supervision] is being absorbed by the OCC [Office of the Comptroller of the Currency], MHCs are running for the door to convert because of fears of dividend waivers going away, and grandfathering of plans and buybacks, to name a few. This has pressed management to convert now with the regulator you know, and not the latter.

Coincidentally, the quality of the second-step MHCs has declined in the last year as well, which has led to lower pricing, and naturally one begets the other. There will be a quarter when all second steps are priced accordingly and work, but for now, it’s clearly deal dependent.

“…the quality of the second-step MHCs has declined in

the last year, which has led to lower pricing…”




MOI: What are the main variables to analyze when deciding whether a pending conversion constitutes an attractive investment?

Godby: During the recent banking crisis, the safest financials to own were the over-capitalized thrifts. As far as I’m concerned, very little has changed to suggest otherwise. Like any value investor, I focus on price to tangible book, excess tangible capital, asset quality, deposits per share, earnings multiples, and terminal values for the thrift based on being acquired, and in roughly that order.

Of course, this is all relative to a peer group, and you can never rely on the peer group in the prospectus. In standard and MHC conversions, the appraisal typically reflects a low-valued peer group, because management wants to buy stock at a relatively cheap price. For partial and second-step MHC conversions, it is quite to the contrary. Management already owns stock and has an interest in pricing it as overvalued as possible, so the peer group reflects that.

One of the major reasons over-capitalized thrifts perform so well is because six to nine months after their conversion, the shareholders typically approve a management recognition plan for 4% of the company’s stock. Then, at the one-year anniversary the board usually approves a repurchase. Depending on whether the thrift is a state-chartered or OTS-chartered institution there’s the potential for repurchases of up to 20% of their stock in a given year. These are events that typically move stock prices higher in the worst of markets. Even if the thrift is not a meaningful earner, what better return on equity is there than repurchasing stock below 95% of book and quite often, well below that.

Quite often, investors have a misperception of what a bank is worth when it sells out. Most sell-side analysts tout price-to-tangible book as be the most important factor in calculating acquisition prices, which simply is not true. All too often investors are overly optimistic on what thrifts will do with excess capital, hence anticipating greater earnings growth, which often doesn’t occur.

Deposit premiums or multiples on deposits, core or otherwise, is the basis by which acquirers justify the profitability of an acquisition. In bull markets for financials, deposit premiums naturally move up. What has remained true in the past twenty years is that core deposits are hard to grow, and thrift deposits are stickier post acquisition than are community bank deposits. I think your typical banker would have learned that through previous cycles, yet they haven’t.

When it comes to MHCs, you have to pay close attention to pricing of the second-step conversions and the current implied fully converted values (price to tangible book, P/E, equity to assets, deposits per share and deposit premium deltas). The main mistake MHC investors have made in the past was not understanding the degree of leverage when markets shift valuations lower. The leverage works great going up, but awful going down!

MOI: It is generally understood that management incentives play a big role when it comes to how quickly and at what terms second-step conversions are consummated. Can you expand a bit on the impact of management and how investors can evaluate this variable?

Godby: First, let’s talk about how the typical thrift converts. What was said to me two decades back is that in ten years all thrifts will have converted. Well, not so fast, there is a bastion of mutuality in the minds of many management teams that run the typical mutual thrift (socialism at its finest!). In their eyes, there

“In standard and MHC conversions, the appraisal

typically reflects a low-valued peer group, because management wants to buy stock at a relatively cheap

price. For partial and second-step MHC

conversions, it is quite to the contrary. Management

already owns stock and has an interest in pricing it as overvalued as possible, so

the peer group reflects that.”




aren’t enough incentives to ever convert their thrift. Unfortunately for some of them, board members retire and members change, retirement closes in, and sometimes, just capitalism occurs.

Incentives? Eight percent ESOPs, four percent management recognition plans, ten percent option plans and, most importantly, cheap relative values to invest their own money in their company at the IPO price. By the way, like everything else that happens in the market, fear or greed kick in. The investment bankers and attorneys that specialize in the space work these well. “Convert now, before the regulator changes.” “Happy birthday, Mr. CEO, isn’t this your 60th, time to convert, you can’t leave your mutual thrift to your grandchildren.”

The real variables beyond the financial impact for an MHC converting through a second step are age of management, need for capital, and the grand scheme of empire building by management. All simple to get, but you need to understand the management of each institution. CEO hits age 65, can’t be acquired because of OTS regulations for three years, so five years out he needs to sell—time to convert. A thrift levers up to 7% tangible equity to assets, management thinks it has to convert. The board knows of a local thrift or bank that wants to sell out, and it would fit their branch network perfectly, but they need more capital—nothing to do but convert. There may be other reasons but these are the most common.

MOI: Have you seen an increase in thrift conversions as a result of banks need for additional equity capital?

Godby: There have been a number of companies that have converted for this reason in the past two years, one even failed to raise capital and was seized. If a thrift does need capital and there are too many problems, such as rising non-performing assets, investors may back away. Also, size plays a role in pricing of the conversions, and the illiquidity is being discounted to 1992-1993 pricing. But this cycle will shift as well, as it did in the early nineties.

In 1991 and 1992, the thrifts that had problems got aggressive with their writedowns, converted, and most were extremely successful. During that period, I can recall only one thrift failing post-offering due to problems. This is the type of environment we’re in today, but you have to be very selective!

MOI: Before the financial crisis, it seems like a second-step conversion was almost always a positive catalyst for a stock, so owning a thrift in anticipation of a second step seemed like a good strategy. However, post-crisis, we have observed some thrifts using a second-step conversion as a way to raise desperately needed capital. In some cases, the exchange ratio is set in a way that significantly dilutes the interests of existing shareholders, creating a negative catalyst. Is this assessment fair, and if so, how can investors guard against the destruction of value in a second-step capital raise?

Godby: Can you say tulip bulb? Then again, timing is everything! When Peoples of Connecticut (PBCT) converted at 142% of tangible book, at a 17% implied deposit premium, it just had to be over. I have not been an avid shorter of overpriced thrifts, but when I did short, I based my shorts on relative implied deposit premiums. When thrifts trade above takeout value, shouldn’t you short them? I pay close attention to the deltas on implied deposit premiums from a fully converted perspective for these institutions. At the peak, it seemed easy to

“When thrifts trade above takeout value, shouldn’t you

short them? I pay close attention to the deltas on implied deposit premiums

from a fully converted perspective for these

institutions. At the peak, it seemed easy to see that the relative upside to downside

was clearly against investing in these companies.”




see that the relative upside to downside was clearly against investing in these companies.

As for MHCs that have a desperate need for capital, there haven’t really been any, but there will eventually be one that does. Let’s remember the term desperate is relative. Your assessment is fair, but when a thrift does need that capital, what to do? Raise capital, dilute investors, what else is there? Management rationalizes the dilution in ways stated above. I did make one mistake this past year in the MHC space, and that was staying in TFS Financial (TFSL) too long, but I was fortunate to get out of the rest of the MHCs close to the peak of the market with my clients. Even I was rationalizing the dividend, excess capital, leverage… I was fortunate to buy the MHCs when few wanted them, so I really can’t complain. (I currently own TFSL.)

MOI: Could you talk about a recent thrift conversion you’ve found particularly interesting or surprising in terms of valuation or other features of the deals?

Godby: This past quarter there was a standard conversion, Standard Financial (STND), Monroeville, Pennsylvania, with a market cap of $35 million. It was issued at $10 per share, 55% of tangible book, 11x earnings, 14.5% tangible equity/assets, with 0.62% non-performing assets at a 25% discount to its peers. It currently trades at $12 per share and has performed better than other recent conversions. The most interesting thing about it is its terminal value upside. At the peak of the market for our thrifts a few years ago, the typical thrift converted at a level where terminal value upside offered 50-100% in three to five years. Today those percentages have doubled, and as is the case of STND there is still significant five-year upside. Also, a recent 13D was filed by a known activist investor [ed. note: Joseph Stilwell], which can’t hurt.

MOI: Do you have a favorite investable situation at this time, and why?

Godby: Yes, most of the time there are investable ideas that are value-based. As with any of these ideas, though, it helps when there are catalysts that make [the thrifts] more attractive. A catalyst such as an activist investor pressing management to improve shareholder value through stock repurchases and selling out eventually. Other catalysts would be quarterly timing of stock repurchases and MRPs. Another would be discounted values of new conversions to peer pricing. From time to time I’m buying [a thrift] because of supply/demand reasons that cause stock prices to soften. We are now in a cycle where the performance of conversions from three quarters ago has underperformed the market, and the thrifts have to vote on their benefit packages. This should cause their stock supply to dry up and their stock prices to rise. An example would be OBA Financial (OBAF), which converted on January 22nd. Also, a known activist investor has filed a 13D on it [ed. note: Lawrence Seidman].

MOI: Is there a book on this subject or another way for investors to learn more about thrift conversions?

Godby: Peter Lynch had mentioned conversions in his book Beating The Street. But since that time, MHCs and second-step MHCs have become a significant portion of the conversion market, and I don’t know of any book that discusses them properly.

MOI: Thank you very much, Mike.

“[A favorite investable situation at this time] is OBA

Financial (OBAF), which converted on January 22nd.

A known activist investor has filed a 13D on it.”




Top 5 Investment Ideas in Banking Industry

Barclays (London: BARC, NYSE: BCS) Financial: Money Center Banks

London, United Kingdom, 44-20-711-1000 www.barclays.co.uk

Trading Data Consensus EPS Estimates Valuation Price: $17.89 (as of 10/22/10) Month # of P/E FYE 12/31/09 12x 52-week range: $15.36 - $24.11 Latest Ago Ests P/E FYE 12/31/10 9x Market value: $54 billion This quarter n/a n/a n/a P/E FYE 12/31/11 7x Shares out: 3.0 billion Next quarter n/a n/a n/a P/E FYE 12/30/12 n/a

Ownership Data FYE 12/31/10 2.04 1.97 1 P / tangible book 0.8x Insider ownership: 12% FYE 12/31/11 2.74 2.65 1 Latest EPS Surprise Insider buys (last six months): 0 FYE 12/30/12 n/a n/a n/a Report date: n/a Insider sales (last six months): 0 LT growth 4.5% 4.5% 1 Estimated EPS: n/a Institutional ownership: 2% Actual EPS: n/a

Operating Performance and Financial Position ($ billions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 6/30/10 6/30/08 6/30/10 Interest income 20 22 28 35 41 45 34 31 21 16 Interest expense 9 11 15 20 25 26 15 34 13 6 Pretax income 5 7 8 10 10 8 17 26 3 6 Net income 3 5 6 7 7 7 15 23 3 4 Diluted EPS 1.70 2.98 3.37 4.47 3.76 3.19 1.46 1.69 1.36 1.26 Shares out (avg) 1.6 1.6 1.6 1.6 1.6 1.8 2.7 2.8 1.6 2.9 Cash from ops (6) 15 6 16 (18) 54 66 33 24 (27) Cash 3 3 6 12 9 48 130 166 10 166 ST investments 0 0 258 280 294 210 233 583 509 583 LT investments 475 11 251 274 312 308 180 229 362 229 Fixed assets, net 3 4 4 4 5 7 9 9 5 9 Loans, other assets 223 837 949 1,014 1,332 2,698 1,641 1,540 1,288 1,540 Intangible assets 7 7 12 12 13 17 14 14 13 14 Total assets 710 862 1,480 1,596 1,966 3,288 2,208 2,542 2,187 2,542 Short-term debt 0 0 194 219 271 292 318 365 235 365 Long-term debt 20 20 20 22 29 48 42 42 35 42 Deposits, other liab. 664 817 1,238 1,323 1,628 2,889 1,773 2,056 1,882 2,056 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 26 25 28 32 37 59 76 79 36 79 Ten-Year Stock Price Performance and Trading Volume Dynamics

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BUSINESS OVERVIEW Barclays owns the following major strategic assets: Barclays Capital (76% of total assets; 1H10 pretax income: £3.4 billion): one of the world’s top investment banks: #1 in global debt (8% market share), #3 in global forex (11%) and #4 in global, completed M&A (15%) during 1H10. Other businesses (24% of assets; 1H10 pretax income: £547 million after head office costs of £421 million): Main profit centers are U.K. Retail Banking (£504 million), Barclaycard (£317 million) and Absa (£318 million), offset by Barclays Corporate (-£377 million), which provides commercial banking in select European and emerging markets. Other, smaller businesses include Western European retail banking, African banking operations, and wealth management. 20% of BlackRock (BLK), valued at $6+ billion. Barclays received BLK shares for Barclays Global Investors in 2009. The stake is treated as an “available for sale” investment. INVESTMENT HIGHLIGHTS

• Managed through the crisis without U.K. state aid, leaving Barclays free to run the business outside of U.K. Asset Protection Scheme rules.

• Shares trade at ~0.9x tangible book despite a strong, global investment banking franchise (esp. in credit), no apparent need to raise new equity, good “through-the-cycle” returns, and growing profits.

• Barclays Capital return on tangible equity was 22% in 1H10, up from 7% in 1H09 on “significant reduction in credit market losses taken through income and in total impairment charges.”

• Significant earning power of non-investment banking businesses, which only contributed £0.5 billion of pretax income in 1H10 versus ~£4 billion in 2007 and 2008 each. Commercial banking lost ~£0.8 billion in its non-U.K. operations in 1H10.

INVESTMENT RISKS & CONCERNS

• Cyclical business Barclays Capital dominates assets (~75%) and profit contribution (80%+ in 1H10). Without improvement in retail/commercial banking, Barclays is largely a “one-trick pony.”

• 1H10 pretax profit benefited from special gains of £1.0 billion, representing ~25% of total profit.

• Loan loss reserve is only ~52% of identified “credit risk loans” of £23 billion at June 30.

• Customer deposits cover only ~90% of net loans, requiring other funding sources (incl. wholesale).

• CEO Varley (53) is leaving and will be replaced by Bob Diamond, Barclays President, in March 2011.

SELECTED OPERATING DATA1 FYE December 31 2007 2008 2009 1H10 ∆ tangible book value/share 19% 52% 0% 35% ∆ total assets 23% 67% -33% 3% ∆ employees 7% 16% -6% 1% ∆ net interest income 5% 19% 4% 4% ∆ pre-provision profit 5% 17% 20% -4% ∆ EPS -9% -15% -53% 23% Assets (£tn) 1.0 1.2 2.1 1.4 Selected items as % of total assets: Derivatives 20% 48% 30% 32% Loans, net2 31% 25% 33% 31% Other assets 48% 27% 36% 37% Customer deposits 32% 22% 29% 29% Other liabilities 67% 76% 68% 68% Common equity 2% 2% 3% 3% % of total assets by selected segment: Barclays Capital 68% 79% 74% 76% UK retail banking 7% 5% 8% 8% Pretax income by selected segment (£bn): Barclays Capital 2.3 1.3 2.5 3.4 Other businesses (incl. central costs)3 3.9 3.8 2.1 0.5 Total pretax income 6.2 5.1 4.6 3.9 Revenue (£bn) 21.0 21.2 29.1 16.6 % of revenue by type: Net interest income 46% 54% 41% 36% Non-interest income 54% 46% 59% 64% Selected items as % of revenue: Pre-provision profit 43% 50% 43% 42% Loss provision 13% 26% 28% 19% Net charge-offs 8% 13% 11% 13% Net income to common 18% 18% 9% 15% Pre-provision profit (£bn) 9.0 10.6 12.7 7.0 Loan loss reserve (£bn) 3.8 6.6 10.8 11.7 Loan loss reserve ratio 1.0% 1.3% 2.3% 2.3% Employees, period-end (k) 132 153 144 147 Return on tang equity 28% 18% 8% 14% Tang equity/assets (avg) 1% 1% 2% 2% Tier 1 capital ratio 8% 6% 11% 13% ∆ shares out (avg) 1% 15% 47% 8%

1 Figures are based on continuing operations (exclude the Barclays Global Investors fund management business sold to BlackRock in December 2009). 2 ~90% of gross loans and advances are to customers (roughly 50/50 split between retail and wholesale/corporate) with the remainder to banks as of June 30, 2010. Approximately £6 billion of loans are in commercial real estate. 3 In 2007 and 2008, ~£2.6 billion of pretax income was attributable to U.K. Retail Banking and Barclays Commercial Banking. MAJOR HOLDERS Insiders <1% | BlackRock 7% | Qatar 7% | Abu Dhabi 6% | Legal & General 3% | Appleby Trust 3% | Brandes <1% RATINGS VALUE Intrinsic value materially higher than market value? DOWNSIDE PROTECTION Low risk of permanent loss? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends?

THE BOTTOM LINE Unlike some other U.K.-based banks, Barclays has managed through the financial crisis without requiring government aid. While it did get funds from Qatar and Abu Dhabi in 2008/09, these investors rank equally with common holders. Barclays is free to operate outside of the confines of the U.K. Asset Protection Scheme. The late 2009 sale of the BGI fund business further bolstered capital. The flipside is that the remaining business is ever so dominated by the cyclical investment bank – this may explain the below tangible book valuation. Long-term investors, however, may be attracted by the strong franchise.




…additional insight into Barclays: OUR ESTIMATE OF THE EQUITY FAIR VALUE RANGE

Conservative Base Case Aggressive

Valuation methodology 1.0x tangible common equity

10x “normalized” net income (based on

15% return on tangible common

equity)1

6x LTM pre-provision, pretax

profit2

Conservative case metrics: Tangible common equity as of 6/30/2010 £41 billion Fair value multiple 1.0x

Estimated equity value £41 billion Base case metrics:

“Normalized” net income to common £6 billion Fair value multiple 10x

Estimated equity value £61 billion Aggressive case metrics:

LTM pre-provision, pretax profit (year to June 2010) £12 billion Fair value multiple 6x

Estimated equity value £74 billion

Estimated fair value of the equity of Barclays (£ billions):3 £41 billion £61 billion £74 billion

£3.30 per share £4.96 per share £6.02 per share

Estimated fair value of the equity of Barclays (US$ in billions):3 $64 billion $96 billion $117 billion

$21 per ADS $31 per ADS $38 per ADS Implied equity fair value to tangible book 1.0x 1.5x 1.8x Implied ratios based on net income to common during… …year to June 2010 13x 19x 23x …1H10 (annualized) 8x 13x 15x …2007-09 (average) 12x 18x 22x …2007-09 (peak: 2007) 10x 16x 19x

1 The annualized return on tangible common equity was 14% in 1H10. The average ROTCE was 18% during 2007-09, excluding BGI, which was sold in 2009. 2 Pre-provision, pretax profit is stated before the provision for credit losses, income taxes, minority interests, and preferred dividends. 3 Based on 12.3 billion diluted common shares outstanding (1 ADS = 4 shares). Estimated fair value in US$ is based on the recent exchange rate at 1£=US$1.57. Source: Company filings, Manual of Ideas analysis, assumptions and estimates. FINANCIAL CONDITION, 2007 vs. H1 2010

Source: Company presentation, autumn 2010; available at http://bit.ly/9zCGnw


http://bit.ly/9zCGnw�



…additional insight into Barclays: IMPAIRED ASSET COVERAGE RATIO, H1 2008 – H1 2010

Source: Company presentation, autumn 2010; available at http://bit.ly/9zCGnw LOAN LOSS RATE, 1990 – H1 2010

Source: Company presentation, autumn 2010; available at http://bit.ly/9zCGnw






Deutsche Bank (XETRA: DBK, NYSE: DB) Financial: Investment Services

Frankfurt, Germany, 49-69-910-1000 www.db.com

Trading Data Consensus EPS Estimates Valuation Price: $58.69 (as of 10/22/10) Month # of P/E FYE 12/31/09 6x 52-week range: $49.40 - $74.98 Latest Ago Ests P/E FYE 12/31/10 11x Market value: $55 billion This quarter n/a n/a n/a P/E FYE 12/31/11 6x Shares out: 930 million Next quarter n/a n/a n/a P/E FYE 12/30/12 n/a

Ownership Data FYE 12/31/10 5.16 n/a n/a P / tangible book 1.4x Insider ownership: <1% FYE 12/31/11 9.11 n/a n/a Latest EPS Surprise Insider buys (last six months): 0 FYE 12/30/12 n/a n/a n/a Report date: n/a Insider sales (last six months): 0 LT growth 5% n/a n/a Estimated EPS: n/a Institutional ownership: n/a Actual EPS: n/a

Operating Performance and Financial Position ($ billions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 6/30/10 6/30/09 6/30/10 Interest income 38 39 58 81 90 76 38 29 10 11 Interest expense 30 32 50 71 78 59 20 10 6 6 Pretax income 4 6 9 12 12 (8) 7 9 2 2 Net income 2 3 5 8 9 (5) 7 8 2 2 Diluted EPS 2.62 5.76 8.82 14.81 16.59 (9.67) 9.65 10.81 2.09 2.22 Shares out (avg) 0.61 0.54 0.51 0.51 0.52 0.55 0.69 0.69 0.70 0.70 Cash from ops (8) (39) (89) 16 23 52 (19) 39 0 13 Cash 9 11 9 10 12 14 13 19 15 19 ST investments 658 718 824 n/a n/a n/a n/a n/a n/a n/a LT investments 350 131 181 144 142 87 98 345 291 345 Fixed assets, net 8 7 7 5 4 6 5 5 4 5 Loans, other assets 83 294 349 2,037 2,512 2,949 1,962 2,297 2,090 2,297 Intangible assets 11 10 11 11 13 13 13 17 14 17 Total assets 1,120 1,170 1,382 2,208 2,682 3,069 2,091 2,683 2,414 2,683 Short-term debt 174 175 229 210 323 176 123 127 139 127 Long-term debt 136 149 158 155 177 186 184 205 188 205 Deposits, other liab. 771 811 954 1,797 2,129 2,663 1,733 2,293 2,039 2,293 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 39 36 42 46 53 43 51 58 48 58 Ten-Year Stock Price Performance and Trading Volume Dynamics

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BUSINESS OVERVIEW Deutsche Bank (DB) operates in three major segments: Corporate and Investment Bank (~90% of assets; 1H10 pre-tax income: €4.0 billion): Includes Corporate Banking and Securities (95+% of segment assets), a top 5 global i-bank. The other sub-segment is Global Transaction Banking (1H10 pretax income: €0.6 billion), which includes trade finance, cash management, as well as trust and securities services. Private Clients/Asset Management (~10% of assets; 1H10 pretax income: €0.5 billion): Includes Asset and Wealth Management (including DWS and Sal. Oppenheim) and Private and Business Clients (traditional banking and investment management for individuals/small businesses). Corporate Investments (€27 billion of assets; 1H10 pretax income: break-even): Manages global principal investments, including €16 billion of non-core assets (mainly notes relating to Deutsche Pfandbriefbank) and €8 billion of equity investments (including a 30% stake in Deutsche Postbank). In September, DB made €25/share offer for 70% of Postbank not already owned (implies €5.5 billion total market value). Publicly-traded Postbank is one of Germany’s largest retail banks with €242 billion of assets and ~1,100 branches. DB has ~2,000 branches, of which ~50% are in Germany. INVESTMENT HIGHLIGHTS

• Postbank acquisition to increase earning power of non-investment banking businesses, “resulting in equal importance versus investment banking.” DB targets a combined pretax profit of its private/ business clients segment and Postbank of >€3 billion assuming, among others, €1 billion of synergies.

• Implied valuation of DB’s investment banking business appears low if retail business is worth 6-8x guided pretax income and taking into account DB’s principal investments and “potential capital relief from…run-off of non-core [Postbank] assets.”

• Trades at ~1.0x post-deal tangible book value. • Western Europe accounted for ~70% of yearend

2009 loans. North America: ~17%, E. Europe: ~3%.

INVESTMENT RISKS & CONCERNS • Postbank execution risk. €1 billion of synergies

may be optimistic (30% are revenue-related) and costlier to achieve than expected (€1.4 billion). Non-core Postbank assets may require write-downs.

• €10 billion October rights offering size may imply underlying DB balance sheet issues. DB stated proceeds are “to cover capital consumption from Postbank…, and to support the capital base.”

• IFRS impaired loans are >2x loan loss reserves.

SELECTED OPERATING DATA — DEUTSCHE BANK1 FYE December 31 2007 2008 2009 1H10 ∆ tangible book per share 18% -35 15% 20 ∆ total assets 21% 14% -32% 11% ∆ employees 14% 3% -4% 4% ∆ net interest income 26% 41% 0% 16% ∆ pre-provision profit 12% -150% n/m 4% Assets (€tn)1 1.9 2.2 1.5 1.9 Selected items as % of total assets: Securities / trading assets 7 72% 74% 6 % Loans, net 11% 10% 12% 17% Other assets 19% 18% 14% 18% Customer deposits 26% 24% 18% 23% Other liabilities 72% 74% 81% 75% Common equity 2% 2% 1% 2% Revenue (€bn) 30.8 13.6 28.0 16.2 % of revenue by type: Net interest income 29% 91% 45% 47% Non-interest income 71% 9% 55% 53% % of revenue by segment: Corporate and investment bank 62% 24% 67% 70% Private clients and asset management 33% 66% 30% 29% Other 5% 10% 3% 1% Pretax income margin by selected segment: Corporate and investment bank 27% -229% 23% 35% Private clients and asset management 20% 5% 8% 10%

Total pretax margin 28% -42% 19% 27% Selected income statement items (€bn): Pre-provision profit 9.4 -4.7 7.8 4.8 Loss provision 0.6 1.1 2.6 0.5 Net charge-offs 0.5 0.8 1.1 0.4 Net income to common 6.5 -3.8 5.0 2.9 Selected credit data: Loan loss reserve ratio 0.8% 0.7% 1.3% 1.2% “IFRS impaired” loans/gross loans 1.3% 1.4% 2.8% 2.5% Return on tang equity 25% n/m 21% 22% Tang equity/assets (avg)1 2% 1% 1% 1% Tier 1 capital ratio2 9% 10% 13% 11% ∆ shares out (avg) 1% 6% 25% 2%

1 All figures are based on IFRS. Total assets per U.S. GAAP would be €1.04 trillion based mainly on adjusting derivatives per U.S. GAAP netting rules. 2 Post-capital increase and Postbank deal “expected to be at 11.7%.”

SELECTED OPERATING DATA — POSTBANK

FYE December 31 2007 2008 2009 YTD

6/30/10 Assets (€mn) 203 231 227 242 Common tangible equity as % of assets 1.4% 1.1% 1.3% 1.3% Net income to common (€mn) 856 -886 76 153

MAJOR HOLDERS Insiders <1% | Axa 5% | BlackRock 5% | Credit Suisse 4% RATINGS VALUE Intrinsic value materially higher than market value? DOWNSIDE PROTECTION Low risk of permanent loss? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends?

THE BOTTOM LINE Deutsche Bank’s pending tender for leading German retail bank Postbank should significantly increase the earning power of its non-investment banking businesses. Based on €1 billion of targeted deal synergies, a potential capital release from running off Postbank’s significant non-core assets, and DB’s own €10+ billion of principal investments, the recent valuation may put DB’s “core” investment banking franchise at a low single-digit multiple of run-rate earnings. Despite deal execution risk, the valuation is compelling at 1.0x post-deal tangible book and good prospects for a “normalized” ROE in the mid-teens.




…additional insight into Deutsche Bank: OUR ESTIMATE OF THE EQUITY FAIR VALUE RANGE



10x “normalized” net income (based on 15%

return on tangible common equity)2

7x management's 2011 pretax "core" profit

target of €10 billion3

Conservative case metrics: Tangible book on 6/30/2010 (pf 10/2010 rights issue) €39 billion Fair value multiple 1.0x Estimated equity value €39 billion

Base case metrics: "Normalized" net income to common €6 billion Fair value multiple 10x Estimated equity value €58 billion

Aggressive case metrics: Management's 2011 pretax “core” profit target3 €10 billion Fair value multiple 7x Estimated equity value €70 billion

Estimated fair value of the equity of Deutsche Bank4 €39 billion €58 billion €70 billion

€42 per share €63 per share €75 per share Implied equity fair value to tangible book 1.0x 1.5x 1.8x Implied ratios based on net income to common during… …year to June 2010 7x 10x 12x …2Q10 (annualized) 8x 13x 15x Implied equity value to Q2 ann. pretax, pre-provision profit 6x 8x 10x

1 Relevant figures are adjusted to reflect October 2010 rights offering, in which Deutsche issued 309 million shares at €33.00 per share (€9.9 billion net proceeds). 2 The annualized return on tangible common equity was 22% in 1H10. 3 Based on 2Q10 company presentation, page 34; “core” relates to “core businesses, excluding Corporate Investments and Consolidation & Adjustments” (the equivalent figure for 1H10: €4.4 billion). In an investor presentation on October 1, 2010 (after an announced tender offer for the remaining stake in Deutsche Postbank), management reaffirmed that “on balance, our assumptions still support EUR 10bn pretax profit target for 2011.” 4 Based on 929 million common shares outstanding following October 2010 rights issue. Source: Company filings, Manual of Ideas analysis, assumptions and estimates. DEUTSCHE BANK AND POSTBANK – SNAPSHOT

1 Postbank Annual Report 2009 (German version p. 10); on Postbank Interim Report as of 30 June 2010 2 Includes sight, term, savings and home savings deposits from retail and business clients. 3 Includes EUR 50 billion Deutsche Bank Private Wealth Management, and excludes business clients. Source: Company presentation dated October 1, 2010; available at http://bit.ly/bYWK8x


http://bit.ly/bYWK8x�



…additional insight into Deutsche Bank: POST-ACQUISITION MARKET POSITION IN GERMANY AND EUROPE

1 Segment Private Customers. Source: Company presentation dated October 1, 2010; available at http://bit.ly/bYWK8x GERMAN ECONOMIC SNAPSHOT

1 Loan loss provisions in % of revenues in retail banking, average of leading market players of respective country. Source: Company presentation dated October 1, 2010; available at http://bit.ly/bYWK8x






Mitsubishi UFJ Financial (Tokyo: 8306, NYSE: MTU) Financial: Regional Banks

Chiyoda-Ku, TK, Japan, 81-3-324-8111 www.mufg.jp


Ownership Data FYE 3/31/11 0.34 0.34 1 P / tangible book 0.8x Insider ownership: 5% FYE 3/30/12 0.45 0.45 1 Latest EPS Surprise Insider buys (last six months): 0 FYE 3/30/13 n/a n/a n/a Report date: n/a Insider sales (last six months): 0 LT growth n/a n/a n/a Estimated EPS: n/a Institutional ownership: 2% Actual EPS: n/a

Operating Performance and Financial Position ($ billions, except Fiscal Years Ended LTME FQE FQE per share data) 3/31/04 3/31/05 3/31/06 3/31/07 3/31/08 3/31/09 3/31/10 3/31/10 3/31/08 3/31/10 Interest income 17 18 31 48 54 48 34 34 27 16 Interest expense 5 6 11 19 26 20 10 29 13 4 Pretax income 14 9 4 10 (0) (22) 15 (3) (6) 6 Net income 10 5 2 4 (7) (18) 10 (8) (10) 5 Diluted EPS 1.54 0.77 0.23 0.37 (0.66) (1.69) 0.83 0.84 (0.97) 0.40 Shares out (avg) 6.4 6.5 8.1 10.1 10.3 10.8 12.3 12.3 10.4 13.0 Cash from ops 8 3 4 19 7 (12) 28 22 7 16 Cash 38 52 77 35 50 38 35 35 50 35 ST investments 245 245 324 369 516 553 540 540 516 540 LT investments 355 354 591 600 512 453 664 656 512 656 Fixed assets, net 7 7 14 14 13 13 12 12 13 12 Loans, other assets 625 671 1,242 1,233 1,285 1,303 1,190 1,197 1,285 1,197 Intangible assets 4 4 41 38 30 19 18 18 30 18 Total assets 1,275 1,333 2,289 2,289 2,406 2,379 2,460 2,460 2,406 2,460 Short-term debt 130 100 141 177 237 207 208 208 237 208 Long-term debt 70 74 171 177 168 163 174 174 168 174 Deposits, other liab. 1,028 1,105 1,858 1,807 1,897 1,932 1,968 1,968 1,897 1,968 Preferred stock 2 3 3 3 3 5 5 5 3 5 Common equity 46 51 116 125 101 71 104 104 101 104 Ten-Year Stock Price Performance and Trading Volume Dynamics

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BUSINESS OVERVIEW Mitsubishi UFJ (MUFG) operates in five segments: Retail Banking (FYE 3/10 adj. pre-provision income: ¥445 bn):* Covers all Japan-based retail businesses, including commercial banking, trust banking and securities businesses. Corporate Banking (¥675 bn): Covers all Japanese and overseas corporate businesses, including commercial, investment and trust banking, as well as UNBC. UNBC’s main subsidiary Union Bank is one of the largest commercial banks in California, in terms of total assets. Trust Assets (¥66 bn): Asset management and administration for pension trusts offered to corporate and other funds. Global Markets (¥467 bn): Consists of treasury operations, asset/liability and liquidity management as well as providing services in money and foreign exchange markets. Other (-¥252 bn): Includes mainly central functions. INVESTMENT HIGHLIGHTS

• Japan’s leading retail bank, with 800+ domestic locations and ~¥100+ trillion (>$1 trillion) in deposits, ahead of competitors Mizuho and SMFG.

• Japan represents ~75% of total assets of ~¥200 trillion and ~80% of gross loans of ¥92 trillion. Roughly three quarters of total interest and non-interest income relate to Japanese income.

• Made a $9 billion preferred equity investment in Morgan Stanley in 2008 and holds a 20% fully diluted equity stake. MUFG aims for a “global strategic alliance” with the U.S. investment bank.

• Increasing exposure to U.S. community banking via ownership of Union Bank, which has acquired Frontier Bank and Tamalpais Bank in 2010.

• Katsunori Nagayasu (63) became CEO in April. Nagayasu, who joined predecessor company Mitsubishi Bank in 1970, wants to “shift focus from risk management to growth acceleration.”

• Shares trade at ~0.8x tangible book.

INVESTMENT RISKS & CONCERNS • Earnings guidance implies a P/E of 13-14x based

on ¥400 billion of JGAAP net income for FYE March 2011 (~flat y-y). Dividend guidance of ¥12 per share, up ¥1 y-y, implies a 3% recent yield.

• Poor returns on equity. While shares trade well below tangible book, this may be justified if return on equity doesn’t improve on a sustained basis.

• ¥155 trillion of off-balance sheet commitments, of which ~50% are derivative instrument guarantees.

* Based on JGAAP: excludes provisions for credit losses, gains/losses on trading assets/securities and foreign exchange, impairments, and other items.

SELECTED OPERATING DATA1

FYE March 31 2006 2007 2008 2009 2010 ∆ tangible book per share 2% 10% -18% -32% 35% ∆ total assets 72% 0% 2% 1% 3% ∆ employees 82% -2% 0% 2% -1% ∆ net interest income 70% 41% -2% 1% -14% ∆ pre-provision profit -4% 90% -71% -360% n/m Assets (¥tn) 186.2 186.2 190.7 193.5 200.1 Selected items as % of total assets: Loans, net 51% 51% 51% 51% 45% Other assets 49% 49% 49% 9% 55% Customer deposits 68% 68% 68% 66% 68% Other liabilities 27% 27% 28% 31% 28% Common equity 5% 5% 4% 3% 4% Revenue (¥tn) 2.7 4.3 4.1 2.5 4.4 % of revenue by type: Net interest income 61% 54% 56% 93% 45% Non-interest income 39% 46% 44% 7% 55% % of revenue by segment (based on JGAAP): Retail banking 30% 33% 37% 40% 40% Corporate banking 57% 53% 50% 50% 43% Trust assets 4% 5% 5% 5% 4% Global markets 11% 8% 8% 12% 15% Other -1% 0% -1% -6% -2% Adj. pre-provision income margin by selected segment (based on JGAAP):2 Retail banking 35% 33% 29% 26% 31% Corporate banking 54% 53% 48% 47% 43% Trust assets 38% 46% 50% 45% 42% Global markets 86% 84% 80% 84% 88%

Pre-provision margin 46% 44% 38% 34% 39% Selected income statement items (¥tn): Pre-provision profit 0.8 1.5 0.4 -1.1 1.9 Loss provision 0.1 0.4 0.4 0.6 0.6 Net charge-offs 0.1 0.3 0.4 0.6 0.5 Net income to common 0.2 0.3 -0.6 -1.5 0.8 Selected credit data: Loan loss reserve ratio 1.1% 1.2% 1.1% 1.2% 1.4% NPLs/gross loans3 2.1% 1.8% 1.7% 1.8% 2.2% Net charge-off ratio 0.2% 0.3% 0.4% 0.6% 0.5% Net interest margin 1.1% 1.2% 1.2% 1.2% 1.1% Return on tang equity 3% 5% n/m n/m 15% Tang equity/assets (avg) 3% 4% 3% 3% 3% Tier 1 capital ratio (JGAAP) 7% 8% 8% 8% 11% ∆ shares out (avg) 25% 24% 3% 5% 14%

1 Based on U.S. GAAP, unless stated otherwise. 2006 figures reflect merger of Mitsubishi Tokyo Financial Group with UFJ Holdings in October 2005. 2 Reflects “operating profit” per JGAAP: figures exclude, among others, provisions for credit losses, gains/losses on trading assets/securities and foreign exchange, as well as impairments. 3 Includes nonaccrual/restructured loans, and accruing loans past due 90 days. MAJOR HOLDERS Japan-based investors ~67% | Non-Japan investors ~33% RATINGS VALUE Intrinsic value materially higher than market value? DOWNSIDE PROTECTION Low risk of permanent loss? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends?

THE BOTTOM LINE Mitsubishi UFJ Financial has an enviable position in the Japanese retail banking market where it remains the dominant player. A strong domestic deposit base has enabled the company to not only withstand the recent financial crisis but also to expand in the U.S. via a $9 billion investment in Morgan Stanley and recent community bank acquisitions. While poor historic returns on equity may explain a valuation below tangible book, they may not justify it. The risk-reward is attractive.




…additional insight into Mitsubishi UFJ Financial: OUR ESTIMATE OF THE EQUITY FAIR VALUE RANGE

(¥ in billions) Conservative Base Case Aggressive




equity)1

6x LTM pre-provision, pretax profit2

Conservative case metrics: Tangible common equity as of 3/31/2010 ¥6,927 Fair value multiple 1.0x Estimated equity value ¥6,927

Base case metrics: "Normalized" net income to common ¥1,039 Fair value multiple 10x Estimated equity value ¥10,391

Aggressive case metrics: LTM pre-provision, pretax profit (year to March 2010) ¥1,930 Fair value multiple 6x Estimated equity value ¥11,579

Estimated fair value of the equity of MUFG (¥ in billions)3 ¥6,930 billion ¥10,390 billion ¥11,580 billion

¥490 per share ¥734 per share ¥818 per share

Estimated fair value of the equity of MUFG (US$ in billions)3 $85 billion $127 billion $142 billion $6 per ADS $9 per ADS $10 per ADS

Implied equity fair value to tangible book 1.0x 1.5x 1.7x Implied dividend yield based on guidance for FYE Mar. 2011 2% 2% 1% Implied ratios based on net income to common during… …year to March 2011 (guidance based on JGAAP) 17x 26x 29x …year to March 2010 (actual reported U.S. GAAP net income) 8x 12x 14x

1 The return on tangible common equity was 15% in the year ended March 2010. 2 Based on year ended March 2010. Pre-provision, pretax profit is stated before provision for credit losses, income taxes, minority interests, preferred dividends. 3 Based on 14.2 billion shares outstanding (1 ADS = 1 share). Estimated fair value in US$ is based on a conversion of the recent exchange rate at 1US$=¥81.53. Source: Company filings, Manual of Ideas analysis, assumptions and estimates. MANAGEMENT GUIDANCE FOR CURRENT FISCAL YEAR ENDING MARCH 31, 2011

Source: Company presentation dated September 8, 2010; available at http://bit.ly/9DWhOJ


http://bit.ly/9DWhOJ�



Mitsubishi UFJ Financial – LOAN AND DEPOSIT TRENDS

Source: Company presentation dated September 8, 2010; available at http://bit.ly/9DWhOJ COMPARISON WITH MIZUHO AND SUMITOMO MITSUI (SMFG)

Source: Company presentation dated September 8, 2010; available at http://bit.ly/9DWhOJ






Roma Financial (Nasdaq: ROMA) Financial: S&Ls/Savings Banks

Robbinsville, NJ, 609-223-8300

www.romabank.com

Trading Data Consensus EPS Estimates Valuation Price: $10.21 (as of 10/22/10) Month # of P/E FYE 12/31/09 113x 52-week range: $9.99 - $12.96 Latest Ago Ests P/E FYE 12/31/10 46x Market value: $314 million (incl. MHC) This quarter $0.07 $0.07 1 P/E FYE 12/31/11 43x Shares out: 30.7 million (incl. MHC shares) Next quarter 0.06 0.06 1 P/E FYE 12/30/12 n/a

Ownership Data FYE 12/31/10 0.22 0.22 1 P / tangible book 1.4x Insider ownership: 77% (73% by MHC) FYE 12/31/11 0.24 0.24 1 Latest EPS Surprise Insider buys (last six months): 2 FYE 12/30/12 n/a n/a n/a Report date: 7/23/10 Insider sales (last six months): 1 LT growth n/a n/a n/a Estimated EPS: $0.05 Institutional ownership: 12% Actual EPS: $0.05

Operating Performance and Financial Position ($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 6/30/10 6/30/09 6/30/10 Interest income 31 31 35 41 46 48 55 59 13 15 Interest expense 8 7 11 15 18 20 22 20 6 5 Pretax income 12 12 11 8 11 7 4 6 1 2 Net income 8 8 8 5 7 5 3 4 1 2 Diluted EPS 0.24 0.33 0.33 0.19 0.23 0.15 0.09 0.14 0.02 0.05 Shares out (avg) 33 23 23 27 32 31 31 31 31 31 Cash from ops 5 8 7 9 9 7 6 6 2 4 Cash 6 6 7 7 8 10 8 8 8 ST investments 18 24 59 91 76 44 150 87 150 LT investments 332 361 358 317 433 633 648 549 648 Fixed assets, net 21 29 31 33 40 39 41 40 41 Loans, other assets 335 379 420 459 520 586 609 557 609 Intangible assets 0 0 0 0 0 0 0 0 0 Total assets 712 798 876 907 1,077 1,312 1,457 1,240 1,457 Short-term debt n/a n/a n/a n/a n/a 65 71 n/a 71 Long-term debt n/a n/a n/a n/a n/a n/a n/a n/a n/a Deposits, other liab. 580 659 641 689 866 1,097 1,200 988 1,200 Preferred stock 0 0 0 0 0 0 0 0 0 Common equity 131 139 235 218 211 215 217 212 217 Ten-Year Stock Price Performance and Trading Volume Dynamics

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BUSINESS OVERVIEW Roma is the parent of Robbinsville, New Jersey-based Roma Bank, a federally-chartered savings bank founded in 1920. INVESTMENT HIGHLIGHTS

• 73% of common stock held by Roma Financial Corp., MHC. The economics of these shares belong entirely to the holders of the other 27% of Roma stock, creating a situation in which “true” intrinsic value may be higher than “apparent” value.

• Second-step conversion may unlock value. Roma will likely wait with a conversion until it can sell the MHC shares at a price exceeding the recent price.

• Acquired Sterling Bank for $15 million in July. Sterling had deposits of $331 million, loans of $287 million, and tangible book of $16 million. The deal expands Roma’s network from 14 to 24 branches in Mercer, Burlington, Camden and Ocean Counties. The integration has been “successfully achieved.”

• Post-merger capital “strong,” as confirmed by continued dividend payments at rate of $0.08 per share per quarter, implying a 3% annualized yield.

• New buyback suggests management is aware of and not satisfied with undervaluation. Roma authorized the “very attractive” repurchase of 5% of the non-MHC shares in September. The company had purchased 170K shares at $12 per share in Q2.

• “True” market value of ~$80 million, implying MV to assets ratio of less than 5%. If Roma earns a 1% spread on assets, it will trade at 5x earnings.


• Continued declines in real estate prices would strain Roma’s balance sheet, potentially forcing the company to pursue a second-step conversion at an unfavorable exchange ratio, resulting in dilution.

THRIFT CONVERSION COMPARABLES – “TRUE” METRICS

MHC MV TBV/ MV/ TBV/

Institution / Ticker Own. ($mn) MV Assets Assets TFS Financial / TFSL 74% 741 238% 7% 16% Investors Bancorp / ISBC 57% 589 146% 7% 10% Capitol Federal / CFFN 70% 541 178% 6% 11% Beneficial Mutual / BNCL 56% 323 164% 7% 11% Northfield Bancorp / NFBK 56% 216 178% 10% 17% Kearny Financial / KRNY 75% 152 266% 7% 18% Rockville Financial / RCKB 55% 102 157% 6% 10% Meridian Interstate / EBSB 58% 99 196% 6% 11% Clifton Savings / CSBK 64% 80 219% 7% 16% Waterstone / WSBF 74% 33 531% 2% 9% Roma Financial / ROMA 73% 88 247% 5% 15%

SELECTED OPERATING DATA FYE December 31 2006 2007 2008 2009 1H10 Total assets ($mn) 876 907 1,077 1,312 1,457 Change (y-y) 10% 4% 19% 22% 17% Selected items as % of assets: Cash equivalents 7% 11% 7% 4% 10% Investment securities 22% 16% 8% 26% 22% Mortgage-backed securities 17% 16% 28% 19% 19% Loans, net 48% 51% 48% 45% 42% Real estate owned 0% 0% 0% 0% 0% Other assets 6% 7% 7% 7% 6% Deposits: Noninterest bearing 3% 3% 3% 2% 3% Deposits: Interest checking 11% 11% 9% 10% 9% Deposits: Savings and club 21% 19% 19% 21% 22% Deposits: CDs 36% 39% 40% 44% 43% Other liabilities 2% 4% 9% 6% 9% Total liabilities 73% 76% 80% 84% 85% Common equity 27% 24% 20% 16% 15% Selected income statement data ($mn): Interest income 41 46 48 55 30 Interest expense (15) (18) (20) (22) (10) Loan loss provision (0) (1) (1) (3) (2) Non-interest income 4 4 4 3 3 Non-interest expense (21) (20) (25) (29) (16) Pretax income 8 11 7 4 5 Pretax pre-provision income 8 12 8 7 7 Selected performance ratios: Return on average assets .6% .8% .5% .2% .4% Return on average equity 2.9% 3.1% 2.2% 1.2% 1.4% Net interest margin 3.3% 3.4% 3.2% 2.9% 3.3% Efficiency ratio 1 72.8% 63.4% 79.0% 89.6% 70.9% Breakdown of loan portfolio (period end): Conventional 1-4 family 48% 47% 44% 42% 42% Commercial and multi-family 15% 17% 24% 29% 29% Construction 6% 8% 5% 4% 4% Home equity 30% 28% 25% 22% 22% Consumer loans 0% 0% 0% 0% 0% Business loans 1% 1% 1% 2% 3% Selected troubled loan statistics (period end): Non-performing loans / loans .1% 1.5% 2.0% 2.5% 3.3% Non-performing loans / assets .0% .8% 1.0% 1.1% 1.4% Non-perform. assets / assets .0% .8% 1.0% 1.3% 1.6% Loan loss allowance / loans .3% .3% .4% .9% 1.2% Allowance / troubled loans 322% 23.3% 21.4% 35.4% 35.8% ∆ shares out 21% 16% -3 0% 0%

1 Efficiency ratio is calculated as non-interest expenses divided by the sum of net interest income and non-interest income. MAJOR HOLDERS CEO <1% | Other insiders 1% | Roma Financial, MHC 73% RATINGS VALUE Intrinsic value materially higher than market value? DOWNSIDE PROTECTION Low risk of permanent loss? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends?

THE BOTTOM LINE Roma Financial is nearly three-fourths owned by an MHC, implying that the economics attributable to Roma shareholders other than the MHC are significantly more attractive than they may initially appear. When adjusting for the MHC ownership and the post-Q2 acquisition of ~$370 million in assets from troubled Sterling Bank, Roma trades at a market value to total asset ratio of less than 5%. We find this valuation attractive for a well-capitalized, well-managed bank in the State of New Jersey. Roma has remained profitable throughout the crisis and is not subject to a regulatory order. The bank pays a dividend, and has been buying back stock at prices well below estimated fair value. We view the investment case as compelling.




…additional insight into Roma Financial: OUR ESTIMATE OF THE EQUITY FAIR VALUE RANGE

($ in billions) Conservative Base Case Aggressive

Valuation methodology 8x LTM pre-provision profit

5x “normalized” net income (assuming bank

earns 1% of assets)

20% discount to tangible common equity

Conservative case metrics:

LTM pretax, pre-provision income $11 million

Fair value multiple 8x

Estimated equity value $86 million

Base case metrics:

Assets as of 6/30/2010 1 $1.8 billion

Assumed net income as % of assets 1.0%

Estimated "normalized" net income $18 million



Aggressive case metrics:

Tangible common equity as of 6/30/2010 $217 million

Fair value multiple 0.8x


Estimated fair value of the equity of Roma 2 $86 million $146 million $173 million $11 per share $18 per share $21 per share

Est. equity fair value to tangible book value .4x .7x .8x

Est. equity fair value to pretax, pre-provision income 8x 14x 16x

Est. equity fair value to total assets 1 5% 8% 9% 1 Pro forma for $369 million in assets added with the acquisition of Sterling Banks in July. 2 Based on 8.2 million shares outstanding, i.e., excluding 22.6 million shares held by Roma Financial Corp., MHC. Source: Company filings, Manual of Ideas analysis, assumptions and estimates. ROMA – LOAN ORIGINATIONS

($ in millions) Years Ended December 31, 2009 2008 2007 2006 Loan originations:

Real estate mortgage - one-to-four family 91 35 34 38 Real estate mortgage - multi-family and commercial 33 59 27 18 Commercial business 1 3 1 1 Construction 10 28 24 13

Consumer: Home equity loans and second mortgage 30 42 40 41 Passbook or certificate 0 0 1 2 Other - - - 1

Total loan originations 165 167 126 115 Loan purchases 11 - - — Loans sold (mortgage loans) 9 4 0 1 Loan principal repayments 98 101 86 72 Total loans sold and principal repayments 107 105 87 73 Increase (decrease) due to other items - - - — Net increase in loan portfolio 69 62 39 42

Source: Company filings, Manual of Ideas analysis.




…additional insight into Roma Financial: ROMA vs. OTHER BANKING INSTITUTIONS — PERFORMANCE AND CONDITION RATIOS

Roma Bank All Banks in New Jersey 1 All U.S. Banks 2

YTD YTD YTD YTD YTD YTD

12/31/2009 6/30/2010 12/31/2009 6/30/2010 6/30/2010 12/31/2009

% of unprofitable institutions n/m n/m 34% 15% 20% 31%

% of institutions with earnings gains n/m n/m 53% 80% 61% 40%

Performance Ratios (annualized)

Yield on earning assets 4.9% 4.7% 5.0% 4.6% 4.8% 4.8%

Cost of funding earning assets 2.0% 1.5% 2.3% 2.0% 1.0% 1.3%

Net interest margin 3.0% 3.2% 2.6% 2.7% 3.8% 3.5%

Noninterest income to earning assets .5% .5% 1.2% 1.0% 2.2% 2.3%

Noninterest expense to earning assets 2.6% 2.6% 2.3% 2.1% 3.4% 3.4%

Net operating income to assets .4% .5% .6% .6% .6% .1%

Return on assets (ROA) .4% .5% .6% .7% .6% .1%

Pretax return on assets .6% .7% 1.0% 1.1% .9% .1%

Return on equity (ROE) 2.2% 3.1% 6.1% 7.2% 5.5% .7%

Retained earnings to avg equity (YTD only) 2.2% 3.1% 2.5% 4.5% 3.1% -2.7%

Net charge-offs to loans .5% .6% .4% .5% 2.7% 2.5%

Credit loss provision to net charge-offs 123.8% 117.3% 178.3% 140.1% 90.5% 133.0%

Earnings coverage of net loan charge-offs 3.7x 3.9x 6.0x 5.1x 1.5x 1.5x

Efficiency ratio 74.7% 70.5% 55.9% 54.9% 55.4% 55.6%

Assets per employee ($ millions) 5.7 5.5 8.2 8.4 6.5 6.4

Cash dividends to net income (YTD only) .0% .0% 58.6% 37.9% 43.2% 480.6%

Condition Ratios

Loss allowance to loans .4% .5% 1.0% 1.1% 3.4% 3.1%

Loss allowance to noncurrent loans 13.8% 14.0% 40.6% 38.5% 65.1% 57.7%

Noncurrent assets plus OREO to assets 1.6% 1.6% 1.6% 1.9% 3.3% 3.4%

Noncurrent loans to loans 3.2% 3.4% 2.6% 2.9% 5.2% 5.4%

Net loans and leases to deposits 59.0% 56.4% 87.9% 88.3% 78.2% 76.5%

Net loans and leases to core deposits 71.5% 68.6% 108.3% 108.4% 106.4% 105.8%

Equity capital to assets 15.8% 14.2% 9.3% 9.7% 11.3% 11.0%

Core capital (leverage) ratio 15.8% 14.2% 8.6% 9.0% 8.8% 8.6%

Tier 1 risk-based capital ratio 30.3% 28.0% 16.0% 16.8% 12.4% 11.7%

Total risk-based capital ratio 30.7% 28.5% 17.1% 17.9% 15.1% 14.3%

Memoranda ($ in millions)

Average assets 1,133 1,269 169,700 178,161 13,184,179 13,294,355

Average earning assets 1,044 1,175 158,472 166,427 11,363,780 11,400,485

Average equity 189 191 15,696 16,935 1,462,915 1,387,886

Average loans 535 567 98,497 100,872 7,360,802 7,502,542 1 Number of institutions reporting: 123 in 1H10 and 123 in 2009. 2 Number of institutions reporting: 7,830 in 1H10 and 8,012 in 2009. 3 OREO = other real estate owned. Source: FDIC, Manual of Ideas analysis.




Waterstone Financial (Nasdaq: WSBF) Financial: Regional Banks

Wauwatosa, WI, 414-761-1000

www.waterstonefinancialgroup.com

Trading Data Consensus EPS Estimates Valuation Price: $3.82 (as of 10/22/10) Month # of P/E FYE 12/31/09 n/m 52-week range: $1.75 - $4.52 Latest Ago Ests P/E FYE 12/31/10 n/m Market value: $119 million (incl. MHC) This quarter $0.01 $0.04 1 P/E FYE 12/31/11 17x Shares out: 31.3 million (incl. MHC) Next quarter 0.02 0.05 1 P/E FYE 12/30/12 10x

Ownership Data FYE 12/31/10 0.00 0.11 1 P / tangible book 0.7x Insider ownership: 76% (74% by MHC) FYE 12/31/11 0.23 0.32 1 Latest EPS Surprise Insider buys (last six months): 1 FYE 12/30/12 0.38 0.43 1 Report date: 8/6/10 Insider sales (last six months): 0 LT growth n/a n/a n/a Estimated EPS: $0.01 Institutional ownership: 6% Actual EPS: -$0.04

Operating Performance and Financial Position ($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 6/30/04 6/30/05 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 6/30/10 6/30/09 6/30/10 Interest income 66 74 42 92 97 104 99 94 25 22 Interest expense 32 36 21 54 62 63 55 46 14 10 Pretax income 16 17 4 13 1 (24) (11) (10) 2 (1) Net income 11 9 3 8 2 (26) (10) (9) 1 (1) Diluted EPS 0.36 0.31 0.08 0.24 0.05 (0.87) (0.33) (0.29) 0.04 (0.04) Shares out (avg) 29 29 33 33 32 31 31 31 30 31 Cash from ops 11 13 10 10 (0) 24 (12) (21) 9 (25) Cash 11 10 9 27 6 15 57 100 51 100 ST investments 22 25 22 64 32 31 36 31 66 31 LT investments 121 107 145 147 229 235 287 309 265 309 Fixed assets, net 16 24 25 33 32 31 29 29 30 29 Loans, other assets 1,070 1,221 1,311 1,378 1,413 1,574 1,459 1,412 1,517 1,412 Intangible assets 0 0 0 0 0 0 0 0 0 0 Total assets 1,240 1,386 1,511 1,649 1,710 1,885 1,868 1,881 1,928 1,881 Short-term debt n/a n/a n/a n/a n/a n/a 74 58 n/a 58 Long-term debt n/a n/a n/a n/a n/a n/a 434 434 n/a 434 Deposits, other liab. 1,117 1,249 1,280 1,407 1,508 1,714 1,200 1,216 1,754 1,216 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 123 133 232 241 202 171 169 173 173 173 Ten-Year Stock Price Performance and Trading Volume Dynamics

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BUSINESS OVERVIEW Waterstone Financial is the parent of WaterStone Bank, a Wisconsin chartered savings bank with eight banking offices in the Milwaukee, Washington and Waukesha counties. INVESTMENT HIGHLIGHTS

• Cheaper than it may appear, as 74% of stock is held by Lamplighter, MHC.* Due to mutual holding company peculiarities, the economics of the shares held by Lamplighter belong to the holders of the other 26% of Waterstone common. As a result, Waterstone should be viewed as having 8.2 million rather than 31.3 million shares outstanding.

• Low exposure to commercial real estate, with the latter accounting for only 3% of loans. Meanwhile, first mortgage loans secured by one-to-four and over four-family residences comprised 45% and 39%, respectively, of gross loans receivable.

• “True” market value of ~$30 million, implying MV to assets ratio of less than 2%. If WSBF earns a 1% spread on assets, it will trade at 2x earnings.


• Consented to OTS cease-and-desist order in ‘09. The bank must maintain Tier 1 capital of 8.5+% and total risk capital of 12+%. It also must adopt a two-year capital plan, which could result in dilution.

• Relatively low market share in core Milwaukee-Waukesha-West Allis metro area, with 2.4% of total deposits, behind Marshall & Ilsley (29.6%), US Bank (22.6%), JPM Chase (7.5%), Associated Bank (4.7%), PNC (2.6%), Wells Fargo (2.4%).**

THRIFT CONVERSION COMPARABLES – “TRUE” METRICS

MHC MV TBV/ MV/ TBV/

Institution / Ticker Own. ($mn) MV Assets Assets TFS Financial / TFSL 74% 741 238% 7% 16% Investors Bancorp / ISBC 57% 589 146% 7% 10% Capitol Federal / CFFN 70% 541 178% 6% 11% Beneficial Mutual / BNCL 56% 323 164% 7% 11% Northfield Bancorp / NFBK 56% 216 178% 10% 17% Kearny Financial / KRNY 75% 152 266% 7% 18% Rockville Financial / RCKB 55% 102 157% 6% 10% Meridian Interstate / EBSB 58% 99 196% 6% 11% Roma Financial / ROMA 73% 88 247% 6% 15% Clifton Savings / CSBK 64% 80 219% 7% 16% Waterstone / WSBF 74% 33 531% 2% 9%

* MHC = mutual holding company. ** Source: FDIC, as of June 30, 2010. Detailed data at http://bit.ly/2aTwsN

SELECTED OPERATING DATA FYE December 31 2006 2007 2008 2009 1H10 Total assets ($mn) 1,649 1,710 1,885 1,868 1,881 Change (y-y) 9% 4% 10% -1% -2% Selected items as % of assets: Cash equivalents 4% 1% 1% 4% 6% Securities 7% 11% 10% 11% 11% Loans, net 83% 83% 82% 77% 75% RE owned 0% 0% 1% 3% 3% FHLB stock 1% 1% 1% 1% 1% Demand deposits 4% 3% 3% 3% 3% MM and savings 6% 7% 5% 5% 5% Time deposits 54% 48% 55% 54% 54% Borrowings 20% 28% 26% 27% 26% Common equity 15% 12% 9% 9% 9% Selected income statement data ($mn): Interest income 92 97 104 99 45 Interest expense (54) (62) (63) (55) (20) Loan loss provision (2) (12) (38) (27) (13) Noninterest income 5 7 6 12 10 Noninterest expense (29) (29) (34) (41) (23) Pretax income 13 1 (24) (12) (0) Pretax pre-provision income 15 13 14 15 12 Net interest margin 2.5% 2.2% 2.3% 2.4% 2.8% Diluted EPS ($) 0.24 0.05 (0.87) (0.33) (0.03) Loan portfolio breakdown (period end): 1-4 family mortgage 44% 46% 49% 46% 45% >4 family mortgage 34% 32% 32% 36% 39% Home equity 6% 6% 6% 6% 5% Commercial RE 4% 4% 3% 3% 3% Construction & land 12% 11% 8% 5% 4% Consumer loans 0% 0% 0% 0% 0% Business loans 0% 2% 3% 3% 3% Troubled loan statistics: Loan loss allowance / loans .5% .9% 1.6% 2.0% 2.5% Net charge-offs / loans (ann.) .0% .4% 1.7% 1.5% .9% Allowance / non-accrual loans 24.9% 16.0% 23.4% 37.8% 35.4% Non-accrual loans / loans 2.1% 5.7% 6.9% 5.3% 7.0% WaterStone Bank capital ratios (period end): Total capital / risk assets 21.4% 13.4% 12.8% 13.7% 13.7% Tier 1 capital / risk assets 20.8% 12.5% 11.6% 12.5% 12.4% Tier 1 capital / avg assets 14.5% 10.1% 8.9% 8.7% 9.0% ∆ shares out 1 0% -5% -3% 0% 0%

MAJOR HOLDERS CEO <1% | Other insiders 4% | Lamplighter, MHC 74% RATINGS VALUE Intrinsic value materially higher than market value? DOWNSIDE PROTECTION Low risk of permanent loss? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends?

THE BOTTOM LINE Waterstone is one of the most interesting “thrift conversions” we have come across, as the related MHC holds nearly 74% of shares outstanding, implying large “leverage” for the other “true” owners of the company. When adjusted for the MHC ownership, Waterstone trades at a market value to tangible asset ratio of less than 2%. This implies large upside for equity holders in a more normalized earnings environment. A second-step conversion in which shares held by the MHC would be sold in a public offering would strengthen Waterstone’s capital ratios, which remain above the regulatory “well capitalized” thresholds (notwithstanding a cease-and-desist order in 2009). While a second-step conversion would in all likelihood represent a positive catalyst, there is some residual risk that the Lamplighter shares could be offered at a “below-market” price, diluting the upside for current holders. While not a “slam dunk,” we view the risk-reward tradeoff as compelling.


http://bit.ly/2aTwsN�



WATERSTONE – OUR ESTIMATE OF THE EQUITY FAIR VALUE RANGE


Valuation methodology 4x LTM pretax pre-provision profit

5x “normalized” net income (assuming bank

earns 1% of assets)

25% discount to tangible common equity

Conservative case metrics: LTM pretax, pre-provision income $19 million Fair value multiple 4x Estimated equity value $78 million

Base case metrics: Assets as of 6/30/2010 $1.9 billion Assumed net income as % of assets 1.0% Estimated “normalized” net income $19 million Fair value multiple 5x Estimated equity value $94 million

Aggressive case metrics: Tangible common equity as of 6/30/2010 $173 million Fair value multiple 0.75x Estimated equity value $130 million

Estimated fair value of the equity of Waterstone1 $78 million $94 million $130 million $9 per share $11 per share $16 per share

Est. equity fair value to tangible book value .45x .54x .75x Est. equity fair value to pretax, pre-provision income 4.0x 4.8x 6.7x Est. equity fair value to total assets 4% 5% 7%

1 Based on 8.2 million shares outstanding, i.e., excluding 23.1 million shares held by Lamplighter Financial, MHC. Source: Company filings, Manual of Ideas analysis, assumptions and estimates. WATERSTONE – AVERAGE BALANCE SHEETS, INTEREST AND YIELDS/COSTS

Six Months Ended June 30, ($ in millions) 2010 2009 Average Interest Yield Average Interest Yield

Balance or Cost Balance or Cost Assets

Interest-earning assets: Loans receivable, net 1,435 41 1 5.70% 1,554 44 1 5.76% Mortgage related securities 2 108 3 5.36% 133 4 5.70% Debt,2 fed funds, investments 190 2 1.75% 144 2 2.33% Total interest-earning assets 1,733 45 5.25% 1,832 50 5.48% Noninterest-earning assets 96 86 Total assets 1,829 1,917

Liabilities and equity Interest-bearing liabilities: Demand accounts 63 0 0.07% 54 0 0.07% Money market and savings 100 0 0.47% 106 0 0.54% Time deposits 1,013 11 2.18% 1,062 19 3.57% Total interest-bearing deposits 1,176 11 1.92% 1,222 19 3.15% Borrowings 475 9 4.01% 515 10 3.91% Total interest-bearing liabilities 1,651 21 2.52% 1,737 29 3.37% Noninterest-bearing liabilities 10 9 Total liabilities 1,661 1,747 Equity 168 170 Total liabilities and equity 1,829 1,917

Net interest income 24 21 Net interest rate spread 3 2.72% 2.11% Net interest-earning assets 4 82 94 Net interest margin 5 2.84% 2.28%

1 Includes net deferred loan fee amortization income of $357,000 and $534,000 for the six months ended June 30, 2010 and 2009, respectively. 2 Average balance of mortgage related and debt securities is based on amortized historical cost. 3 Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. 4 Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. 5 Net interest margin represents net interest income divided by average total interest-earning assets. Source: Company filings, Manual of Ideas analysis.




…additional insight into Waterstone Financial: WATERSTONE vs. OTHER BANKING INSTITUTIONS — PERFORMANCE AND CONDITION RATIOS

WaterStone Bank All Banks in Wisconsin 1 All U.S. Banks 2

YTD YTD YTD YTD YTD YTD

12/31/2009 6/30/2010 12/31/2009 6/30/2010 12/31/2009 6/30/2010

% of unprofitable institutions n/m n/m 26.0% 18.2% 30.7% 20.3%

% of institutions with earnings gains n/m n/m 35.6% 56.8% 40.3% 61.1%

Performance Ratios (annualized)

Yield on earning assets 5.6% 5.3% 5.1% 4.9% 4.8% 4.8%

Cost of funding earning assets 3.1% 2.4% 1.8% 1.4% 1.3% 1.0%

Net interest margin 2.5% 2.9% 3.3% 3.5% 3.5% 3.8%

Noninterest income to earning assets 0.6% 1.3% 1.1% 1.1% 2.3% 2.2%

Noninterest expense to earning assets 2.2% 2.8% 2.9% 3.0% 3.4% 3.4%

Net operating income to assets -0.5% -0.2% -0.7% -0.2% 0.1% 0.6%

Return on assets (ROA) -0.6% -0.2% -0.6% -0.2% 0.1% 0.6%

Pretax return on assets -0.7% -0.2% -1.0% -0.3% 0.1% 0.9%

Return on equity (ROE) -6.8% -1.7% -5.8% -1.4% 0.7% 5.5%

Retained earnings to average equity (YTD only) -6.8% -1.7% -7.3% -2.7% -2.7% 3.1%

Net charge-offs to loans 1.5% 0.9% 2.7% 2.4% 2.5% 2.7%

Credit loss provision to net charge-offs 114.2% 189.0% 124.8% 107.1% 133.0% 90.5%

Earnings coverage of net loan charge-offs 0.65x 1.67x 0.67x 0.85x 1.45x 1.45x

Efficiency ratio 71.8% 68.4% 65.5% 64.1% 55.6% 55.4%

Assets per employee ($ millions) 3.6 3.3 5.1 5.0 6.4 6.5

Cash dividends to net income (YTD only) 0.0% 0.0% -24.1% -86.9% 480.6% 43.2%

Condition Ratios

Loss allowance to loans 1.9% 2.4% 2.7% 2.9% 3.1% 3.4%

Loss allowance to noncurrent loans 37.8% 35.4% 59.0% 63.3% 57.7% 65.1%

Noncurrent assets plus OREO to assets 3 6.8% 7.9% 4.0% 4.1% 3.4% 3.3%

Noncurrent loans to loans 5.1% 6.7% 4.6% 4.6% 5.4% 5.2%

Net loans and leases to deposits 121.9% 117.5% 93.0% 90.4% 76.5% 78.2%

Net loans and leases to core deposits 153.7% 152.3% 109.2% 105.6% 105.8% 106.4%

Equity capital to assets 8.8% 8.9% 10.0% 10.4% 11.0% 11.3%

Core capital (leverage) ratio 8.7% 9.0% 8.7% 8.9% 8.6% 8.8%

Tier 1 risk-based capital ratio 12.5% 12.4% 11.1% 11.7% 11.7% 12.4%

Total risk-based capital ratio 13.7% 13.7% 13.2% 13.8% 14.3% 15.1%

Memoranda ($ in millions)

Average assets 1,895 1,856 156,403 152,194 13,294,355 13,184,179

Average earning assets 1,752 1,703 142,735 137,899 11,400,485 11,363,780

Average equity 165 165 15,161 15,521 1,387,886 1,462,915

Average loans 1,522 1,454 117,908 110,386 7,502,542 7,360,802 1 Number of institutions reporting: 280 in 1H10 and 281 in 2009. 2 Number of institutions reporting: 7,830 in 1H10 and 8,012 in 2009. 3 OREO = other real estate owned. Source: FDIC, Manual of Ideas analysis.




Other Investment Candidates in Banking Industry

Bank of America (NYSE: BAC) Financial: Money Center Banks, Member of S&P 500

Charlotte, NC, 704-386-5681

www.bankofamerica.com

Trading Data Consensus EPS Estimates Valuation Price: $11.44 (as of 10/22/10) Month # of P/E FYE 12/31/09 n/m 52-week range: $11.17 - $19.86 Latest Ago Ests P/E FYE 12/31/10 11x Market value: $115 billion This quarter $0.24 $0.19 26 P/E FYE 12/31/11 8x Shares out: 10.0 billion Next quarter 0.29 0.29 16 P/E FYE 12/30/12 6x

Ownership Data FYE 12/31/10 1.08 0.94 17 P / tangible book 1.0x Insider ownership: <1% FYE 12/31/11 1.47 1.52 29 Latest EPS Surprise Insider buys (last six months): 12 FYE 12/30/12 2.04 2.23 24 Report date: 10/19/10 Insider sales (last six months): 6 LT growth 8.7% 10.0% 3 Estimated EPS: $0.16 Institutional ownership: 64% Actual EPS: $0.27

Operating Performance and Financial Position ($ billions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 9/30/10 9/30/09 9/30/10 Interest income 31 43 59 79 87 86 78 75 19 18 Interest expense 11 15 28 44 53 40 31 24 7 6 Pretax income 16 21 24 32 21 3 (4) (5) (3) (6) Net income 11 14 16 21 15 2 (2) (7) (2) (8) Diluted EPS 3.55 3.64 4.04 4.59 3.29 0.54 (0.29) (0.81) (0.26) (0.77) Shares out (avg) 3.0 3.8 4.0 4.5 4.4 4.6 7.7 8.3 8.6 10.0 Cash from ops 23 (4) (12) 15 11 4 130 n/a 23 n/a Cash 27 29 37 36 43 33 121 131 152 131 ST investments 153 197 294 302 303 226 396 498 416 498 LT investments 96 225 245 216 283 371 436 429 392 429 Fixed assets, net 6 8 8 9 11 13 16 14 15 14 Loans, other assets 423 600 656 817 984 1,071 1,136 1,156 1,159 1,156 Intangible assets 15 52 51 78 91 104 118 99 117 99 Total assets 719 1,110 1,292 1,460 1,716 1,818 2,223 2,328 2,251 2,328 Short-term debt 78 120 241 218 221 207 255 297 250 297 Long-term debt 90 115 116 162 220 299 482 529 509 529 Deposits, other liab. 503 775 834 945 1,128 1,135 1,254 1,272 1,235 1,272 Preferred stock 0 0 0 3 4 38 37 18 59 18 Common equity 48 100 101 132 142 139 194 212 199 212 Ten-Year Stock Price Performance and Trading Volume Dynamics

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BUSINESS OVERVIEW Bank of America (BofA) operates through seven segments: Global Banking and Markets (32% of assets; 3Q10 net income: $1.4 billion): #2 share of global investment banking revenue YTD. BofA acquired Merrill Lynch in January 2009. Deposits (19% of assets; 3Q10 net income: $0.2 billion): #1 in U.S. retail deposits with ~5,900 branches in the U.S. Global Commercial Banking (13% of assets; 3Q10 net income: $0.6 billion): Largest commercial bank in the U.S. Global Wealth Mgmt (12% of assets; 3Q10 net income: $0.3 billion): Top wealth manager ($2.2 trillion of client assets). Home Loans and Insurance (9% of assets; 3Q10 net income: -$0.3 billion): #1 mortgage servicer, #2 mortgage originator and #1 home equity originator in the U.S. during 1H10. Global Card Services (7% of assets; 3Q10 net income: $0.5 billion): #2 market share in U.S. credit cards, #1 in Europe. All Other (8% of assets; 3Q10 net income: $0.3 billion): Consists of equity investments, certain residential mortgages, central costs, businesses in liquidation and other items. INVESTMENT HIGHLIGHTS

• Among top “superinvestor” holdings per 13-F filings as of June 30 (at a share price of ~$14.50). Accordingly, BofA is the #1 holding of Tepper’s Appaloosa (13% of 13-F funds), #2 at Paulson (11%) and #6 at Berkowitz’s Fairholme (6%).

• October sell-off a buying opportunity? The ~15% share price slide ($15+ billion market value loss) is a possible overreaction to recent claims tied to mortgage “put-backs” and “faulty” foreclosures.

• Shares trade at 1.0x tangible book and 10x 3Q10 annualized net income excluding a goodwill charge.

• “Does not expect to issue common stock to meet new standards of Basel III,” based on BofA.

INVESTMENT RISKS & CONCERNS • Legal risks tied to mortgage repurchase requests

and “faulty” foreclosures. BofA had $13 billion of unresolved loan repurchase claims (related reserves: $4 billion) at 9/30, but may be liable for much more if mortgage investors prove BofA made improper loan warranties. Claims of faulty foreclosures due to process errors may lead to additional liability.

• $132 billion of “run-off” loans at 9/30, as reported by BofA (29% home equity, 24% res. mortgage).

• U.S. accounts for ~80% of assets, making BofA highly dependent on the American consumer.

MAJOR HOLDERS Insiders <1% | State Street 4% | Vanguard 4% | BlackRock 3% | Paulson 2% | Appaloosa <1% | Fairholme <1%



9/30/10 ∆ tangible book per share -5% -38% 23% 19% ∆ total assets 18% 6% 22% 3% ∆ employees 3% 15% 18% 1% ∆ net interest income -1% 32% 4% -8% ∆ pre-provision profit2 -21% 7% 69% -31% Assets ($tn) 1.7 1.8 2 2 2.3 Selected items as % of to al assets: Securities /trading assets 31% 31% 34% 38% Loans, net 50% 50% 39% 3 % Other assets 18% 19% 27% 24% Customer deposits 47% 49% 45% 42% Other liabilities 45% 44% 47% 49% Common equity 8% 8% 9% 9% Revenue ($bn) 66.8 72.8 119.6 88.7 % of revenue by type: Net interest income 51% 62% 39% 45% Non-interest income 49% 38% 61% 55% % of revenue by segment (fully tax-equivalent basis): Global banking and markets3 -2% -5% 17% 26% Deposits 24% 24% 12% 12% Global commercial banking3 22% 23% 19% 9% Global wealth/investment mgmt 11% 11% 15% 14% Home loans and insurance 5% 13% 14% 11% Global card services 40% 42% 24% 22% Net income margin by selected segment (fully tax-equivalent basis): Global banking and markets3 291% 128% 35% 24% Deposits 31% 31% 18% 15% Global commercial banking3 28% 27% 13% 26% Global wealth/investment mgmt 26% 18% 14% 9% Home loans and insurance 3% -27% -23% -39% Global card services 15% 4% -19% 12%2

Total net margin 22% 5% 5% 11%2 Selected income statement items ($bn): Pre-provision profit2 29.3 31.3 52.9 36.9 Loss provision 8.4 26.8 48.6 23.3 Net charge-offs 6.5 16.2 33.7 27.6 Net income to common2 14.8 2.6 -2.2 8.4 Selected credit data: Loan loss reserve ratio 1.3% 2.5% 4.1% 4.7% NPLs to gross loans4 0.6% 1.8% 3.7% 3.5% Net charge-off ratio 0.8% 1.8% 3.6% 3.8% Net interest margin 2.6% 3.0% 2.7% 2.8% Return on assets 0.9% 0.2% 0.3% 0.5%2 Return on tang equity 28% 6% n/m 11%2 Tang equity/assets (avg) 4% 3% 3% 4% Tier 1 capital ratio 7% 9% 10% 11% ∆ shares out (avg) -2% 4% 68% 31%

1 Figures reflect acquisitions of Merrill Lynch (2009) and Countrywide (2008). YTD figures are on a “managed basis” (includes the impact of card securitization activity; fully-taxable revenue); 2007-09 is based on GAAP. 2 YTD excludes a $10.4 billion goodwill impairment charge taken in 3Q10. 3 2007-09 and YTD may not be comparable. 4 NPL=non-performing loans. RATINGS VALUE Intrinsic value materially higher than market value? DOWNSIDE PROTECTION Low risk of permanent loss? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends?

THE BOTTOM LINE With the BofA share price down nearly 15% in October, investors have the opportunity to buy the company at a 20+% discount to the price at June 30, when “superinvestors” Paulson, Tepper and Berkowitz reported owning large stakes. While recent issues related to mortgage repurchase requests and “faulty” foreclosures may have increased risk, valuation is enticing.




Bank of America – OUR ESTIMATE OF THE EQUITY FAIR VALUE RANGE





6x 3Q10 annualized pre-provision, pretax

profit2

Conservative case metrics: Tangible common equity as of 9/30/2010 $114 billion Fair value multiple 1.0x Estimated equity value $114 billion

Base case metrics: "Normalized" net income to common $17 billion Fair value multiple 10x Estimated equity value $171 billion

Aggressive case metrics: 3Q10 annualized pre-provision, pretax profit2 $41 billion Fair value multiple 6x Estimated equity value $244 billion

Estimated fair value of the equity of Bank of America3 $114 billion $171 billion $244 billion

$11 per share $17 per share $24 per share Implied equity fair value to tangible book 1.0x 1.5x 2.1x Implied equity value to 3Q10 annualized net income4 10x 16x 22x

1 The annualized return on tangible common equity was ~11% in 1Q-3Q10, excluding goodwill impairment charges. 2 Pre-provision, pretax profit is stated before the provision for credit losses, income taxes, minority interests, and preferred dividends. It is stated before a $10.4 billion goodwill impairment charge in 3Q10 "related to limits to be placed on debit interchange fees under the financial reform legislation enacted in July 2010, which will reduce future revenue in the Global Card Services business." 3 Based on 10.0 billion common shares outstanding. 4 Net income excludes the above-mentioned goodwill impairment charge. Source: Company filings, Manual of Ideas analysis, assumptions and estimates. BUSINESS SEGMENT PROFITABILITY

1 Periods prior to January 1, 2010 are presented on a managed basis and assumes that credit card loans that were securitized were not sold and presented earnings on these loans in a manner similar to the way loans that have not been sold (i.e., held loans) were presented. Source: Company presentation dated October 19, 2010; available at http://bit.ly/aF1mix BALANCE SHEET DRIVERS OF NET INTEREST INCOME

Source: Company presentation dated October 19, 2010; available at http://bit.ly/aF1mix


http://bit.ly/aF1mix�




…additional insight into Bank of America: SELECTED CAPITAL MEASURES

Source: Company presentation dated October 19, 2010; available at http://bit.ly/aF1mix SELECTED CREDIT TRENDS

1 Credit card shown on a managed basis prior to 2010. 2 FHA insured loans are excluded for comparison purposes. 3 Includes commercial domestic excluding small business and commercial foreign. Source: Company presentation dated October 19, 2010; available at http://bit.ly/aF1mix






BNP Paribas (Paris: BNP, OTC: BNPQY) Financial: Major International Banks

Paris, France, +33-140-146-358

www.bnpparibas.com

Trading Data Consensus EPS Estimates Valuation Price: €53.14 (as of 10/22/10) Month # of P/E FYE 12/31/09 11x 52-week range: €40.81 - €60.38 Latest Ago Ests P/E FYE 12/31/10 12x Market value: €63 billion This quarter n/a n/a n/a P/E FYE 12/31/11 11x Shares out: 1.2 billion Next quarter n/a n/a n/a P/E FYE 12/30/12 n/a

Ownership Data FYE 12/31/10 € 4.38 n/a n/a P / tangible book 1.1x Insider ownership: <1% FYE 12/31/11 € 4.97 n/a n/a Latest EPS Surprise Insider buys (last six months): n/a FYE 12/30/12 n/a n/a n/a Report date: n/a Insider sales (last six months): n/a LT growth n/a n/a n/a Estimated EPS: n/a Institutional ownership: n/a Actual EPS: n/a

Operating Performance and Financial Position (€ billions, except Fiscal Years Ended LTME 1HE 1HE per share data) 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 6/30/10 6/30/09 6/30/10 Interest income 27 28 32 45 59 59 47 47 23 24 Interest expense 21 17 24 36 49 45 25 24 14 12 Pretax income 6 7 8 11 11 4 9 12 5 8 Net income 4 5 6 7 8 3 6 7 3 4 Diluted EPS 4.28 5.85 6.97 7.95 8.42 2.97 5.20 6 2.87 3.57 Shares out (avg) 873 841 830 894 898 925 1,058 1,078 972 1,183 Cash from ops 6 6 (3) 15 13 30 32 17 31 16 Cash 5 7 7 10 19 39 56 64 50 64 Fin. assets-for sale n/a 76 93 97 113 131 221 226 206 226 Fin. assets-other n/a 540 700 745 932 1,192 829 952 1,011 952 Fixed assets, net 7 8 9 13 13 15 17 17 11 17 Loans, other assets 222 285 346 468 516 564 768 788 819 788 Intangible assets 6 8 9 12 12 13 13 14 13 14 Total assets 783 1,003 1,258 1,440 1,695 2,076 2,058 2,237 2,289 2,237 Debt - subordinated 13 13 17 18 19 18 28 28 30 28 Debt - other 83 78 85 122 141 158 211 205 212 205 Deposits, other liab. 211 312 366 443 517 600 826 832 847 832 Minority interest 5 5 5 5 6 6 11 11 10 11 Common equity 28 32 41 50 54 53 70 73 65 73 Ten-Year Stock Price Performance and Trading Volume (adjusted for dividends)

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http://www.bnpparibas.com/�



BUSINESS OVERVIEW BNP Paribas has three segments: Retail Banking (1H10 pre-tax income: €2.5 billion): covers French retail banking (FRB), Italian Retail Banking (BNL banca commerciale) and the new personal and business retail banking entity in Belgium and Luxembourg (Belux Retail Banking). It also includes retail financial services, which is split into two sub-divisions: Personal Finance providing credit solutions to private individuals and Equipment Solutions providing credit and other services to corporates. It also includes retail banking activities in the U.S. (BancWest) and in emerging markets. Corporate and Investment Banking (1H10 pre-tax income: €3.0 billion): includes Advisory & Capital Markets (equities and equity derivatives, fixed income & forex, corporate finance) and financing. Investment Solutions (1H10 pre-tax income: €0.9 billion): includes Private Banking; Investment Partners – covering all of the group’s asset Management businesses; Personal Investors – providing private individuals with independent financial advice and investment services; securities services to management companies, financial institutions and other corporations; and Insurance and real estate services. Other Activities (1H10 pre-tax income: €1.1 billion): mainly comprises private equity, principal investments, the Klépierre property investment company, and corporate functions. BNP acquired 75% of Fortis Banque for €5.7 billion in May 2009. The Belgian government owns a blocking minority interest of 25% plus one share. INVESTMENT HIGHLIGHTS

• Acquisition of Fortis expands business into Belgium and Luxembourg, from existing domestic markets in France and Italy.

• “Fortis’ integration successful, synergies ahead of the announced schedule.” BNP is targeting a €900 million of synergies by 2012, of which the majority has yet to materialize. This indicates net income may continue to grow from 1H10.

• Shares trade at 1.1x tangible book despite mid-teens returns on equity in the first half of 2010 and a strong and defensible position in core domestic baking markets of France and Belgium.


• Execution risk. While BNP may have earnings upside potential from Fortis-related synergies, only €120 million of synergies have been realized by yearend 2009. Expected total restructuring costs are €1.3 billion, of which ~60% is expected in 2010.


FYE December 31 YTD

6/30/10 ∆ total assets -2% ∆ interest income 4% ∆ diluted EPS 24% Assets (€tn) 2.2 Selected items as % of total assets: Financial assets - at fair value 43% Financial assets – available for sale 10% Loans, net 35% Customer deposits 37% Debt 10% Common equity 3% Tangible common equity 3% Revenue (€bn) 22.7 % of revenue by segment: French retail banking 15% BNL banca commerciale 7% Belux retail banking 7% Personal Finance 11% Other activities 12% Total Retail Banking 52% Advisory & capital markets 19% Financing 10% Total Corporate and Investment Banking 28% Investment Solutions 13% Other Activities 7% Pre-tax income by segment (€bn): French retail banking 1.0 BNL banca commerciale 0.2 Belux retail banking 0.4 Personal Finance 0.4 Other activities 0.5 Total Retail Banking 2.5 Advisory & capital markets 1.6 Financing 1.4 Total Corporate and Investment Banking 3.0 Investment Solutions 0.9 Other Activities 1.1 Total pre-tax income 7.5 Total pre-tax income margin 33% % of revenue by geography: France 36% Other European Countries 43% Americas 13% Other 8% Tier 1 capital ratio 11% ∆ shares out (avg) 22%

MAJOR HOLDERS Insiders <1% | Belgian government 10% RATINGS VALUE Intrinsic value materially higher than market value? DOWNSIDE PROTECTION Low risk of permanent loss? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends?

THE BOTTOM LINE BNP made a transformative acquisition in 2009 when it acquired 75% of Fortis, which expanded its business into Belgium and Luxembourg, from existing domestic markets in France and Italy. About 40% of 1H10 pre-tax profit is from investment/ corporate banking and about one third from retail banking. Shares appear inexpensive trading near tangible book and 7-8x 2Q10 annualized net income. If BNP can sustain the mid-teens ROE it generated in 1H10, investors may get rewarded.




…additional insight into BNP Paribas: OUR ESTIMATE OF THE EQUITY FAIR VALUE RANGE







Conservative case metrics: Tangible common equity as of 6/30/2010 €58 billion Fair value multiple 1.0x

Estimated equity value €58 billion Base case metrics:

"Normalized" net income to common €9 billion Fair value multiple 10x

Estimated equity value €88 billion Aggressive case metrics:

"Normalized" net income to common €9 billion Fair value multiple 15x

Estimated equity value €132 billion

Estimated fair value of the equity of BNP Paribas2 €58 billion €88 billion €132 billion

€49 per share €74 per share €111 per share Implied equity fair value to tangible book 1.0x 1.5x 2.3x Implied equity value to 2Q10 annualized net income 6.9x 10.4x 15.6x

1 After-tax ROE was 14% in 1H10 as reported by BNP. 2 Based on 1.19 billion common shares outstanding. Source: Company filings, Manual of Ideas analysis, assumptions and estimates. OVERVIEW OF BNP PARIBAS, INCLUDING FORTIS

* Operating divisions. ** Including 2/3 of Private Banking for FRB (including PEL/CEL effects), BNL bc and BeLux RB. Source: Company presentation dated September 29, 2010; available at http://bit.ly/9SHnTb


http://bit.ly/9SHnTb�



…additional insight into BNP Paribas: NET INCOME VERSUS SELECTED PEERS, H1 2010

*Average exchange rates in 1H10. Source: Company presentation dated September 29, 2010; available at http://bit.ly/9SHnTb RETURN ON EQUITY VERSUS SELECTED PEERS, H1 2010

* 2Q10 figure. Source: Company presentation dated September 29, 2010; available at http://bit.ly/9SHnTb






Citigroup (NYSE: C) Financial: Money Center Banks, Member of S&P 500

New York, NY, 212-559-1000

www.citigroup.com

Trading Data Consensus EPS Estimates Valuation Price: $4.11 (as of 10/22/10) Month # of P/E FYE 12/31/09 n/m 52-week range: $3.11 - $5.07 Latest Ago Ests P/E FYE 12/31/10 11x Market value: $119 billion This quarter $0.08 $0.08 21 P/E FYE 12/31/11 9x Shares out: 29.0 billion Next quarter 0.10 0.11 10 P/E FYE 12/30/12 7x

Ownership Data FYE 12/31/10 0.39 0.39 16 P / tangible book 1.0x Insider ownership: <1% FYE 12/31/11 0.46 0.46 23 Latest EPS Surprise Insider buys (last six months): 13 FYE 12/30/12 0.55 0.56 17 Report date: 10/18/10 Insider sales (last six months): 10 LT growth 25.0% 25.0% 1 Estimated EPS: $0.06 Institutional ownership: 43% Actual EPS: $0.07

Operating Performance and Financial Position ($ billions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 9/30/10 9/30/09 9/30/10 Interest income 55 64 76 94 121 106 77 78 19 19 Interest expense 17 22 37 56 76 53 28 25 7 6 Pretax income 26 23 34 29 1 (50) (16) (3) (4) 3 Net income 18 17 25 21 3 (30) (9) 1 (3) 2 Diluted EPS 3.27 3.07 3.82 4.09 0.53 (6.39) (0.76) (0.02) (0.23) 0.09 Shares out (avg) 5.1 5.1 5.1 4.9 4.9 5.3 11.6 15.9 12.1 28.9 Cash from ops (15) (2) 32 (0) (71) 96 (56) n/a 6 n/a Cash 21 24 24 27 38 29 25 26 26 26 ST investments 427 505 545 719 882 732 732 727 756 727 LT investments n/a n/a n/a n/a 215 256 306 340 246 340 Fixed assets, net n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Loans, other assets 774 908 878 1,089 988 874 752 852 820 852 Intangible assets 41 47 48 49 64 47 41 37 41 37 Total assets 1,264 1,484 1,494 1,884 2,187 1,938 1,857 1,983 1,889 1,983 Short-term debt 181 210 242 349 304 205 154 192 178 192 Long-term debt 163 208 217 288 340 292 340 387 380 387 Deposits, other liab. 822 957 922 1,127 1,430 1,299 1,210 1,241 1,190 1,241 Preferred stock 1 1 1 1 0 71 0 0 0 0 Common equity 97 108 111 119 113 71 152 163 141 163 Ten-Year Stock Price Performance and Trading Volume Dynamics

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BUSINESS OVERVIEW Citigroup operates through three major segments: Citicorp (63% of assets; 3Q10 net income: $3.6 billion): Strong non-U.S. presence with ~26% of segment assets in Asia, ~19% in EMEA and ~12% in Latin America. Includes Regional Consumer Banking (4,200+ branches; retail/local commercial banking, Citi cards, branch services), Securities and Banking (investment banking and related services) and Transaction Services (clearing, custody and related services). Citi Holdings (22% of assets; 3Q10 net income: -$1.1 bn): Consists of non-core assets that management plans to “exit as quickly as practicable.” Includes Local Consumer Lending (~70% of segment assets, mostly U.S. mortgages; 1,800+ branches in North America), a Special Asset Pool (~23% of segment assets, mostly corporate/mortgage loans) and Brokerage/Asset Mgmt (~7% of segment assets including a 49% stake in MS Smith Barney: $10+ billion carrying value). Corporate/Other (15% of assets; 3Q10 net income: -$0.3 billion): Central functions and discontinued operations. INVESTMENT HIGHLIGHTS

• “Has the ability to earn a dollar a share, which would put it at $10” according to Bruce Berkowitz of Fairholme.* A $1.00 EPS implies a 20+% ROE. Citigroup accounts for 8% of Fairholme funds.

• A “superinvestor” favorite. Berkowitz, Paulson, Ackman, Tepper and Falcone, among others, owned Citigroup as of June 30 (at a share price of ~$3.75) which was one of their top respective 13-F holdings.

• Market doesn’t “fully appreciate” according to Bill Ackman of Pershing Square:** 1) a “$21 billion operating deferred tax asset” and 2) “$24-30 billion of excess capital supporting the wind down of Citi Holdings that will be available to be returned to shareholders as these assets are liquidated.”

• Guiding for Citi Holdings’ assets of “below $400 billion” by yearend 2010 (<20% of total assets).

INVESTMENT RISKS & CONCERNS • Citi Holdings’ assets (~22% of total) may require

further significant write-downs. Management’s plan to sell or run-off assets carries execution risks.

• May not begin returning capital to shareholders before 2012, as stated by management. This may contrast with assertions of a “strong balance sheet.”

• Overhang from share sales by U.S. government (plans to sell up to 1.5 billion shares by 12/31/10).

MAJOR HOLDERS Insiders <1% | U.S. government 12% | State Street 3% | Vanguard 3% | BlackRock 2% | Paulson 2% | Fairholme <1%



9/30/10 ∆ tangible book per share -29% -59% -6% -1% ∆ total assets 16% -11% -4% 5% ∆ employees 11% -14% -18% -7% ∆ net interest income 15% 18% - % -9 ∆ pre-provision profit -48% -195% n/m -30% Assets ($tn) 2.2 1.9 1.9 2.0 Selected items as % of total assets: Securities/trading assets 50% 44% 49% 48% Loans, net 35% 34% 30% 31% Other assets 15% 22% 21% 21% Customer deposits 38% 40% 45% 4 % Other liabilities 57% 56% 47% 49% Common equity 5% 4% 8% 8% Revenue ($bn) 77.3 51.6 80.3 68.2 % of revenue by type: Net interest income 59% 104% 61% 61% Non-interest income 41% -4% 39% 39% % of revenue by segment: Citicorp - regional consumer banking 37% 53% 31% 36% Citicorp - securities and banking 33% 48% 34% 29% Citicorp - transaction services 10% 19% 12% 11% Citi Holdings 23% -16% 36% 22% Corporate and other -3% -4% -13% 2% Net income margin by segment: Citicorp - regional consumer banking 21% -10% 10% 14% Citicorp - securities and banking 27% 25% 34% 32% Citicorp - transaction services 30% 34% 38% 37% Citi Holdings -54% 443% -30% -20% Corporate and other -3% 4% -10% 0%

Total net margin 5% -54% -2% 14% Selected income statement items ($bn): Pre-provision profit 18.6 -17.6 32.5 33.3 Loss provision 16.8 33.7 38.8 20.6 Net charge-offs 9.9 19.0 30.7 24.0 Net income to common 3.6 -29.4 -9.2 9.3 Selected credit data: Loan loss reserve ratio 2.1% 4.3% 6.1% 6.7% NPLs/gross loans2 1.2% 3.2% 5.4% 3.4% Net charge-off ratio – consumer loans 1.9% 3.3% 5.4% n/a Net charge-off ratio – corporate loans 0.3% 0.8% 3.1% n/a Net interest margin 2.4% 3.1% 3.0% 3.1% Return on assets 0.2% n/m n/m 0.6% Return on tang equity 6% n/m n/m 11% Tang equity/assets (avg) 3% 2% 4% 6% Tier 1 capital ratio 7% 12% 12% 13% ∆ shares out (avg) 0% 7% 120% 276%

1 YTD figures are on a “managed basis” (includes the impact of card securitization activity), while 2007-09 figures are on a GAAP basis. 2 NPL=non-performing loans (referred to as “non-accrual” loans by Citigroup). RATINGS VALUE Intrinsic value materially higher than market value? DOWNSIDE PROTECTION Low risk of permanent loss? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? * Source: WealthTrack interview 8/27/10 (transcript: http://bit.ly/d7wNVn). ** Source: Pershing Square 1Q10 investor letter.

THE BOTTOM LINE Citigroup – a superinvestor favorite owned by the likes of Berkowitz, Paulson and Ackman – may have earning power of $1 per share, which implies a P/E of ~4x. While this sounds optimistic, investors could be missing the positive earnings/capital impact from asset reductions at Citi Holdings. As this “bad” segment reduces in size, the high-ROE Citicorp segment should increasingly drive overall company performance. Moreover, potential excess capital from Citi Holdings may get released.


http://bit.ly/d7wNVn�



…additional insight into Citigroup: OUR ESTIMATE OF THE EQUITY FAIR VALUE RANGE



10x “normalized” net income to common (based

on implied net income assuming a 15% return on tangible common equity)1

6x 3Q10 annualized pre-provision, pretax profit2

Conservative case metrics:

Tangible common equity as of 9/30/2010 $125 billion

Fair value multiple 1.0x

Estimated equity value $125 billion

Base case metrics:

“Normalized” net income to common3 $19 billion



Aggressive case metrics:

3Q10 annualized pre-provision, pretax profit $37 billion



Estimated fair value of the equity of Citigroup4 $125 billion $188 billion $221 billion

$4.30 per share $6.50 per share $7.60 per share

Implied equity fair value to tangible book 1.0x 1.5x 1.8x

Implied value to 3Q10 annualized net income 14x 22x 26x 1 The annualized return on tangible common equity is ~11% based on YTD 2010 through September. 2 Pre-provision, pretax profit is stated before the provision for credit losses, income taxes, minority interests, and preferred dividends. 3 3Q10 net income was $3.3 billion ($13.2 billion annualized) excluding the Citi Holdings segment. 4 Based on 29.0 billion common shares outstanding. Source: Company filings, Manual of Ideas analysis, assumptions and estimates. KEY CAPITAL METRICS

1 Preliminary. Source: Company presentation dated October 18, 2010; available at http://citi.us/cRa1vl


http://citi.us/cRa1vl�



…additional insight into Citigroup: SELECTED TROUBLED LOAN STATISTICS

1 Periods prior to 1Q10 are on a managed basis. 2 Loan loss reserves include provision for unfunded lending commitments and credit reserve builds/releases. Source: Company presentation dated October 18, 2010; available at http://citi.us/cRa1vl CONSUMER CREDIT TRENDS 1

1 Periods prior to 1Q10 are on a managed basis. Note: LLR and NCL ratios exclude loans recorded at fair value since 1Q10. SAP consumer NCLs are booked in North America. Source: Company presentation dated October 18, 2010; available at http://citi.us/cRa1vl






HSBC Holdings (London: HSBA, NYSE: HBC, Hong Kong: 005) Financial: Regional Banks

London, EN, United Kingdom, 44-20-799-8888 www.hsbc.com


Ownership Data FYE 12/31/10 3.66 3.66 2 P / tangible book 1.7x Insider ownership: <1% FYE 12/31/11 5.17 6.04 2 Latest EPS Surprise Insider buys (last six months): 0 FYE 12/30/12 n/a n/a n/a Report date: n/a Insider sales (last six months): 0 LT growth 30.7% 30.7% 1 Estimated EPS: n/a Institutional ownership: 3% Actual EPS: n/a

Operating Performance and Financial Position ($ billions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 6/30/10 6/30/08 6/30/10 Interest income 40 50 60 76 92 91 62 58 47 29 Interest expense 14 19 29 41 55 49 21 53 26 9 Pretax income 10 17 20 21 23 8 6 13 10 10 Net income 7 13 15 16 19 6 6 10 8 7 Diluted EPS 3.43 5.66 6.74 6.93 8.17 2.33 1.69 2.57 3.25 1.89 Shares out (avg) 2.1 2.2 2.2 2.2 2.3 2.4 3.3 3.3 2.3 3.5 Cash from ops 18 60 7 79 91 30 7 71 n/a 39 Cash 8 10 14 13 22 52 61 72 13 72 ST investments 2 117 246 333 457 427 421 404 478 404 LT investments 904 825 846 n/a n/a n/a n/a n/a n/a n/a Fixed assets, net 16 16 15 16 16 14 14 13 16 13 Loans, other assets 76 262 251 1,461 1,821 2,006 1,839 1,902 1,998 1,902 Intangible assets 29 36 35 37 40 27 30 28 41 28 Total assets 1,034 1,266 1,407 1,861 2,354 2,527 2,364 2,418 2,547 2,418 Short-term debt 154 191 226 230 247 180 147 154 230 154 Long-term debt 21 38 46 23 25 29 30 28 32 28 Deposits, other liab. 785 948 1,042 1,499 1,955 2,225 2,059 2,101 2,158 2,101 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 74 90 94 108 128 94 128 136 127 136 Ten-Year Stock Price Performance and Trading Volume Dynamics

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BUSINESS OVERVIEW HSBC operates in five main segments: Global Banking and Markets (~75% of total assets*; 1H10 pretax income: $5.6 billion): provides wholesale banking services such as capital markets, advisory and transaction services, asset management and principal investing. Personal Financial Services (~20% of assets; pretax income: $1.2 billion): provides ~98 million individual and self-employed customers with financial services in over 60 markets worldwide. Typical offerings are personal banking and wealth management services. HSBC is a major global credit card issuer with 100+ million credit cards in force. Commercial Banking (~10% of assets; pretax income: $3.2 billion): 3+ million customers in 63 countries; products include lending, cash management, trade, treasury, insurance, wealth management, cards and other services. Private Banking (~5% of assets; pretax income: $0.6 billion): provides private banking and trustee services. Other (8% of assets; pretax income: $0.5 billion) INVESTMENT HIGHLIGHTS

• Strong, global financial services brand with a history of success in Europe and the U.S., as well as Asia (17% of assets are located in Hong Kong).

• Managed to stay profitable through the cycle, averaging $5 billion of net income to common after special items in each of 2008 and 2009.

• Grew “underlying” pretax income by ~30% y-y to $9.6 billion in 1H10. While net operating income declined 11%, HSBC cut loan loss provisions by ~50% to $7.5 billion. Operating costs rose 5%.

• Assuming a 15% return on tangible equity puts HSBC at an 11x P/E, based on implied net income of ~$16 billion (1H10 annualized net income: $13+ billion). HSBC generated nearly $20 billion of net income in 2007 on a similar-size asset base as now.

• Owns significant equity investments including a 19% stake in Bank of Communications and a 17% stake in Ping An Insurance, both based in China. 1H10 share of profit in associates: $1.2 billion.


• Shares trade at 1.7x tangible book. While HSBC has a leading emerging markets presence and good historic returns on equity, the shares are not cheap.

• Upcoming exits by both Chairman Green and CEO Geoghegan, with the former going into politics and the latter retiring. Douglas Flint (55) becomes new Chairman in December and Stuart Gulliver (51) the new CEO “early next year.”

SELECTED OPERATING DATA1 FYE December 31 2006 2007 2008 2009 1H10 ∆ book value per share 15% 16% -31% -4% 11% ∆ total assets 24% 27% 7% -6% 0% ∆ employees 11% 6% -1% -7% -3% ∆ diluted EPS 3% 17% -71% -17% 81% ∆ dividend/share 10% 14% 7% -63% 0% Assets ($tn) 1.9 2.4 2.5 2.4 2.4 Selected items as % of total assets: Loans, net2 47% 42% 37% 38% 37% Customer deposits 48% 47% 44% 49% 47% Common equity 6% 5% 4% 5% 6% Tangible common equity 4% 4% 3% 4% 5% % of total assets by segment: Global banking and markets 53% 58% 79% 71% 74% Personal financial services 29% 25% 21% 23% 21% Commercial banking 12% 11% 10% 11% 11% Private banking 4% 4% 5% 5% 5% Other 2% 2% 6% 6% 8% Intra-HSBC items3 0% 0% -21% -17% -18% Pretax income by segment ($bn): Global banking and markets 5.8 6.1 3.5 10.5 5.6 Personal financial services 9.5 5.9 -11.0 -2.1 1.2 Commercial banking 6.0 7.1 7.2 4.3 3.2 Private banking 1.2 1.5 1.4 1.1 0.6 Other -0.4 3.5 8.2 -6.7 0.5 Total pretax income 22.1 24.2 9.3 7.1 11.1 Net income to common ($bn) 15.7 19.0 5.5 5.6 6.6 IS provision for credit losses ($bn) 10.6 17.2 24.9 26.5 7.5 % of total assets by geography: Europe 45% 50% 55% 54% 53% North America 28% 22% 24% 20% 21% Hong Kong 15% 14% 16% 17% 17% Other 13% 14% 15% 16% 17% Intra-HSBC items3 0% 0% -10% -7% -8% Select credit data: Loan loss reserve ratio 1.5% 1.9% 2.5% 2.8% 2.4% NPLs to gross loans4 1.6% 2.0% 2.6% 3.3% 3.0% Loan loss reserve/NPLs 1.0 1.0 0.9 0.8 0.8 Net interest margin 3.1% 2.9% 2.9% 2.9% 2.8% Return on tang equity 24% 24% 7% 7% 12% Tang equity/assets (avg) 4% 4% 3% 3% 4% Tier 1 capital ratio 9% 9% 8% 11% 10% ∆ shares out (avg) 2% 3% 2% 20% 13%

1 Based on IFRS. 2 Excludes loans and advances to banks. Yearend 2009 geographic breakdown: ~50% Europe, ~23% North America, and ~20% Asia. 3 2006 and 2007 breakdown includes full allocation to segments. 4 NPL=non-performing loans (“customer impaired loans”). MAJOR HOLDERS Insiders <1% | FMR <1% | Dodge & Cox <1% | CapRe <1% RATINGS VALUE Intrinsic value materially higher than market value? DOWNSIDE PROTECTION Low risk of permanent loss? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? * Stated on a segment level; “Intra-HSBC assets” comprised negative 18%.

THE BOTTOM LINE HSBC benefits from a strong global brand that has enabled it to develop major financial services businesses in Europe, the U.S. and Asia (out of Hong Kong). Attractive growth prospects, and a rapidly improving business performance in the first half of the year, are certainly factors contributing to a valuation of 1.7x tangible book. While a premium valuation is deserved, we are not compelled to own the shares at this price. Compared to some of its peers, HSBC looks rather expensive.




…additional insight into HSBC: OUR ESTIMATE OF THE EQUITY FAIR VALUE RANGE







Conservative case metrics: Tangible common equity as of 6/30/2010 $108 billion Fair value multiple 1.0x

Estimated equity value $108 billion Base case and aggressive case metrics:

"Normalized" net income to common $16 billion $16 billion Fair value multiple 10x 15x

Estimated equity value $162 billion $243 billion

Estimated fair value of the equity of HSBC2 $108 billion $162 billion $243 billion $31 per ADS $46 per ADS $69 per ADS

Implied equity fair value to tangible book 1.0x 1.5x 2.3x Implied ratios based on net income to common in… …1H10 (annualized) 8x 12x 18x …year to June 2010 12x 18x 27x …2006-09 (average) 9x 14x 21x …2006-09 (peak: 2007) 6x 9x 13x

1 Average returns on tangible common equity through the cycle were ~15% (2006-09 period). The 1H10 annualized return on tangible common equity is ~12%. 2 Based on 3.5 billion ADS outstanding (1ADS=5 shares). Source: Company filings, Manual of Ideas analysis, assumptions and estimates. KEY FINANCIAL TARGETS

1 On an underlying basis: underlying results eliminate the effects of foreign currency translation differences, acquisitions and disposals of businesses and changes in fair value (FV) of own debt due to credit spread. 2 This excludes the changes in FV of own debt due to credit spread. Source: Company presentation dated September 13, 2010; available at http://bit.ly/cq8Y3v


http://bit.ly/cq8Y3v�



…additional insight into HSBC: HSBC PERSONAL FINANCIAL SERVICES – LOSS IMPAIRMENT CHARGES AND OTHER CREDIT RISK PROVISIONS

1 LICs for H1 2009 and H2 2009 on an underlying basis. 2 LICs as a % of average advances on a net basis. 3 Rest of Asia-Pacific. Source: Company presentation dated September 13, 2010; available at http://bit.ly/cq8Y3v HSBC IN “NEW NORMAL”

Source: Company presentation dated September 13, 2010; available at http://bit.ly/cq8Y3v






ING Group (Amsterdam: INGA, NYSE: ING) Financial: Insurance (Life)

Amsterdam, Netherlands, 31-20-541-5411 www.ing.com

Trading Data Consensus EPS Estimates Valuation Price: $11.15 (as of 10/22/10) Month # of P/E FYE 12/31/09 n/m 52-week range: $6.78 - $17.71 Latest Ago Ests P/E FYE 12/31/10 7x Market value: $43 billion This quarter n/a n/a n/a P/E FYE 12/31/11 5x Shares out: 3,832 million Next quarter n/a n/a n/a P/E FYE 12/30/12 n/a

Ownership Data FYE 12/31/10 1.68 1.68 1 P / tangible book 0.8x Insider ownership: 1% FYE 12/31/11 2.33 2.33 1 Latest EPS Surprise Insider buys (last six months): 0 FYE 12/30/12 n/a n/a n/a Report date: n/a Insider sales (last six months): 0 LT growth n/a n/a n/a Estimated EPS: n/a Institutional ownership: 2% Actual EPS: n/a

Operating Performance and Financial Position ($ billions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 6/30/10 6/30/09 6/30/10 Interest income 91 96 100 104 109 88 66 72 14 21 Interest expense 2 1 1 1 2 1 1 1 0 0 Pretax income 8 12 12 14 15 (7) (1) 5 (0) 2 Net income 6 9 10 11 13 (4) (0) 5 0 2 Diluted EPS 2.41 3.40 3.59 3.82 4.86 (1.85) (1.06) 0.18 0.11 0.45 Shares out (avg) 2.6 2.8 2.8 2.8 2.8 2.7 2.7 3.0 2.6 3.8 Cash from ops 91 106 49 13 16 18 (39) (39) (1) (43) Cash n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a ST investments n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a LT investments n/a n/a n/a n/a n/a n/a n/a 731 640 731 Fixed assets, net 4 8 8 9 9 9 9 9 9 9 Loans, other assets 131 1,225 1,619 1,714 1,832 1,853 1,617 1,044 1,015 1,044 Intangible assets 0 1 5 5 8 10 8 9 9 9 Total assets 1,097 1,234 1,632 1,727 1,849 1,871 1,634 1,792 1,673 1,792 Short-term debt 0 33 45 42 38 44 33 38 37 38 Long-term debt 148 117 123 119 105 150 183 191 188 191 Deposits, other liab. 916 1,050 1,411 1,513 1,653 1,642 1,367 1,498 1,403 1,498 Preferred stock 3 0 0 0 0 0 0 0 0 0 Common equity 30 34 52 54 52 35 51 66 45 66 Ten-Year Stock Price Performance and Trading Volume Dynamics

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BUSINESS OVERVIEW ING Group operates in two segments: Banking (75% of assets; 1H10 net income: €2.3 bn): Includes Retail Banking (€183bn risk-weighted assets; ~60% of segment profit, largely from Netherlands, Belgium and ING Direct), Commercial Banking (€138bn RWAs; ~35% of segment profit, mainly from Netherlands/Belgium), Real Estate (€18bn RWAs; ~breakeven) and central functions. Insurance (25% of assets; 1H10 net income: €68 mn): Includes life and non-life insurance. ING is #3 U.S. provider of defined contribution retirement plans and the #2 provider of pensions in Latin America. €375 billion in AUM at 6/10. DUTCH GOVERNMENT AID In 2008, ING received €10 billion of core Tier 1 equity from the Dutch state (€5 billion was repaid after a rights issue in 2009). Terms on the other €5 billion allow the Dutch state to put the securities to ING at the issue price (€10/security). After receipt of the state aid, ING has to divest by 2013 its insurance business, including investment management, and certain Dutch retail banking and ING Direct operations. INVESTMENT HIGHLIGHTS

• EU-mandated separation of banking/insurance segments by yearend 2013 creates value-catalyst, as the sum of the two parts appears to materially exceed the recent market value of the company.

• Aims to have the “businesses operating on an arm’s-length, stand-alone basis” by end of 2010. Insurance divestment options: IPO, sale or spin-off.

• Value of bank business alone may approximate recent market value based on 10x “normalized” net income of €3 billion. While segment tangible equity of €31 billion may be overstated relative to a standalone basis, it indicates potential value.

• Insurance business may be worth €20+ billion assuming 10x net income of €2+ billion – it made €4 billion in 2006/07 when it had ~€320 million of assets, which approximates the recent asset base. Reported segment tangible equity is €17 billion with deferred acquisition costs, and €5 billion without.

• Retained earnings/divestment proceeds to allow non-dilutive buyback of Dutch gov’t investment and, subsequently, a potential return of capital.


• Above-outlined sum-of-parts valuation ignores potential adjustments required in a separation, including higher stand-alone capital requirements.

• Regulatory/execution risks tied to business split. • Are loan loss/insurance claim reserves adequate?

SELECTED OPERATING DATA — ING (GROUP) FYE December 31 2005 2006 2007 2008 2009 1H10 Δ assets 20% 6% 7% 1% -13% 7% Δ adj. net income1 26% 23% 19% -103% n/m n/m Δ employees 4% 3% 4% -7% -8% -2% ∆ shares out (avg) 0% -1% -3% -3% 3% 87% Assets (€bn) 1,159 1,226 1,313 1,332 1,164 1,273 Selected items as % of total assets: Common equity 3.2% 3.1% 2.8% 1.3% 2.9% 3.3% Tang common equity2 2.0% 2.0% 1.6% -0.1% 1.4% 1.8% Adj. net income (€bn) 1 6.2 7.7 9.2 -0.3 0.7 2.2 IFRS net income (€bn) 7.2 7.7 9.2 -0.7 -0.9 2.4 Employees (FTEs, k) 117 120 125 116 107 106

1 "Underlying net result" (excl. divestments and special items; after minority). 2 Excludes insurance-related deferred acquisition costs (€11.9 billion at 6/10). SELECTED OPERATING DATA — ING BANKING

FYE December 31 2007 2008 2009 1H10 Δ assets 11% 4% -15% 5% Δ adj. net income 4 -82% 33% 274% Assets (€bn) 994 1,035 882 955 Selected items as % of total assets: Loans and advances 53% 58% 63% 61% Investments/trading assets 37% 31% 26% 27% Customer deposits 53% 52% 54% 55% Common shareholders' equity 3% 2% 3% 3% Tangible common shareholders' equity 2% 2% 3% 3% Risk-weighted assets (€bn) 403 343 332 344 Basel II Tier 1 ratio n/a 9% 10% 11% Adj. net income (€bn) 4.0 0.7 1.0 2.1 IFRS net income (€bn) 3.6 0.5 -0.3 2.3 Interest margin 0.9% 1.1% 1.3% 1.4% Underlying cost/income ratio 65% 65% 54% 55%

SELECTED OPERATING DATA — ING INSURANCE


6/30/10 Δ assets -4% -3% -7% 12% Δ adj. net income 34% -120% -79% n/m Assets (€bn) 322 312 290 322 Selected items as % of total assets: Investments/trading assets 79% 69% 75% 78% Insurance contract liabilities 82% 77% 83% 84% Common shareholders’ equity 6% 4% 5% 6% Tangible common shareholders' equity1 1% -1% 0% 1% Adj. net income (€bn) 5.2 -1.0 -0.2 0.1 IFRS net income (€bn) 3.9 -1 2 -0.6 0.1

1 Excludes deferred acquisition costs (€11.9 billion at 6/10). MAJOR HOLDERS Insiders <1% | ABN Amro 5% | Fortis 5% | Fisher <1% RATINGS VALUE Intrinsic value materially higher than market value? DOWNSIDE PROTECTION Low risk of permanent loss? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends?

THE BOTTOM LINE As a result of receiving Dutch state aid, ING is required by the EU to divest its insurance business. This sets up a catalyst as the sum-of-the parts valuation materially exceeds recent market value. While risks related to a separation (and the underlying business) remain, recent market value appears to be at a significant discount to the earning power of ING’s banking and insurance franchises. The insurance business should be ready for divestment by yearend 2010 according to management.




…additional insight into ING Group: OUR ESTIMATE OF THE EQUITY FAIR VALUE RANGE


Valuation methodology 1.0x tangible common equity1

10x “normalized” net income2 (may

correspond to “sum-of-parts” valuation taking into account earnings recovery

potential in insurance business)

15x “normalized” net income2

Conservative case metrics: Tangible common equity as of 6/30/20101 €23 billion Fair value multiple 1.0x Estimated equity value €23 billion

Base and aggressive case metrics: “Normalized” net income2 €6 billion €6 billion Fair value multiple 10x 15x Estimated equity value €60 billion €90 billion

Applies to all cases: Less: PV cost of repurchasing €5 billion Dutch gov't investment3 -€5 billion -€ 5 billion -€5 billion

Estimated fair value of the equity of ING4 €18 billion €55 billion €85 billion

€5 per share €14 per share €22 per share Implied equity value to tangible book (DACs subtracted from book) 0.8x 2.4x 3.6x Implied equity value to tangible book (DACs not subtracted from book) 0.5x 1.6x 2.4x Implied ratios based on IFRS net income during… …2Q10 (annualized) 4.2x 12.6x 19.5x …2004-07 (average) 2.5x 7.3x 11.3x …2004-07 (peak: 2007) 2.0x 6.0x 9.2x

1 Tangible equity is stated after subtracting insurance-related deferred acquisition costs (DACs). 2 Average IFRS net income during 2004-07 was €7.5 billion. Peak net income was €9.2 billion in 2007 when ING's total assets roughly approximated the recent asset base. 2Q10 annualized net income is €4.4 billion with no contribution from the roughly break-even insurance business. 3 As we are not increasing the share count to reflect dilution from the Dutch government investment, we effectively treat it as debt that will be settled with cash. This is consistent with ING statements that proceeds from disposals and retained earnings will be applied to repurchasing the €5 billion government investment. 4 Based on 3.8 billion common shares outstanding. Source: Company filings, Manual of Ideas analysis, assumptions and estimates. FUNDING MIX OF ING BANK, 2007 – H1 2010 *

Source: Company presentation dated September 30, 2010; available at http://bit.ly/bUC2c4


http://bit.ly/bUC2c4�



…additional insight into ING Group: ING DIRECT – NET INFLOW IN FUNDS ENTRUSTED (€ in billions)

Source: Company presentation dated September 30, 2010; available at http://bit.ly/bUC2c4 NET INTEREST MARGIN COMPOSITION AND TREND

* Interest margin defined as total interest result bank divided by average total assets bank. Source: Company presentation dated September 30, 2010; available at http://bit.ly/bUC2c4






JPMorgan Chase (NYSE: JPM) Financial: Regional Banks, Member of S&P 500

New York, NY, 212-270-6000

www.jpmorganchase.com

Trading Data Consensus EPS Estimates Valuation Price: $37.70 (as of 10/22/10) Month # of P/E FYE 12/31/09 17x 52-week range: $35.16 - $48.20 Latest Ago Ests P/E FYE 12/31/10 10x Market value: $148 billion This quarter $1.00 $0.91 25 P/E FYE 12/31/11 8x Shares out: 3.9 billion Next quarter 1.07 1.04 13 P/E FYE 12/30/12 7x

Ownership Data FYE 12/31/10 3.84 3.61 26 P / tangible book 1.4x Insider ownership: 1% FYE 12/31/11 4.62 4.57 27 Latest EPS Surprise Insider buys (last six months): 9 FYE 12/30/12 5.44 5.39 21 Report date: 10/13/10 Insider sales (last six months): 3 LT growth 7.5% 8.0% 4 Estimated EPS: $0.90 Institutional ownership: 76% Actual EPS: $1.01

Operating Performance and Financial Position ($ billions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 9/30/10 9/30/09 9/30/10 Interest income 24 30 45 59 71 73 66 64 16 16 Interest expense 11 14 26 38 45 34 15 13 4 3 Pretax income 10 6 12 21 22 4 13 20 5 6 Net income 7 4 8 14 15 5 9 14 3 4 Diluted EPS 3.24 1.48 2.32 3.82 4.33 0.81 2.24 3.59 0.80 1.01 Shares out (avg) 2.0 2.8 3.5 3.5 3.4 3.5 3.9 3.9 3.9 4.0 Cash from ops 14 (15) (30) (50) n/a 23 122 n/a 8 n/a Cash 20 35 37 40 40 27 26 24 21 24 ST investments 347 420 460 526 674 851 670 742 655 742 LT investments 102 142 122 166 170 124 120 127 128 127 Fixed assets, net 6 9 9 9 9 10 11 11 11 11 Loans, other assets 280 494 512 551 609 1,100 1,137 1,174 1,159 1,174 Intangible assets 15 58 58 60 60 63 69 63 67 63 Total assets 771 1,157 1,199 1,352 1,562 2,175 2,032 2,142 2,041 2,142 Short-term debt 113 128 126 162 154 193 261 314 310 314 Long-term debt 67 154 162 162 213 281 282 333 290 333 Deposits, other liab. 544 770 804 912 1,072 1,534 1,324 1,321 1,279 1,321 Preferred stock 1 0 0 0 0 32 8 8 8 8 Common equity 45 105 107 116 123 135 157 166 154 166 Ten-Year Stock Price Performance and Trading Volume Dynamics

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BUSINESS OVERVIEW JPMorgan Chase operates in seven segments: Investment Bank (24% of equity; 13% ROE):* Ranks #1 in YTD global investment banking fees with ~9% market share. Retail Financial Services (17% of equity; 13% ROE): ~5,200 branches with $335 billion of avg deposits in 3Q10 (#3 share in the U.S.). Ranks #3 in mortgage originations (~9% share). Card Services (9% of equity; 19% ROE): ~20% share of all-purpose credit card balances. Chase is #1 Visa card issuer. Commercial Banking (5% of equity; 23% ROE): Top 3 asset-based lending lead arranger in the U.S. in 2009. Asset management (4% of equity; 26% ROE): $1.26 trillion of assets under management as of September 2010 (flat y-y). Treasury & Securities Services (4% of equity; 15% ROE): Ranks #2 in global assets under custody ($15.9 trillion as of 9/2010, up 7% y-y). Ranks #1 in US$ clearing (20+% share). Corporate/Private Equity (37% of equity; n/a): Comprises all functions that are centrally managed as well as a private equity portfolio with a $9.4 billion carrying value at 9/2010. INVESTMENT HIGHLIGHTS

• Targets $22-24 billion of “steady-state” net income (2009: $11.7 billion) based on the following segment ROE targets: IB (17%), RFS (30%), CS (20%), CB (20%), AM (35%), and T&SS (30%).

• Grew tangible common equity per share at a 14% CAGR since yearend 2005 to $26+ per share as of September 2010, despite the financial crisis.

• Strong capital position due to a 9.5% Tier 1 common capital ratio and ability to absorb credit losses from high and growing earnings (3Q10 pre-provision profit is >2x net charge-offs).

• To “return to dividend payout ratio of 30-40% of normalized earnings” over time, with initial dividend raise expected “hopefully in early 2011.”

• Bought back $2.2 billion common stock in 3Q10. INVESTMENT RISKS & CONCERNS

• “Steady-state” ROE targets may be optimistic given the potential for higher capital requirements and inherent volatility in main operating businesses.

• “Expect mortgage credit losses to remain at these high levels for the next several quarters.”

• $1.0 trillion of off-balance sheet credit exposure at yearend 2009 (mostly credit card-related).

* Based on average equity in 3Q10 and 3Q10 annualized return on equity. MAJOR HOLDERS Insiders <1% | State Street 4% | Vanguard 4% | FMR 3% | BlackRock 3% | T. Rowe 3% | Axa 2% | Cap World 2%


FYE December 31 2005 2006 2007 2008 2009 YTD

9/30/10 ∆ tang. book per share 5% 15% 17% 3% 17% 18% ∆ total assets 4% 13% 16% 39% -7% 5% ∆ employees 5% 3% 4% 25% -1% 7% ∆ net interest income 32% 3% 19% 43% 28% -13% ∆ pre-provision profit 38% 7% 24% -7% 92% -23% ∆ diluted EPS 3% 37% 8% -69% 67% 88% Assets ($tn) 1.2 1.4 1.6 2.2 2.0 2.1 Selected items as % of total assets: Securities/trading assets 47% 50% 53% 48% 53% 55% Loans, net 34% 35% 33% 33% 30% 31% Other assets 19% 15% 14% 19% 17% 14% Customer deposits 46% 47% 47% 46% 46% 42% Other liabilities 45% 44% 45% 47% 46% 50% Common equity 9% 9% 8% 6% 8% 8% Revenue ($bn) 59.1 65.1 74.8 72.8 108.6 78.1 % of revenue by type: Net interest income 45% 42% 43% 64% 55% 50% Non-interest income 55% 58% 57% 36% 45% 50% % of revenue by segment: Investment bank 25% 29% 24% 17% 26% 26% Retail financial services 25% 23% 23% 32% 30% 30% Card services 26% 23% 20% 23% 19% 17% Commercial banking 6% 6% 5% 7% 5% 6% Asset management 10% 10% 12% 10% 7% 8% Other2 9% 9% 15% 11% 13% 14% Net income margin by selected segment: Investment bank 25% 20% 17% -10% 25% 26% Retail financial services 23% 22% 17% 4% 0% 8% Card services 12% 22% 19% 5% -11% 6% Commercial banking 28% 27% 28% 30% 22% 35% Asset management 21% 21% 23% 18% 18% 19%

Total net margin 18% 22% 21% 8% 11% 16% Selected income statement items ($bn): Pre-provision profit 23.6 25.4 31.3 29.3 56.3 33.0 Loss provision 7.3 5.5 9.2 24.6 38.5 13.6 Net charge-offs 7.6 5.3 6.9 13.4 29.4 18.6 Net income to common3 10.5 14.4 14.9 4.7 8.8 11.3 Selected credit data: Loan loss reserve ratio 1.7% 1.5% 1.8% 3.1% 5.0% 4.9% NPLs/gross loans4 0.6% 0.4% 0.7% 1.2% 2.8% 2.2% Net charge-off ratio 1.7% 1.1% 1.3% 2.1% 3.9% 3.5% Net interest margin 1.9% 1.8% 2.1% 2.7% 3.0% 3.1% Return on assets 0.8% 1.1% 1.1% 0.3% 0.6% 0.8% Return on tang equity 22% 28% 25% 7% 11% 16% Tang equity/assets (avg) 4% 4% 4% 4% 4% 5% Tier 1 capital ratio 9% 9% 8% 11% 11% 12% ∆ shares out (avg) 25% 0% -2% 0% 10% 4%

1 Figures reflect purchase of Bank One (2004) and WaMu (2008) and are on a “managed” basis (includes securitized credit card loans; fully-taxable revenue). 2 Includes Treasury & Securities Services and Corporate/Private Equity. 3 2009 net income by geography: EMEA (47%), U.S. (38%), Asia (10%). RATINGS VALUE Intrinsic value materially higher than market value? DOWNSIDE PROTECTION Low risk of permanent loss? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends?

THE BOTTOM LINE JPMorgan Chase is a premier global financial services franchise with each standalone business holding a top 3 competitive position. Shares appear undervalued based on management’s “steady-state” ROE targets of 20+% and prospects to re-invest incremental capital at high rates of return. Assuming a more modest normalized ROE of 15%, however, shares are fairly valued trading at 1.5x tangible book and 10x implied net income of ~$15 billion. The risk-reward is not compelling.




…additional insight into JPMorgan Chase: OUR ESTIMATE OF THE EQUITY FAIR VALUE RANGE



10x “normalized” net income to common

(assumes 15% return on tangible equity)1

6x LTM pretax pre-provision profit


Base case metrics: "Normalized" net income to common $15 billion Fair value multiple 10x Estimated equity value $155 billion

Aggressive case metrics: LTM pre-provision profit (year to September 2010) $46 billion Fair value multiple 6x Estimated equity value $277 billion

Estimated fair value of the equity of JPMorgan2 $103 billion $155 billion $277 billion $26 per share $39 per share $70 per share

Implied equity fair value to tangible book 1.0x 1.5x 2.7x Implied ratios based on net income to common during… …year to September 2010 7x 11x 19x …3Q10 (annualized) 6x 10x 17x …2005-09 (average) 10x 14x 26x …2005-09 (peak) 7x 10x 19x

1 The annualized return on tangible common equity was 15% in 3Q10. The average return on tangible common equity was 18% during 2005-09. 2 Based on 3.97 billion common shares outstanding. Source: Company filings, Manual of Ideas analysis, assumptions and estimates.

JPMORGAN CHASE – FINANCIAL HIGHLIGHTS, Q3 2010

1 Managed basis. 2 Tier 1 common is defined as Tier 1 capital less perpetual preferred, noncontrolling interests and trust preferred capital debt securities. 3 Allowance for loan losses to end-of-period loans excludes loans accounted for at fair value, loans held-for-sale, and certain other items. Source: Company presentation dated October 13, 2010; available at http://bit.ly/ccah0n


http://bit.ly/ccah0n�



JPMORGAN CHASE – CONSUMER CREDIT DELINQUENCY TRENDS, Q1 2008 – Q3 2010 3

1 On managed basis. 2 “Payment holiday” in 2Q09 impacted 30+ day and 30-89 day delinquency trends in 3Q09. 3 Excl. purchased credit-impaired loans. Source: Company presentation dated October 13, 2010; available at http://bit.ly/ccah0n JPMORGAN CHASE – MANAGEMENT OUTLOOK

Source: Company presentation dated October 13, 2010; available at http://bit.ly/ccah0n






Royal Bank of Scotland (London: RBS, NYSE: RBS) Financial: Money Center Banks

Edinburgh, SC, United Kingdom, 44-131-556-855 www.rbs.com

Trading Data Consensus EPS Estimates Valuation Price: $14.48 (as of 10/22/10) Month # of P/E FYE 12/31/09 n/m 52-week range: $9.07 - $18.00 Latest Ago Ests P/E FYE 12/31/10 n/a Market value: $42 billion This quarter n/a n/a n/a P/E FYE 12/31/11 n/a Shares out: 2.9 billion Next quarter n/a n/a n/a P/E FYE 12/30/12 n/a

Ownership Data FYE 12/31/10 n/a n/a n/a P / tangible book 0.4x Insider ownership: 69% FYE 12/31/11 n/a n/a n/a Latest EPS Surprise Insider buys (last six months): 0 FYE 12/30/12 n/a n/a n/a Report date: n/a Insider sales (last six months): 0 LT growth n/a n/a n/a Estimated EPS: n/a Institutional ownership: 0% Actual EPS: n/a

Operating Performance and Financial Position ($ billions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 6/30/10 3/31/09 6/30/10 Interest income 22 27 34 40 52 79 42 36 12 19 Interest expense 9 12 18 23 32 49 21 31 6 7 Pretax income 7 9 12 14 15 (43) (6) (3) (1) 2 Net income 4 6 9 10 12 (39) (6) (4) (1) 1 Diluted EPS 9.04 13.11 17.52 17.27 20.52 (54.67) (2.03) (0.95) (0.43) 0.34 Shares out (avg) 0.5 0.5 0.5 0.6 0.6 0.8 2.6 3.3 2.8 5.4 Cash from ops 25 8 7 28 41 n/a (2) 55 n/a (15) Cash 10 7 8 10 29 20 84 47 34 47 ST investments 0 29 153 187 916 n/a n/a n/a n/a n/a LT investments 496 670 806 913 n/a n/a n/a n/a n/a n/a Fixed assets, net 22 26 29 29 30 30 31 28 31 28 Loans, other assets 178 179 217 226 1,893 3,763 2,573 2,435 3,488 2,435 Intangible assets 21 31 32 30 80 32 29 23 32 23 Total assets 728 942 1,244 1,395 2,948 3,846 2,717 2,533 3,584 2,533 Short-term debt n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Long-term debt 27 33 45 44 61 79 60 44 78 44 Deposits, other liab. 659 855 1,142 1,287 2,802 3,673 2,532 2,366 3,417 2,366 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 42 54 57 64 85 94 124 123 90 123 Ten-Year Stock Price Performance and Trading Volume Dynamics

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BUSINESS OVERVIEW Royal Bank of Scotland (RBS) has two main segments: Core Bank (70% of risk-weighted assets*): Includes U.K. Retail (#2 in current accounts), U.K. Corporate (#1 in commercial banking), Wealth (#1 in U.K. private banking; owns Coutts), Global Banking & Markets (major i-bank), Global Transaction Services (strong in cash mgmt and trade finance), Ulster Bank (#3 bank in Ireland), U.S. Retail and Commercial (3.9 million retail and 500K corporate clients), and Insurance (#1 in U.K. home and motor insurance). Non-Core (29% of company risk-weighted assets): Covers businesses that do not meet strategic goals. It includes both “stressed” and “non-stressed” assets within insurance, structured credit, commercial real estate, leveraged loans, securitizations, U.K./Ireland and U.S. mortgages, asset, project and export finance, as well as other businesses. The U.K. government became the majority shareholder in 2008 taking an initial 58% stake. The U.K.’s recent ~68% stake rises to ~83% if its “B” shares are assumed converted. INVESTMENT HIGHLIGHTS

• Strategy: Create “sustainable value” by growing the “Core Bank” around customer-driven franchises. The Non-Core segment is the “primary driver of risk reduction” and is being “radically” restructured.

• Future business mix: targeting 2/3 Retail & Commercial, 1/3 Global Banking & Markets. Approximate geographic split target: U.K. ~55%, U.S. ~25%, E.U. 10-15%, Rest of World 5-10%.

• Recent market value to “normalized” earnings is less than 6x, assuming a 15% return on total tangible common equity at June 30. Shares trade at ~0.9x tangible book (adjusted to include B shares).

• Targets a 15+%”sustainable” core-business ROE by 2013. “Core” ROE was 13% in 2009 based on attributable profit at 28% tax on core tangible equity (~70% of total tangible equity based on RWAs*).

• U.K. government “wants RBS to operate on a commercial basis” and plans to “sell its interests in RBS and other banks at the earliest attractive time.”


• Risks related to U.K. government control include a potential value transfer from common holders to other stakeholders. RBS is prohibited from paying discretionary dividends through at least April 2012.

• Execution risk. RBS is managing sizeable “core” and “non-core” asset groups at the same time.

* Based on total risk-weighted assets (RWAs) of £597 billion at June 30, 2010, before a £123 million benefit from the Asset Protection Scheme.

SELECTED OPERATING DATA1 FYE December 31 2009 1H10 Total assets (£bn) 1,522 1,581 Selected items as % of total assets: Loans, net 45% 43% Other assets 55% 57% Customer deposits 42% 40% Other liabilities 54% 55% Common shareholders' equity 5% 5% Net tangible equity per ordinary and B share (p) 51.3 52.8 Tier 1 capital ratio (core) 11.0% 10.5% Selected income statement items (£bn): Company: Revenue 29.4 17.7 Adj. pretax, pre-provision income2 7.7 6.7 Credit loss provision -13.9 -5.2 Adj. pretax income -6.2 1.6 Net income to common and B shareholders -3.6 0.0 “Core”: Revenue 31.7 15.9 Adj. pretax, pre-provision income2 13.0 6.5 Credit loss provision -4.7 -2.1 Adj. pretax income 8.3 4.5 “Non-Core”: Revenue -2.3 1.8 Adj. pretax, pre-provision income2 -5.3 0.2 Credit loss provision -9.2 -3.1 Adj. pretax income -14.6 -2.9 % of “Core” revenue by type: Net interest income 39% 39% Non-interest income 61% 61% % of “Non-Core” revenue by type: Net interest income -54% 54% Non-interest income 154% 46% Headcount, period-end (K) 161 157

1 Figures are based on pro-forma results which include only those business units of ABN AMRO that have been retained by RBS. 2 “Operating profit before impairment losses” (“impairment” ~ credit loss provision): also stated after insurance net claims and before tax, amortization of purchased intangible assets, integration and restructuring costs, gain on redemption of own debt, strategic disposals, bonus tax, APS credit default swap fair value changes and write-down of goodwill and intangibles.

• Forced asset sales to comply with EC State Aid requirements include RBS Insurance and other businesses (with a total £48 billion of assets as of June 30) that are to be disposed by yearend 2013.

MAJOR HOLDERS Insiders <1% | U.K. government ~83% (fully diluted) RATINGS VALUE Intrinsic value materially higher than market value? DOWNSIDE PROTECTION Low risk of permanent loss? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends?

THE BOTTOM LINE Royal Bank of Scotland stumbled in the wake of an acquisition spree culminating in the purchase of ABN Amro at the height of the credit boom in 2007. Following the U.K. government’s rescue in 2008, new management is restructuring the company with the goal of reaching a 15+% “sustainable” ROE from core businesses by 2013. Given strong business franchises and improving recent performance, a valuation at ~0.9x tangible book is undemanding. While risk remains non-negligible (~30% of risk-weighted assets are in the non-core, i.e. “bad” segment), material upside potential makes the risk-reward appealing.




…additional insight into Royal Bank of Scotland: OUR ESTIMATE OF THE EQUITY FAIR VALUE RANGE





equity)

8x 1H10 annualized adj. pretax, pre-provision profit2

Conservative case metrics: Tangible common equity as of 6/30/20101 £58 billion Fair value multiple 1.0x Estimated equity value £58 billion

Base case metrics: "Normalized" net income to common £9 billion Fair value multiple 10x Estimated equity value £86 billion

Aggressive case metrics: Adj. pretax, pre-provision profit (1H10 annualized)2 £13 billion Fair value multiple 8x Estimated equity value £108 billion

Estimated fair value of the equity of RBS (£ billions)3 £58 billion £86 billion £108 billion £0.53 per share £0.79 per share £0.99 per share

Estimated fair value of the equity of RBS (US$ billions)3 $90 billion $136 billion $169 billion

$17 per ADS $25 per ADS $31 per ADS Implied equity fair value to tangible book 1.0x 1.5x 1.9x Implied fair value to adj. pretax, pre-provision income (H1 ann.)2 4.3x 6.4x 8.0x Implied fair value to adj. pretax income (H1 ann.) 18x 27x 34x

1 Includes 51.0 billion of class B shares issued to the UK government in December 2009 for £25.5 billion. 2 Based on reported, pro-forma “operating profit before impairments” (stated after insurance net claims and before “impairments” (~credit loss provisions), tax, amortization of purchased intangible assets, integration and restructuring costs, gain on redemption of own debt, strategic disposals, bonus tax, Asset Protection Scheme credit default swap – fair value changes and write-down of goodwill and other intangible assets. 3 Based on 109 billion common shares outstanding, assuming full conversion of class B shares held by UK government (1 ADS = 20 shares). Estimated fair value in US$ is based on a conversion of the recent exchange rate at 1£=US$1.57. Source: Company filings, Manual of Ideas analysis, assumptions and estimates. STRATEGIC PLAN – CURRENT POSITION VERSUS 2013 TARGETS

1 As at 1 January 2008. 2 As at October 2008. 3 Amount of unsecured wholesale funding under one year. H110 includes £92bn of bank deposits and £106bn of other wholesale funding. 2013 target is for <£65bn of bank deposits, <£85bn of other wholesale funding. 4 As at December 2008. 5 Eligible assets held for contingent liquidity purposes including cash, government issued securities and other securities eligible with central banks. 6 Funded tangible assets divided by Tier 1 Capital. 7 As at June 2008 8 Group return on tangible equity for 2008. 9 Indicative: Core attributable profit taxed at 28% on attributable core spot tangible equity (70% of Group tangible equity based on RWAs). 10 Adjusted cost: income ratio net of insurance claims. 11 2008. Source: Company presentation dated September 14, 2010; available at http://bit.ly/aoLLh7


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…additional insight into Royal Bank of Scotland: IMPAIRMENT TRENDS

Source: Company presentation dated September 13, 2010; available at http://bit.ly/acCDe0 CAPITAL ADEQUACY SNAPSHOT VS. PEERS

Source: Company presentation dated September 14, 2010; available at http://bit.ly/aoLLh7


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Wells Fargo (NYSE: WFC) Financial: Regional Banks, Member of S&P 500

San Francisco, CA, 866-249-3302

www.wellsfargo.com

Trading Data Consensus EPS Estimates Valuation Price: $26.11 (as of 10/22/10) Month # of P/E FYE 12/31/09 15x 52-week range: $23.02 - $34.25 Latest Ago Ests P/E FYE 12/31/10 12x Market value: $137 billion This quarter $0.60 $0.57 28 P/E FYE 12/31/11 9x Shares out: 5,244 million Next quarter 0.64 0.62 17 P/E FYE 12/30/12 7x

Ownership Data FYE 12/31/10 2.19 2.10 28 P / tangible book 1.8x Insider ownership: 0% FYE 12/31/11 2.81 2.85 31 Latest EPS Surprise Insider buys (last six months): 7 FYE 12/30/12 3.59 3.62 26 Report date: 10/20/10 Insider sales (last six months): 7 LT growth 9.5% 9.5% 2 Estimated EPS: $0.55 Institutional ownership: 77% Actual EPS: $0.60

Operating Performance and Financial Position ($ billions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 9/30/10 9/30/09 9/30/10 Interest income 19 21 26 32 35 35 56 54 14 13 Interest expense 3 4 7 12 14 10 10 8 2 2 Pretax income 9 11 12 13 12 3 13 14 4 5 Net income 6 7 8 8 8 2 8 9 3 3 Diluted EPS 1.83 2.05 2.25 2.47 2.38 0.70 1.75 1.68 0.56 0.60 Shares out (avg) 3 3 3 3 3 3 5 5 5 5 Cash from ops 31 6 (12) 28 9 (5) 29 n/a 7 n/a Cash 16 13 15 15 15 24 27 16 17 16 ST investments 13 14 16 12 10 121 100 106 77 106 LT investments 69 72 83 76 101 179 218 224 226 224 Fixed assets, net 4 4 4 5 5 11 11 10 11 10 Loans, other assets 269 306 339 345 414 920 835 827 844 827 Intangible assets 17 19 23 29 30 55 52 38 53 38 Total assets 388 428 482 482 575 1,310 1,244 1,221 1,229 1,221 Short-term debt 0 0 20 12 23 62 26 51 31 51 Long-term debt 64 74 80 86 98 267 204 163 214 163 Deposits, other liab. 290 316 341 338 407 881 902 883 861 883 Preferred stock 0 0 0 0 0 31 8 9 32 9 Common equity 34 38 40 45 47 68 103 115 91 115 Ten-Year Stock Price Performance and Trading Volume Dynamics

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BUSINESS OVERVIEW Wells Fargo operates in three segments: Community Banking (~65% of total assets; 3Q10 net income: $2.0 billion; annualized ROA: 1.02%): provides financial services to consumers and small businesses in the U.S., including mortgage loans, investments, and other services. Wholesale Banking (~30% of assets; net income: $1.4 billion; ROA: 1.58%): provides financial services to businesses in the U.S. with annual revenue in excess of $10 million as well as to global financial institutions. Wealth, Brokerage & Retirement (~10% of assets; net income: $0.3 billion; ROA: 0.73%): includes high net worth client services, retail brokerage and retirement planning. INVESTMENT HIGHLIGHTS

• Serves 1 in 3 U.S. households. Retail network of ~6,500 banks is largest in the U.S. The company is also #1 in mortgage originations, small business and commercial real estate lending and brokerage. It is #2 in banking deposits and debit cards.

• “Balance sheet stronger than ever” according to management. Wells’ Tier 1 common ratio is ~8% and is expected to be above 7% on the proposed Basel III basis “within next few quarters.”

• Wachovia merger risk diminished: “better credit experience, abundant revenue synergies, expense savings on track.” Wells acquired most of its loan losses when it bought Wachovia in 2008.

• Balanced business exposures. Consumer and commercial loans represent 58% and 38% of total portfolio, respectively. The split between net interest and non-interest income is 53/47.


• Trade at 2.1x adjusted tangible book and 11x Q3 annualized net income (we adjust common equity of $115 billion by subtracting goodwill, MSRs, intangibles and minor items to arrive at $65 billion).

• Legal risks tied to mortgage repurchase requests and “faulty” foreclosures. Management on 10/20: “We remain confident in our foreclosure and mortgage securitization policies, practices and controls, and adequacy of repurchase reserve.”

• Limited further earnings improvement from Wachovia synergies as ~85% of $5.0 billion in targeted annual savings have been realized.

• Nonaccrual loans and other NPAs are 4.6% of total loans, while loan loss reserves are 3.2%.


FYE December 31 2005 2006 2007 2008 2009 YTD

9/30/10 ∆ book value per share 8% 12% 6% 12% 24% 10% ∆ avg assets 9% 9% 7 16% 96% -4% ∆ avg loans 10% 4% 12% 16% 107% -7% ∆ avg “core” deposits2 9% 7% 13% 7% 123% 1% ∆ employees 5% 3% 1% 76% -5% -1% ∆ net interest income 8% 8% 5% 20% 84% -3% ∆ pre-provision profit3 12% 7% 12% 16% 106% -11% Assets ($tn) 0.5 0.5 0.6 1.3 1. 1.2 Selected items as % of total assets: Loans, net 65% 66% 66% 66% 63% 62% “Core” deposits2 53% 60% 54% 57% 63% 63% Common equity 8% 9% 8% 5% 8% 9% % of loans by major type: Commercial/real estate 35% 38% 40% 41% 39% 38% Consumer 63% 60% 58% 55% 57% 58% Revenue ($bn) 32.9 35.7 39.4 41.9 88.7 63.7 % of revenue by type: Net interest income 56% 56% 53% 60% 52% 53% Non-interest income 44% 44% 47% 40% 48% 47% Selected income statement items ($bn): Pre-provision profit3 13.9 14.9 16.6 19.2 39.7 26.6 Loss provision 2.4 2.2 4.9 16.0 21.7 12.8 Net charge-offs 2.3 2.3 3.5 7.8 18.2 13.9 Net income to common 7.7 8.4 8.1 2.4 8.0 8.4 Selected credit data: Loan loss reserve ratio 1.2% 1.2% 1.4% 2.4% 3.1% 3.2% Net charge-off ratio 0.8% 0.7% 1.0% 2.0% 2.2% 2.1% Net interest margin 4.9% 4.8% 4.7% 4.8% 4.3% 4.3% Return on assets 1.7% 1.7% 1.6% 0.4% 1.0% 1.0% Tang equity/assets4 3.9% 3.4% 3.0% 0.0% 4.1% 5.3% Tier 1 capital ratio 8.3% 8.9% 7.6% 7.8% 9.3% 10.9% Efficiency ratio5 58% 58% 58% 54% 55% 58% ∆ shares out (avg) 0% 0% -1% 1% 35% 17%

1 Wachovia’s results are included as of 12/31/08, but not in 2008 averages. 2 Includes noninterest−bearing deposits, interest−bearing checking, savings certificates, market rate and other savings, and certain foreign deposits. 3 Pretax; defined as total revenue less non-interest expense. 4 Tangible book equals common equity less goodwill less MSRs less core deposit, customer relationship, other intangibles less FAS107 net difference. 5 Noninterest expense divided by total revenue.

• $119 billion “non-strategic loan portfolio risk,” two-thirds of which are “pick-a-pay” mortgages.

MAJOR HOLDERS Insiders <1% | Berkshire 6% | FMR 4% | State Street 3%

RATINGS VALUE Intrinsic value materially higher than market value? DOWNSIDE PROTECTION Low risk of permanent loss? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends?

THE BOTTOM LINE Wells Fargo appears to have digested the ill-timed acquisition of Wachovia in late 2008 thanks largely to significant pre-provision earning power inherent in the franchise. CEO Stumpf (in the position since mid-2007) and his team deserve credit for achieving merger synergy targets and delivering good returns on equity (and assets) in a tough period. However, the recent valuation of more than 2x adjusted tangible book makes the risk-reward unattractive. With 85% of Wachovia-related synergies realized, a large improvement in earnings will depend to a great extent on factors beyond management control.




Wells Fargo – OUR ESTIMATE OF THE EQUITY FAIR VALUE RANGE




20% RoTCE)1

6x LTM pre-provision, pretax profit2


Base case metrics: “Normalized” net income to common $13 billion Fair value multiple 10x Estimated equity value $129 billion

Aggressive case metrics: LTM pre-provision, pretax profit (year to Sep. 2010) $36 billion Fair value multiple 6x Estimated equity value $219 billion

Estimated fair value of the equity of Wells Fargo3 $97 billion $129 billion $219 billion

$18 per share $25 per share $42 per share Implied equity fair value to tangible book 1.5x 2.0x 3.4x Implied equity value to 3Q10 annualized net income to common 7.7x 10.3x 17.4x

1 Applying a premium to tangible book appears warranted given that Wells Fargo is generating mid-teens returns on common equity through the cycle (2005-09 period). It is also achieving industry-leading returns on total assets, which indicates it operates at less risk. 2 Pre-provision profit is stated before the provision for credit losses, income taxes, minority interests, and preferred dividends. 3 Based on 5.3 billion common shares outstanding. Source: Company filings, Manual of Ideas analysis, assumptions and estimates. CALCULATION OF RETURN ON AVERAGE TANGIBLE COMMON EQUITY

1 Tangible common equity includes total equity, less preferred equity, goodwill and intangible assets (excluding MSRs), net of related deferred taxes, and noncontrolling interests. The methodology of determining tangible common equity may differ among companies. WFC management has presented its return on average tangible common equity along with other financial measures as part of its review of quarterly results. Source: Company presentation dated September 13, 2010; available at http://bit.ly/bDEDJ4 CALCULATION OF TIER 1 COMMON EQUITY

1 Tier 1 common equity includes Wells Fargo stockholders’ equity, less preferred equity, goodwill and intangible assets (excluding MSRs), net of related deferred taxes, adjusted for specified Tier 1 regulatory capital limitations covering deferred taxes MSRs and cumulative other comprehensive income. 2 Under the guidelines for risk-based capital, on-balance sheet assets and credit equivalent amounts of derivatives and off-balance sheet items are assigned to one of several risk categories according to the obligor or the guarantor or the nature of any collateral. The dollar amount in each risk category is multiplied by the risk weight associated with that category. The resulting weighted values from each of the risk categories are aggregated for determining total risk-weighted assets. Source: Company presentation dated September 13, 2010; available at http://bit.ly/bDEDJ4


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…additional insight into Wells Fargo: WELLS FARGO AND WACHOVIA FOOTPRINT

Source: Company presentation dated September 13, 2010; available at http://bit.ly/bDEDJ4 QUARTERLY CREDIT LOSSES

Source: Company presentation dated September 13, 2010; available at http://bit.ly/bDEDJ4






100 Profitable Banks Traded in the U.S. In Alphabetical Order

YTD Market MV/ P/E P/E (Est.) Price/ Price Price Value Total Last This Next In Tang. Div. Insider Company / Ticker ($) ∆ ($mn) Assets FY FY FY 2 Yrs Book Yield Own. Website Arrow Financial / AROW 26 6% 288 15% 13x 14x 14x 12x 2.1x 4% 5% www.arrowfinancial.com

BancFirst / BANF 41 9% 622 13% 19x 16x 16x 13x 1.5x 2% 53% www.bancfirst.com

Banco Latino Amer. / BLX 15 10% 559 13% 10x 13x 9x 8x .8x - 25% www.bladex.com

Banco Macro / BMA 44 49% 2,635 34% 11x 13x 12x 11x 4.0x 2% 41% www.macro.com.ar

Bancolombia / CIB 66 45% 13,032 38% 20x 19x 15x 13x 3.7x 2% 43% www.grupobancolombia.com

BancorpSouth / BXS 14 -40% 1,170 9% 14x >99x 16x 10x 1.2x 6% 12% bancorpsouthonline.com

Bank of America / BAC 12 -20% 120,206 5% nm 13x 8x 6x 1.2x % <1% www.bankofamerica.com

Bank of Hawaii / BOH 45 -4% 2,192 17% 15x 13x 14x 12x 2.3x 4% 1% www.boh.com

Bank of Marin / BMRC 34 4% 178 15% 15x 14x 13x 11x 1.5x 2% 3% www.bankofmarin.com

Bar Harbor Bank / BHB 28 2% 105 10% 9x 10x 8x 8x 1.1x 4% 2% www.bhbt.com

Barclays / BCS 18 4% 54,879 2% 13x 9x 7x na .8x 1% 12% www.barclays.co.uk

BB&T Corp. / BBT 23 -11% 15,689 10% 20x 20x 11x 8x 1.7x 3% <1% www.bbt.com

BBVA Frances / BFR 10 62% 1,823 25% 7x 11x 12x 10x 2.7x 7% 76% www.bancofrances.com.ar

BOK Financial / BOKF 45 -6% 3,052 13% 15x 13x 12x 10x 1.5x 2% 63% www.bokf.com

Boston Private / BPFH 7 18% 516 9% nm 62x 16x 11x 1.5x 1% 2% www.bostonprivate.com

Brookline Bancorp / BRKL 10 -1% 582 22% 30x 21x 19x 18x 1.3x 3% 4% www.brooklinebank.com

Century Bancorp / CNBKA 23 6% 130 5% 13x 11x 10x 8x .9x 2% 36% www.century-bank.com

CIT Group / CIT 41 50% 8,271 15% nm 19x 16x 13x 1.0x - <1% www.cit.com

Citigroup / C 4 19% 114,445 6% nm 10x 9x 7x 1.0x - <1% www.citigroup.com

Citizens & Northern / CZNC 14 43% 166 12% nm 10x 9x 9x 1.3x 3% 2% www.cnbankpa.com

City Holding / CHCO 33 1% 508 19% 12x 13x 12x 11x 2.0x 4% 4% www.cityholding.com

City National / CYN 52 14% 2,707 13% >99x 24x 16x 13x 2.0x 1% 13% www.cnb.com

CNB Financial / CCNE 14 -14% 167 13% 14x 13x 12x 10x 1.7x 5% 6% www.bankcnb.com

Columbia Banking / COLB 19 19% 756 18% nm 37x 26x 17x 1.3x % 2% www.columbiabank.com

Comerica / CMA 38 29% 6,732 12% nm 45x 18x 12x 1.2x 1% <1% www.comerica.com

Community Bank Sys. / CBU 23 20% 771 14% 18x 13x 12x 11x 2.7x 4% 4% www.communitybankna.com

Community Trust / CTBI 28 13% 419 13% 17x 14x 13x 12x 1.6x 4% 4% www.ctbi.com

Credicorp / BAP 126 64% 10,075 42% 21x 18x 15x 13x 4.1x - 36% www.credicorpnet.com

CVB Financial / CVBF 8 -9% 837 12% 14x 12x 11x 10x 1.4x 4% 19% www.cbbank.com

Danvers Bancorp / DNBK 15 18% 324 13% 49x 17x 16x 14x 1.2x 1% 17% www.danversbank.com

Deutsche Bank / DB 57 -12% 52,206 2% 6x na na na 1.3x - <1% www.db.com

Dime Community / DCOM 14 22% 493 12% 18x 12x 11x 11x 1.9x 4% 17% www.dimewill.com

East West Bancorp / EWBC 17 5% 2,448 12% 42x 21x 13x 10x 1.5x % 2% www.eastwestbank.com

F.N.B. / FNB 9 31% 1,021 12% 28x 15x 12x 10x 2.1x 5% 1% www.fnbcorporation.com

Fifth Third Bancorp / FITB 12 24% 9,659 9% 18x 29x 12x 9x 1.4x % <1% www.53.com

First Bancorp / FBNC 13 -6% 220 7% 4x 17x 11x 10x 1.0x 2% 11% www.firstbancorp.com

First Bancorp / FNLC 14 -8% 138 10% 12x 13x 12x 11x 1.4x 6% 15% www.thefirstbancorp.com

First Busey / BUSE 5 23% 319 9% nm 21x 16x 9x 1.7x 3% 19% www.busey.com

First Commonwealth / FCF 6 21% 486 8% nm 33x 14x 10x 1.0x 1% 11% www.fcbanking.com

First Community / FCBC 14 16% 248 11% nm 13x 11x 9x 1.4x 3% 16% www.fcbresource.com

First Financial / FFBC 17 16% 980 15% 3x 16x 13x 10x 1.5x 2% 1% www.bankatfirst.com

First Financial Bank / FFIN 47 -13% 983 29% 18x 18x 16x 15x 2.7x 3% 7% www.ffin.com

First Interstate / FIBK 13 na 540 7% 12x 17x 14x 9x 1.1x 4% 66% www.firstinterstatebank.com

First Merchants / FRME 8 34% 203 5% nm 23x 14x 6x .9x 1% 2% www.firstmerchants.com

First Midwest / FMBI 12 12% 906 12% nm 42x 17x 11x 1.3x % 2% www.firstmidwest.com

First Niagara / FNFG 12 -17% 2,415 12% 25x 14x 11x 10x 1.4x 5% <1% www.fnfg.com

First of Long Island / FLIC 25 -1% 218 14% 14x 11x 12x 12x 1.7x 4% 25% www.fnbli.com

FirstMerit Corp. / FMER 18 -11% 1,958 13% 20x 16x 13x 11x 1.9x 4% <1% www.firstmerit.com

Fulton Financial / FULT 10 9% 1,895 11% 31x 16x 12x 9x 1.4x 1% 2% www.fult.com

German American / GABC 18 8% 195 15% 16x 15x 14x 13x 1.8x 3% 7% germanamericanbancorp.com


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YTD Market MV/ P/E P/E (Est.) Price/ Price Price Value Total Last This Next In Tang. Div. Insider Company / Ticker ($) ∆ ($mn) Assets FY FY FY 2 Yrs Book Yield Own. Website Hancock Holding / HBHC 31 -30% 1,129 13% 13x 24x 16x 13x 1.4x 3% 3% www.hancockbank.com

HSBC Holdings / HBC 52 -8% 184,113 8% 31x 14x 10x na 1.7x 3% <1% www.hsbc.com

Huntington / HBAN 6 56% 4,079 8% nm 38x 13x 9x 1.3x 1% <1% www.huntington.com

Iberiabank / IBKC 52 -3% 1,408 14% 7x 26x 18x 13x 1.3x 3% 5% www.iberiabank.com

JPMorgan Chase / JPM 37 -11% 145,844 7% 17x 10x 8x 7x 1.4x 1% <1% www.jpmorganchase.com

KeyCorp / KEY 8 45% 7,069 8% nm >99x 20x 11x 1.0x % <1% www.keycorp.net

Lakeland Financial / LKFN 19 10% 306 12% 15x 14x 11x 9x 1.3x 3% 9% www.lakecitybank.com

M&T Bank / MTB 75 12% 8,960 13% 26x 14x 13x 11x 2.4x 4% 10% www.mtb.com

MB Financial / MBFI 17 -16% 897 8% nm 76x 13x 9x 1.3x % 5% www.mbfinancial.com

Meridian Interstate / EBSB 11 23% 242 14% 63x 20x 19x 17x 1.2x - 59% www.ebsb.com

Mitsubishi UFJ / MTU 5 -6% 65,412 3% 6x 14x 10x na .8x - 5% www.mufg.jp

NASB Financial / NASB 17 -25% 137 10% 7x 39x 67x 23x .8x - 63% www.nasb.com

National Penn / NPBC 6 12% 815 9% nm 59x 14x 9x 1.3x 1% 2% www.natpennbank.com

NBT Bancorp / NBTB 22 9% 766 14% 15x 13x 13x 12x 1.9x 4% 3% www.nbtbancorp.com

NewAlliance / NAL 13 5% 1,322 15% 27x 19x 17x 15x 1.5x 2% 9% www.newalliancebank.com

Northern Trust / NTRS 49 -7% 11,800 15% 15x 17x 14x 12x 1.9x 2% 6% www.northerntrust.com

Northwest Bancorp / NWBI 11 -1% 1,235 15% 37x 20x 16x 14x 1.1x 4% 64% northwestsavingsbank.com

NY Community / NYB 17 14% 7,195 17% 15x 14x 12x 11x 2.5x 6% 3% www.mynycb.com

Old National Bancorp / ONB 10 -19% 873 11% 72x 21x 17x 11x 1.3x 3% 2% www.oldnational.com

Park National / PRK 64 9% 979 14% 13x 14x 12x 10x 1.7x 6% 3% www.parknationalcorp.com

Peapack-Gladstone / PGC 12 -2% 109 7% 19x 17x 11x 8x 1.1x 2% 17% www.pgbank.com

People's United / PBCT 13 -21% 4,877 22% 44x 34x 22x 18x 1.3x 5% <1% www.peoples.com

Prosperity / PRSP 32 -21% 1,495 16% 13x 12x 11x 10x 3.3x 2% 8% www.prosperitybanktx.com

Renasant / RNST 16 20% 408 11% 19x 21x 14x 12x 1.8x 4% 4% www.renasantbank.com

Rockville Financial / RCKB 12 10% 226 14% 22x 17x 16x 15x 1.4x 2% 56% www.rockvillebank.com

S&T Bancorp / STBA 19 10% 518 13% >99x 15x 12x 9x .9x 3% 3% www.stbancorp.com

S.Y. Bancorp / SYBT 24 14% 332 18% 20x 15x 14x 11x 2.1x 3% 8% www.syb.com

Santander Brasil / BSBR 15 8% 57,197 28% 8x 17x 13x 11x 2.4x - <1% www.santander.com.br

Santander Chile / SAN 92 42% 16,726 39% 19x 18x 16x 14x 5.1x - <1% www.santandersantiago.cl

SCBT Financial / SCBT 31 11% 391 11% 41x 7x 16x 13x 1.5x 2% 3% www.scbandt.com

Signature Bank / SBNY 39 21% 1,589 15% 30x 18x 15x 13x 1.8x - 1% www.signatureny.com

Simmons First / SFNC 29 3% 492 16% 16x 18x 17x 16x 1.6x 3% 8% www.simmonsfirst.com

Southwest Bancorp / OKSB 13 90% 255 8% 22x 20x 20x 12x .9x 1% 6% www.oksb.com

State Bancorp/NY / STBC 9 28% 152 9% nm 38x 21x 15x 1.3x 2% 15% www.statebankofli.com

State Street / STT 40 -8% 20,100 12% 12x 12x 11x 9x 2.5x % <1% www.statestreet.com

Sterling Bancorp / STL 9 32% 252 11% 25x 23x 14x 9x 1.5x 4% 5% www.sterlingbancorp.com

Susquehanna / SUSQ 9 46% 1,118 8% nm 66x 19x 10x 1.2x % 1% www.susquehanna.net

TFS Financial / TFSL 9 -28% 2,682 25% >99x 97x 79x 46x 1.5x 3% 74% www.thirdfederal.com

Tompkins Financial / TMP 41 11% 441 14% 14x 13x 12x 11x 2.0x 3% 15% www.tompkinstrustco.com

TrustCo Bank NY / TRST 5 -13% 420 11% 15x 15x 13x 11x 1.6x 5% 4% www.trustcobank.com

UMB Financial / UMBF 35 -10% 1,432 13% 16x 16x 16x 14x 1.6x 2% 20% www.umb.com

Umpqua Holdings / UMPQ 11 -17% 1,272 12% nm 62x 18x 15x 1.3x 2% 1% www.umpquabank.com

Univest Corp. of PA / UVSP 19 8% 314 15% 25x 21x 16x 14x 1.5x 4% 5% www.univest.net

Valley National / VLY 13 -6% 2,032 14% 20x 16x 15x 13x 2.2x 6% 5% valleynationalbank.com

Wainwright B & T / WAIN 19 158% 138 14% 30x 16x 14x 13x 2.0x 2% 30% www.wainwrightbank.com

Washington Federal / WFSL 15 -22% 1,703 12% 33x 14x 14x 10x 1.1x 1% <1% www.washingtonfederal.com

Webster Financial / WBS 18 49% 1,387 8% nm 41x 18x 13x 1.4x % 1% www.websteronline.com

Wells Fargo / WFC 24 -13% 123,404 10% 13x 11x 8x 6x 2.1x 1% <1% www.wellsfargo.com

WestAmerica / WABC 54 -3% 1,563 33% 13x 17x 15x 15x 4.2x 3% 4% www.westamerica.com

Wintrust Financial / WTFC 31 2% 976 7% 14x 27x 14x 10x 1.2x 1% 2% www.wintrust.com


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By Market Value YTD Market MV/ P/E P/E (Est.) Price/ Price Price Value Total Last This Next In Tang. Div. Insider Company / Ticker ($) ∆ ($mn) Assets FY FY FY 2 Yrs Book Yield Own. Website HSBC Holdings / HBC 52 -8% 184,113 8% 31x 14x 10x na 1.7x 3% <1% www.hsbc.com

JPMorgan Chase / JPM 37 -11% 145,844 7% 17x 10x 8x 7x 1.4x 1% <1% www.jpmorganchase.com

Wells Fargo / WFC 24 -13% 123,404 10% 13x 11x 8x 6x 2.1x 1% <1% www.wellsfargo.com

Bank of America / BAC 12 -20% 120,206 5% nm 13x 8x 6x 1.2x % <1% www.bankofamerica.com

Citigroup / C 4 19% 114,445 6% nm 10x 9x 7x 1.0x - <1% www.citigroup.com

Mitsubishi UFJ / MTU 5 -6% 65,412 3% 6x 14x 10x na .8x - 5% www.mufg.jp

Santander Brasil / BSBR 15 8% 57,197 28% 8x 17x 13x 11x 2.4x - <1% www.santander.com.br

Barclays / BCS 18 4% 54,879 2% 13x 9x 7x na .8x 1% 12% www.barclays.co.uk

Deutsche Bank / DB 57 -12% 52,206 2% 6x na na na 1.3x - <1% www.db.com

State Street / STT 40 -8% 20,100 12% 12x 12x 11x 9x 2.5x % <1% www.statestreet.com

Santander Chile / SAN 92 42% 16,726 39% 19x 18x 16x 14x 5.1x - <1% www.santandersantiago.cl

BB&T Corp. / BBT 23 -11% 15,689 10% 20x 20x 11x 8x 1.7x 3% <1% www.bbt.com

Bancolombia / CIB 66 45% 13,032 38% 20x 19x 15x 13x 3.7x 2% 43% www.grupobancolombia.com

Northern Trust / NTRS 49 -7% 11,800 15% 15x 17x 14x 12x 1.9x 2% 6% www.northerntrust.com

Credicorp / BAP 126 64% 10,075 42% 21x 18x 15x 13x 4.1x - 36% www.credicorpnet.com

Fifth Third Bancorp / FITB 12 24% 9,659 9% 18x 29x 12x 9x 1.4x % <1% www.53.com

M&T Bank / MTB 75 12% 8,960 13% 26x 14x 13x 11x 2.4x 4% 10% www.mtb.com

CIT Group / CIT 41 50% 8,271 15% nm 19x 16x 13x 1.0x - <1% www.cit.com

NY Community / NYB 17 14% 7,195 17% 15x 14x 12x 11x 2.5x 6% 3% www.mynycb.com

KeyCorp / KEY 8 45% 7,069 8% nm >99x 20x 11x 1.0x % <1% www.keycorp.net

Comerica / CMA 38 29% 6,732 12% nm 45x 18x 12x 1.2x 1% <1% www.comerica.com

People's United / PBCT 13 -21% 4,877 22% 44x 34x 22x 18x 1.3x 5% <1% www.peoples.com

Huntington / HBAN 6 56% 4,079 8% nm 38x 13x 9x 1.3x 1% <1% www.huntington.com

BOK Financial / BOKF 45 -6% 3,052 13% 15x 13x 12x 10x 1.5x 2% 63% www.bokf.com

City National / CYN 52 14% 2,707 13% >99x 24x 16x 13x 2.0x 1% 13% www.cnb.com

TFS Financial / TFSL 9 -28% 2,682 25% >99x 97x 79x 46x 1.5x 3% 74% www.thirdfederal.com

Banco Macro / BMA 44 49% 2,635 34% 11x 13x 12x 11x 4.0x 2% 41% www.macro.com.ar

East West Bancorp / EWBC 17 5% 2,448 12% 42x 21x 13x 10x 1.5x % 2% www.eastwestbank.com

First Niagara / FNFG 12 -17% 2,415 12% 25x 14x 11x 10x 1.4x 5% <1% www.fnfg.com

Bank of Hawaii / BOH 45 -4% 2,192 17% 15x 13x 14x 12x 2.3x 4% 1% www.boh.com

Valley National / VLY 13 -6% 2,032 14% 20x 16x 15x 13x 2.2x 6% 5% valleynationalbank.com

FirstMerit Corp. / FMER 18 -11% 1,958 13% 20x 16x 13x 11x 1.9x 4% <1% www.firstmerit.com

Fulton Financial / FULT 10 9% 1,895 11% 31x 16x 12x 9x 1.4x 1% 2% www.fult.com

BBVA Frances / BFR 10 62% 1,823 25% 7x 11x 12x 10x 2.7x 7% 76% www.bancofrances.com.ar

Washington Federal / WFSL 15 -22% 1,703 12% 33x 14x 14x 10x 1.1x 1% <1% www.washingtonfederal.com

Signature Bank / SBNY 39 21% 1,589 15% 30x 18x 15x 13x 1.8x - 1% www.signatureny.com

WestAmerica / WABC 54 -3% 1,563 33% 13x 17x 15x 15x 4.2x 3% 4% www.westamerica.com

Prosperity / PRSP 32 -21% 1,495 16% 13x 12x 11x 10x 3.3x 2% 8% www.prosperitybanktx.com

UMB Financial / UMBF 35 -10% 1,432 13% 16x 16x 16x 14x 1.6x 2% 20% www.umb.com

Iberiabank / IBKC 52 -3% 1,408 14% 7x 26x 18x 13x 1.3x 3% 5% www.iberiabank.com

Webster Financial / WBS 18 49% 1,387 8% nm 41x 18x 13x 1.4x % 1% www.websteronline.com

NewAlliance / NAL 13 5% 1,322 15% 27x 19x 17x 15x 1.5x 2% 9% www.newalliancebank.com

Umpqua Holdings / UMPQ 11 -17% 1,272 12% nm 62x 18x 15x 1.3x 2% 1% www.umpquabank.com

Northwest Bancorp / NWBI 11 -1% 1,235 15% 37x 20x 16x 14x 1.1x 4% 64% northwestsavingsbank.com

BancorpSouth / BXS 14 -40% 1,170 9% 14x >99x 16x 10x 1.2x 6% 12% bancorpsouthonline.com

Hancock Holding / HBHC 31 -30% 1,129 13% 13x 24x 16x 13x 1.4x 3% 3% www.hancockbank.com

Susquehanna / SUSQ 9 46% 1,118 8% nm 66x 19x 10x 1.2x % 1% www.susquehanna.net

F.N.B. / FNB 9 31% 1,021 12% 28x 15x 12x 10x 2.1x 5% 1% www.fnbcorporation.com

First Financial Bank / FFIN 47 -13% 983 29% 18x 18x 16x 15x 2.7x 3% 7% www.ffin.com

First Financial / FFBC 17 16% 980 15% 3x 16x 13x 10x 1.5x 2% 1% www.bankatfirst.com


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YTD Market MV/ P/E P/E (Est.) Price/ Price Price Value Total Last This Next In Tang. Div. Insider Company / Ticker ($) ∆ ($mn) Assets FY FY FY 2 Yrs Book Yield Own. Website Park National / PRK 64 9% 979 14% 13x 14x 12x 10x 1.7x 6% 3% www.parknationalcorp.com

Wintrust Financial / WTFC 31 2% 976 7% 14x 27x 14x 10x 1.2x 1% 2% www.wintrust.com

First Midwest / FMBI 12 12% 906 12% nm 42x 17x 11x 1.3x % 2% www.firstmidwest.com

MB Financial / MBFI 17 -16% 897 8% nm 76x 13x 9x 1.3x % 5% www.mbfinancial.com

Old National Bancorp / ONB 10 -19% 873 11% 72x 21x 17x 11x 1.3x 3% 2% www.oldnational.com

CVB Financial / CVBF 8 -9% 837 12% 14x 12x 11x 10x 1.4x 4% 19% www.cbbank.com

National Penn / NPBC 6 12% 815 9% nm 59x 14x 9x 1.3x 1% 2% www.natpennbank.com

Community Bank Sys. / CBU 23 20% 771 14% 18x 13x 12x 11x 2.7x 4% 4% www.communitybankna.com

NBT Bancorp / NBTB 22 9% 766 14% 15x 13x 13x 12x 1.9x 4% 3% www.nbtbancorp.com

Columbia Banking / COLB 19 19% 756 18% nm 37x 26x 17x 1.3x % 2% www.columbiabank.com

BancFirst / BANF 41 9% 622 13% 19x 16x 16x 13x 1.5x 2% 53% www.bancfirst.com

Brookline Bancorp / BRKL 10 -1% 582 22% 30x 21x 19x 18x 1.3x 3% 4% www.brooklinebank.com

Banco Latino Amer. / BLX 15 10% 559 13% 10x 13x 9x 8x .8x - 25% www.bladex.com

First Interstate / FIBK 13 na 540 7% 12x 17x 14x 9x 1.1x 4% 66% www.firstinterstatebank.com

S&T Bancorp / STBA 19 10% 518 13% >99x 15x 12x 9x .9x 3% 3% www.stbancorp.com

Boston Private / BPFH 7 18% 516 9% nm 62x 16x 11x 1.5x 1% 2% www.bostonprivate.com

City Holding / CHCO 33 1% 508 19% 12x 13x 12x 11x 2.0x 4% 4% www.cityholding.com

Dime Community / DCOM 14 22% 493 12% 18x 12x 11x 11x 1.9x 4% 17% www.dimewill.com

Simmons First / SFNC 29 3% 492 16% 16x 18x 17x 16x 1.6x 3% 8% www.simmonsfirst.com

First Commonwealth / FCF 6 21% 486 8% nm 33x 14x 10x 1.0x 1% 11% www.fcbanking.com

Tompkins Financial / TMP 41 11% 441 14% 14x 13x 12x 11x 2.0x 3% 15% www.tompkinstrustco.com

TrustCo Bank NY / TRST 5 -13% 420 11% 15x 15x 13x 11x 1.6x 5% 4% www.trustcobank.com

Community Trust / CTBI 28 13% 419 13% 17x 14x 13x 12x 1.6x 4% 4% www.ctbi.com

Renasant / RNST 16 20% 408 11% 19x 21x 14x 12x 1.8x 4% 4% www.renasantbank.com

SCBT Financial / SCBT 31 11% 391 11% 41x 7x 16x 13x 1.5x 2% 3% www.scbandt.com

S.Y. Bancorp / SYBT 24 14% 332 18% 20x 15x 14x 11x 2.1x 3% 8% www.syb.com

Danvers Bancorp / DNBK 15 18% 324 13% 49x 17x 16x 14x 1.2x 1% 17% www.danversbank.com

First Busey / BUSE 5 23% 319 9% nm 21x 16x 9x 1.7x 3% 19% www.busey.com

Univest Corp. of PA / UVSP 19 8% 314 15% 25x 21x 16x 14x 1.5x 4% 5% www.univest.net

Lakeland Financial / LKFN 19 10% 306 12% 15x 14x 11x 9x 1.3x 3% 9% www.lakecitybank.com

Arrow Financial / AROW 26 6% 288 15% 13x 14x 14x 12x 2.1x 4% 5% www.arrowfinancial.com

Southwest Bancorp / OKSB 13 90% 255 8% 22x 20x 20x 12x .9x 1% 6% www.oksb.com

Sterling Bancorp / STL 9 32% 252 11% 25x 23x 14x 9x 1.5x 4% 5% www.sterlingbancorp.com

First Community / FCBC 14 16% 248 11% nm 13x 11x 9x 1.4x 3% 16% www.fcbresource.com

Meridian Interstate / EBSB 11 23% 242 14% 63x 20x 19x 17x 1.2x - 59% www.ebsb.com

Rockville Financial / RCKB 12 10% 226 14% 22x 17x 16x 15x 1.4x 2% 56% www.rockvillebank.com

First Bancorp / FBNC 13 -6% 220 7% 4x 17x 11x 10x 1.0x 2% 11% www.firstbancorp.com

First of Long Island / FLIC 25 -1% 218 14% 14x 11x 12x 12x 1.7x 4% 25% www.fnbli.com

First Merchants / FRME 8 34% 203 5% nm 23x 14x 6x .9x 1% 2% www.firstmerchants.com

German American / GABC 18 8% 195 15% 16x 15x 14x 13x 1.8x 3% 7% germanamericanbancorp.com

Bank of Marin / BMRC 34 4% 178 15% 15x 14x 13x 11x 1.5x 2% 3% www.bankofmarin.com

CNB Financial / CCNE 14 -14% 167 13% 14x 13x 12x 10x 1.7x 5% 6% www.bankcnb.com

Citizens & Northern / CZNC 14 43% 166 12% nm 10x 9x 9x 1.3x 3% 2% www.cnbankpa.com

State Bancorp/NY / STBC 9 28% 152 9% nm 38x 21x 15x 1.3x 2% 15% www.statebankofli.com

First Bancorp / FNLC 14 -8% 138 10% 12x 13x 12x 11x 1.4x 6% 15% www.thefirstbancorp.com

Wainwright B & T / WAIN 19 158% 138 14% 30x 16x 14x 13x 2.0x 2% 30% www.wainwrightbank.com

NASB Financial / NASB 17 -25% 137 10% 7x 39x 67x 23x .8x - 63% www.nasb.com

Century Bancorp / CNBKA 23 6% 130 5% 13x 11x 10x 8x .9x 2% 36% www.century-bank.com

Peapack-Gladstone / PGC 12 -2% 109 7% 19x 17x 11x 8x 1.1x 2% 17% www.pgbank.com

Bar Harbor Bank / BHB 28 2% 105 10% 9x 10x 8x 8x 1.1x 4% 2% www.bhbt.com


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By Stock Price Performance (sorted by price decline since December 31, 2007)

∆ to Price Performance Market P/E P/E (Est.) Price/ MV/ Price 52-Week Since Since Since Value Last This Next In Tang. Div. Total Company / Ticker ($) Low High 12/31/09 12/31/07 12/30/05 ($mn) FY FY FY 2 Yrs Book Yield Assets Citigroup / C 4 -21% 28% 19% -87% -92% 114,445 nm 10x 9x 7x 1.0x - 6% First Busey / BUSE 5 -38% 16% 23% -76% -77% 319 nm 21x 16x 9x 1.7x 3% 9% Boston Private / BPFH 7 -33% 32% 18% -75% -78% 516 nm 62x 16x 11x 1.5x 1% 9% Bank of America / BAC 12 -2% 66% -20% -71% -74% 120,206 nm 13x 8x 6x 1.2x % 5% KeyCorp / KEY 8 -34% 23% 45% -66% -76% 7,069 nm >99x 20x 11x 1.0x % 8% First Merchants / FRME 8 -37% 28% 34% -64% -69% 203 nm 23x 14x 6x .9x 1% 5% Huntington / HBAN 6 -38% 30% 56% -61% -76% 4,079 nm 38x 13x 9x 1.3x 1% 8% First Midwest / FMBI 12 -26% 47% 12% -60% -65% 906 nm 42x 17x 11x 1.3x % 12% National Penn / NPBC 6 -20% 31% 12% -57% -64% 815 nm 59x 14x 9x 1.3x 1% 9% First Community / FCBC 14 -29% 27% 16% -56% -55% 248 nm 13x 11x 9x 1.4x 3% 11% Barclays / BCS 18 -16% 38% 4% -55% -57% 54,879 13x 9x 7x na .8x 1% 2% Susquehanna / SUSQ 9 -41% 40% 46% -53% -64% 1,118 nm 66x 19x 10x 1.2x % 8% Deutsche Bank / DB 57 -13% 36% -12% -52% -36% 52,206 6x na na na 1.3x - 2% Fifth Third Bancorp / FITB 12 -28% 31% 24% -52% -68% 9,659 18x 29x 12x 9x 1.4x % 9% State Street / STT 40 -19% 35% -8% -51% -28% 20,100 12x 12x 11x 9x 2.5x % 12% Mitsubishi UFJ / MTU 5 -3% 24% -6% -50% -66% 65,412 6x 14x 10x na .8x - 3% First Commonwealth / FCF 6 -28% 36% 21% -47% -56% 486 nm 33x 14x 10x 1.0x 1% 8% Peapack-Gladstone / PGC 12 -15% 34% -2% -47% -53% 109 19x 17x 11x 8x 1.1x 2% 7% MB Financial / MBFI 17 -12% 69% -16% -46% -53% 897 nm 76x 13x 9x 1.3x % 8% TrustCo Bank NY / TRST 5 -5% 32% -13% -45% -56% 420 15x 15x 13x 11x 1.6x 5% 11% Webster Financial / WBS 18 -40% 28% 49% -45% -62% 1,387 nm 41x 18x 13x 1.4x % 8% BancorpSouth / BXS 14 -11% 79% -40% -41% -37% 1,170 14x >99x 16x 10x 1.2x 6% 9% F.N.B. / FNB 9 -29% 9% 31% -39% -49% 1,021 28x 15x 12x 10x 2.1x 5% 12% HSBC Holdings / HBC 52 -17% 23% -8% -38% -35% 184,113 31x 14x 10x na 1.7x 3% 8% Northern Trust / NTRS 49 -7% 23% -7% -36% -6% 11,800 15x 17x 14x 12x 1.9x 2% 15% Columbia Banking / COLB 19 -30% 30% 19% -35% -33% 756 nm 37x 26x 17x 1.3x % 18% NASB Financial / NASB 17 -27% 59% -25% -34% -56% 137 7x 39x 67x 23x .8x - 10% Old National Bancorp / ONB 10 -9% 43% -19% -33% -54% 873 72x 21x 17x 11x 1.3x 3% 11% S&T Bancorp / STBA 19 -29% 39% 10% -33% -49% 518 >99x 15x 12x 9x .9x 3% 13% East West Bancorp / EWBC 17 -51% 24% 5% -32% -55% 2,448 42x 21x 13x 10x 1.5x % 12% Sterling Bancorp / STL 9 -34% 18% 32% -31% -52% 252 25x 23x 14x 9x 1.5x 4% 11% First Bancorp / FBNC 13 -9% 29% -6% -31% -35% 220 4x 17x 11x 10x 1.0x 2% 7% State Bancorp/NY / STBC 9 -29% 15% 28% -30% -46% 152 nm 38x 21x 15x 1.3x 2% 9% Washington Federal / WFSL 15 -8% 43% -22% -28% -34% 1,703 33x 14x 14x 10x 1.1x 1% 12% Southwest Bancorp / OKSB 13 -55% 23% 90% -28% -34% 255 22x 20x 20x 12x .9x 1% 8% Umpqua Holdings / UMPQ 11 -15% 43% -17% -28% -61% 1,272 nm 62x 18x 15x 1.3x 2% 12% TFS Financial / TFSL 9 -1% 66% -28% -27% na 2,682 >99x 97x 79x 46x 1.5x 3% 25% BB&T Corp. / BBT 23 -4% 58% -11% -26% -46% 15,689 20x 20x 11x 8x 1.7x 3% 10% People's United / PBCT 13 -4% 30% -21% -26% -11% 4,877 44x 34x 22x 18x 1.3x 5% 22% Renasant / RNST 16 -21% 11% 20% -24% -23% 408 19x 21x 14x 12x 1.8x 4% 11% CVB Financial / CVBF 8 -16% 51% -9% -24% -47% 837 14x 12x 11x 10x 1.4x 4% 12% Valley National / VLY 13 -8% 28% -6% -23% -33% 2,032 20x 16x 15x 13x 2.2x 6% 14% Citizens & Northern / CZNC 14 -40% 1% 43% -22% -46% 166 nm 10x 9x 9x 1.3x 3% 12% Wells Fargo / WFC 24 -2% 45% -13% -22% -25% 123,404 13x 11x 8x 6x 2.1x 1% 10% Hancock Holding / HBHC 31 -12% 50% -30% -20% -19% 1,129 13x 24x 16x 13x 1.4x 3% 13% Fulton Financial / FULT 10 -26% 23% 9% -15% -43% 1,895 31x 16x 12x 9x 1.4x 1% 11% JPMorgan Chase / JPM 37 -5% 30% -11% -15% -6% 145,844 17x 10x 8x 7x 1.4x 1% 7% BOK Financial / BOKF 45 -8% 25% -6% -13% -1% 3,052 15x 13x 12x 10x 1.5x 2% 13% City National / CYN 52 -30% 24% 14% -13% -28% 2,707 >99x 24x 16x 13x 2.0x 1% 13% Comerica / CMA 38 -31% 20% 29% -12% -33% 6,732 nm 45x 18x 12x 1.2x 1% 12%




∆ to Price Performance Market P/E P/E (Est.) Price/ MV/ Price 52-Week Since Since Since Value Last This Next In Tang. Div. Total Company / Ticker ($) Low High 12/31/09 12/31/07 12/30/05 ($mn) FY FY FY 2 Yrs Book Yield Assets Bar Harbor Bank / BHB 28 -12% 17% 2% -11% 6% 105 9x 10x 8x 8x 1.1x 4% 10% Bank of Hawaii / BOH 45 -10% 19% -4% -11% -12% 2,192 15x 13x 14x 12x 2.3x 4% 17% Univest Corp. of PA / UVSP 19 -20% 16% 8% -11% -22% 314 25x 21x 16x 14x 1.5x 4% 15% Lakeland Financial / LKFN 19 -14% 17% 10% -9% -6% 306 15x 14x 11x 9x 1.3x 3% 12% FirstMerit Corp. / FMER 18 -8% 36% -11% -9% -30% 1,958 20x 16x 13x 11x 1.9x 4% 13% M&T Bank / MTB 75 -20% 28% 12% -8% -31% 8,960 26x 14x 13x 11x 2.4x 4% 13% UMB Financial / UMBF 35 -10% 26% -10% -8% 11% 1,432 16x 16x 16x 14x 1.6x 2% 13% Banco Latino Amer. / BLX 15 -22% 8% 10% -6% -16% 559 10x 13x 9x 8x .8x - 13% NY Community / NYB 17 -37% 10% 14% -6% 0% 7,195 15x 14x 12x 11x 2.5x 6% 17% Northwest Bancorp / NWBI 11 -16% 15% -1% -6% 18% 1,235 37x 20x 16x 14x 1.1x 4% 15% BancFirst / BANF 41 -14% 16% 9% -5% 3% 622 19x 16x 16x 13x 1.5x 2% 13% Wintrust Financial / WTFC 31 -20% 43% 2% -5% -43% 976 14x 27x 14x 10x 1.2x 1% 7% Rockville Financial / RCKB 12 -24% 11% 10% -5% -11% 226 22x 17x 16x 15x 1.4x 2% 14% First Niagara / FNFG 12 -3% 29% -17% -4% -20% 2,415 25x 14x 11x 10x 1.4x 5% 12% City Holding / CHCO 33 -19% 15% 1% -4% -9% 508 12x 13x 12x 11x 2.0x 4% 19% SCBT Financial / SCBT 31 -18% 34% 11% -3% -4% 391 41x 7x 16x 13x 1.5x 2% 11% First Bancorp / FNLC 14 -13% 31% -8% -3% -19% 138 12x 13x 12x 11x 1.4x 6% 10% Brookline Bancorp / BRKL 10 -12% 18% -1% -3% -30% 582 30x 21x 19x 18x 1.3x 3% 22% NBT Bancorp / NBTB 22 -14% 17% 9% -3% 3% 766 15x 13x 13x 12x 1.9x 4% 14% Park National / PRK 64 -19% 10% 9% -1% -38% 979 13x 14x 12x 10x 1.7x 6% 14% Community Trust / CTBI 28 -20% 15% 13% 0% -11% 419 17x 14x 13x 12x 1.6x 4% 13% CNB Financial / CCNE 14 -23% 39% -14% 1% -3% 167 14x 13x 12x 10x 1.7x 5% 13% S.Y. Bancorp / SYBT 24 -18% 6% 14% 1% 2% 332 20x 15x 14x 11x 2.1x 3% 18% Simmons First / SFNC 29 -15% 5% 3% 8% 3% 492 16x 18x 17x 16x 1.6x 3% 16% Prosperity / PRSP 32 -12% 36% -21% 9% 12% 1,495 13x 12x 11x 10x 3.3x 2% 16% NewAlliance / NAL 13 -15% 7% 5% 9% -13% 1,322 27x 19x 17x 15x 1.5x 2% 15% Dime Community / DCOM 14 -28% 3% 22% 12% -2% 493 18x 12x 11x 11x 1.9x 4% 12% Iberiabank / IBKC 52 -20% 22% -3% 12% 3% 1,408 7x 26x 18x 13x 1.3x 3% 14% Signature Bank / SBNY 39 -26% 11% 21% 15% 38% 1,589 30x 18x 15x 13x 1.8x - 15% Tompkins Financial / TMP 41 -15% 7% 11% 15% 10% 441 14x 13x 12x 11x 2.0x 3% 14% Bank of Marin / BMRC 34 -14% 7% 4% 16% 4% 178 15x 14x 13x 11x 1.5x 2% 15% Century Bancorp / CNBKA 23 -28% 7% 6% 16% -20% 130 13x 11x 10x 8x .9x 2% 5% Community Bank Sys. / CBU 23 -30% 14% 20% 17% 3% 771 18x 13x 12x 11x 2.7x 4% 14% WestAmerica / WABC 54 -12% 14% -3% 20% 1% 1,563 13x 17x 15x 15x 4.2x 3% 33% First Financial Bank / FFIN 47 -8% 19% -13% 25% 34% 983 18x 18x 16x 15x 2.7x 3% 29% Arrow Financial / AROW 26 -17% 11% 6% 27% 11% 288 13x 14x 14x 12x 2.1x 4% 15% First of Long Island / FLIC 25 -10% 12% -1% 35% 19% 218 14x 11x 12x 12x 1.7x 4% 14% German American / GABC 18 -19% 2% 8% 38% 34% 195 16x 15x 14x 13x 1.8x 3% 15% Wainwright B & T / WAIN 19 -69% 1% 158% 42% 106% 138 30x 16x 14x 13x 2.0x 2% 14% First Financial / FFBC 17 -29% 26% 16% 48% -4% 980 3x 16x 13x 10x 1.5x 2% 15% BBVA Frances / BFR 10 -48% 2% 62% 53% 62% 1,823 7x 11x 12x 10x 2.7x 7% 25% Credicorp / BAP 126 -47% 1% 64% 65% 454% 10,075 21x 18x 15x 13x 4.1x - 42% Banco Macro / BMA 44 -49% 8% 49% 79% 271% 2,635 11x 13x 12x 11x 4.0x 2% 34% Santander Chile / SAN 92 -43% 8% 42% 81% 107% 16,726 19x 18x 16x 14x 5.1x - 39% Bancolombia / CIB 66 -42% 3% 45% 93% 128% 13,032 20x 19x 15x 13x 3.7x 2% 38% Santander Brasil / BSBR 15 -35% 3% 8% na na 57,197 8x 17x 13x 11x 2.4x - 28% Danvers Bancorp / DNBK 15 -20% 12% 18% na na 324 49x 17x 16x 14x 1.2x 1% 13% Meridian Interstate / EBSB 11 -24% 15% 23% na na 242 63x 20x 19x 17x 1.2x - 14% CIT Group / CIT 41 -40% 4% 50% na na 8,271 nm 19x 16x 13x 1.0x - 15% First Interstate / FIBK 13 -12% 35% na na na 540 12x 17x 14x 9x 1.1x 4% 7%




By Estimated Forward P/E (sorted by P/E based on estimated EPS for next fiscal year)

P/E P/E (Est.) EPS (Actual) EPS (Est.) 7-Yr Price/ Market MV/ Last This Next In 2 Yrs Last This Next In Avg Div. Tang. Value Ins. Total Company / Ticker FY FY FY 2 Yrs Ago FY FY FY 2 Yrs ROE Yield Book ($mn) Own. Assets Deutsche Bank / DB 6x 11x 6x na (9.67) 9.65 5.16 9.11 na 10% - 1.3x 52,206 <1% 2% Barclays / BCS 13x 9x 7x na 3.17 1.45 2.00 2.69 na 19% 1% .8x 54,879 12% 2% Bar Harbor Bank / BHB 9x 10x 8x 8x 2.57 3.12 2.87 3.55 3.39 11% 4% 1.1x 105 2% 10% JPMorgan Chase / JPM 17x 10x 8x 7x 0.81 2.24 3.81 4.59 5.43 9% 1% 1.4x 145,844 <1% 7% Bank of America / BAC nm 13x 8x 6x 0.54 (0.29) 0.91 1.48 2.12 12% % 1.2x 120,206 <1% 5% Wells Fargo / WFC 13x 11x 8x 6x 0.70 1.75 2.12 2.83 3.63 16% 1% 2.1x 123,404 <1% 10% Citigroup / C nm 10x 9x 7x (6.39) (0.76) 0.38 0.45 0.54 6% - 1.0x 114,445 <1% 6% Banco Latino Amer. / BLX 10x 13x 9x 8x 1.51 1.50 1.16 1.72 1.91 14% - .8x 559 25% 13% Citizens & Northern / CZNC nm 10x 9x 9x 1.12 (4.40) 1.42 1.47 1.47 4% 3% 1.3x 166 2% 12% Century Bancorp / CNBKA 13x 11x 10x 8x 1.63 1.84 2.22 2.40 2.77 8% 2% .9x 130 36% 5% HSBC Holdings / HBC 31x 14x 10x na 2.33 1.69 3.66 5.17 na 12% 3% 1.7x 184,113 <1% 8% Mitsubishi UFJ / MTU 6x 14x 10x na (1.66) 0.81 0.34 0.45 na 4% - .8x 65,412 5% 3% Lakeland Financial / LKFN 15x 14x 11x 9x 1.58 1.26 1.38 1.76 2.07 14% 3% 1.3x 306 9% 12% State Street / STT 12x 12x 11x 9x 4.30 3.46 3.35 3.70 4.32 10% % 2.5x 20,100 <1% 12% First Bancorp / FBNC 4x 17x 11x 10x 1.37 3.37 0.76 1.20 1.31 14% 2% 1.0x 220 11% 7% Dime Community / DCOM 18x 12x 11x 11x 0.85 0.79 1.23 1.31 1.33 12% 4% 1.9x 493 17% 12% Peapack-Gladstone / PGC 19x 17x 11x 8x (2.53) 0.64 0.74 1.13 1.46 7% 2% 1.1x 109 17% 7% CVB Financial / CVBF 14x 12x 11x 10x 0.76 0.56 0.64 0.71 0.82 17% 4% 1.4x 837 19% 12% First Community / FCBC nm 13x 11x 9x 0.15 (2.75) 1.11 1.26 1.60 7% 3% 1.4x 248 16% 11% First Niagara / FNFG 25x 14x 11x 10x 0.81 0.46 0.85 1.03 1.13 6% 5% 1.4x 2,415 <1% 12% Prosperity / PRSP 13x 12x 11x 10x 1.86 2.41 2.72 2.82 3.10 11% 2% 3.3x 1,495 8% 16% BB&T Corp. / BBT 20x 20x 11x 8x 2.71 1.15 1.13 1.98 2.80 12% 3% 1.7x 15,689 <1% 10% Banco Macro / BMA 11x 13x 12x 11x 2.41 4.18 3.52 3.80 4.18 27% 2% 4.0x 2,635 41% 34% First of Long Island / FLIC 14x 11x 12x 12x 1.78 1.84 2.27 2.13 2.13 13% 4% 1.7x 218 25% 14% Fulton Financial / FULT 31x 16x 12x 9x (0.03) 0.31 0.58 0.81 1.02 10% 1% 1.4x 1,895 2% 11% CNB Financial / CCNE 14x 13x 12x 10x 0.61 0.98 1.08 1.16 1.39 12% 5% 1.7x 167 6% 13% BBVA Frances / BFR 7x 11x 12x 10x 1.29 1.45 0.92 0.85 1.03 54% 7% 2.7x 1,823 76% 25% First Bancorp / FNLC 12x 13x 12x 11x 1.44 1.22 1.09 1.18 1.33 14% 6% 1.4x 138 15% 10% Fifth Third Bancorp / FITB 18x 29x 12x 9x (3.94) 0.67 0.42 1.01 1.39 8% % 1.4x 9,659 <1% 9% Tompkins Financial / TMP 14x 13x 12x 11x 2.78 2.96 3.23 3.39 3.66 15% 3% 2.0x 441 15% 14% S&T Bancorp / STBA >99x 15x 12x 9x 2.28 0.07 1.28 1.55 2.01 14% 3% .9x 518 3% 13% F.N.B. / FNB 28x 15x 12x 10x 0.44 0.32 0.60 0.74 0.87 10% 5% 2.1x 1,021 1% 12% NY Community / NYB 15x 14x 12x 11x 0.23 1.13 1.22 1.36 1.51 9% 6% 2.5x 7,195 3% 17% Community Bank Sys. / CBU 18x 13x 12x 11x 1.49 1.26 1.81 1.90 2.07 10% 4% 2.7x 771 4% 14% BOK Financial / BOKF 15x 13x 12x 10x 2.27 2.96 3.51 3.61 4.29 12% 2% 1.5x 3,052 63% 13% Park National / PRK 13x 14x 12x 10x 0.97 4.82 4.72 5.15 6.54 12% 6% 1.7x 979 3% 14% City Holding / CHCO 12x 13x 12x 11x 1.74 2.68 2.50 2.61 3.02 18% 4% 2.0x 508 4% 19% Bank of Marin / BMRC 15x 14x 13x 11x 2.31 2.19 2.42 2.67 3.11 14% 2% 1.5x 178 3% 15% NBT Bancorp / NBTB 15x 13x 13x 12x 1.80 1.53 1.66 1.75 1.87 14% 4% 1.9x 766 3% 14% M&T Bank / MTB 26x 14x 13x 11x 5.01 2.89 5.40 5.90 6.82 11% 4% 2.4x 8,960 10% 13% East West Bancorp / EWBC 42x 21x 13x 10x (0.94) 0.39 0.78 1.29 1.60 12% % 1.5x 2,448 2% 12% FirstMerit Corp. / FMER 20x 16x 13x 11x 1.46 0.90 1.10 1.40 1.69 12% 4% 1.9x 1,958 <1% 13% Santander Brasil / BSBR 8x 17x 13x 11x 1.41 1.86 0.90 1.17 1.40 18% - 2.4x 57,197 <1% 28% TrustCo Bank NY / TRST 15x 15x 13x 11x 0.45 0.37 0.36 0.42 0.50 19% 5% 1.6x 420 4% 11% MB Financial / MBFI nm 76x 13x 9x 0.43 (1.07) 0.22 1.27 1.95 9% % 1.3x 897 5% 8% Community Trust / CTBI 17x 14x 13x 12x 1.52 1.65 1.96 2.09 2.25 12% 4% 1.6x 419 4% 13% Huntington / HBAN nm 38x 13x 9x (0.44) (6.14) 0.15 0.43 0.64 -1% 1% 1.3x 4,079 <1% 8% First Financial / FFBC 3x 16x 13x 10x 0.61 5.33 1.04 1.26 1.68 17% 2% 1.5x 980 1% 15% Bank of Hawaii / BOH 15x 13x 14x 12x 3.99 3.00 3.59 3.35 3.75 22% 4% 2.3x 2,192 1% 17% S.Y. Bancorp / SYBT 20x 15x 14x 11x 1.59 1.19 1.59 1.78 2.25 17% 3% 2.1x 332 8% 18%




P/E P/E (Est.) EPS (Actual) EPS (Est.) 7-Yr Price/ Market MV/ Last This Next In 2 Yrs Last This Next In Avg Div. Tang. Value Ins. Total Company / Ticker FY FY FY 2 Yrs Ago FY FY FY 2 Yrs ROE Yield Book ($mn) Own. Assets Wainwright B & T / WAIN 30x 16x 14x 13x 0.40 0.63 1.17 1.38 1.44 10% 2% 2.0x 138 30% 14% National Penn / NPBC nm 59x 14x 9x 0.42 (3.61) 0.11 0.47 0.70 5% 1% 1.3x 815 2% 9% Washington Federal / WFSL 33x 14x 14x 10x 0.71 0.46 1.09 1.10 1.52 10% 1% 1.1x 1,703 <1% 12% First Interstate / FIBK 12x 17x 14x 9x 8.38 1.07 0.73 0.91 1.45 16% 4% 1.1x 540 66% 7% Arrow Financial / AROW 13x 14x 14x 12x 1.81 1.93 1.81 1.83 2.10 16% 4% 2.1x 288 5% 15% First Commonwealth / FCF nm 33x 14x 10x 0.58 (0.24) 0.17 0.40 0.59 8% 1% 1.0x 486 11% 8% Wintrust Financial / WTFC 14x 27x 14x 10x 0.76 2.18 1.17 2.20 3.20 9% 1% 1.2x 976 2% 7% Renasant / RNST 19x 21x 14x 12x 1.14 0.87 0.77 1.14 1.32 10% 4% 1.8x 408 4% 11% Northern Trust / NTRS 15x 17x 14x 12x 3.47 3.16 2.90 3.40 4.14 16% 2% 1.9x 11,800 6% 15% German American / GABC 16x 15x 14x 13x 1.16 1.10 1.20 1.22 1.33 11% 3% 1.8x 195 7% 15% First Merchants / FRME nm 23x 14x 6x 1.14 (2.17) 0.34 0.55 1.24 6% 1% .9x 203 2% 5% Sterling Bancorp / STL 25x 23x 14x 9x 0.88 0.37 0.41 0.65 1.00 13% 4% 1.5x 252 5% 11% Credicorp / BAP 21x 18x 15x 13x 4.49 5.90 7.21 8.43 10.03 18% - 4.1x 10,075 36% 42% Valley National / VLY 20x 16x 15x 13x 0.64 0.64 0.77 0.84 0.96 17% 6% 2.2x 2,032 5% 14% Bancolombia / CIB 20x 19x 15x 13x 2.18 3.30 3.50 4.37 5.09 27% 2% 3.7x 13,032 43% 38% Signature Bank / SBNY 30x 18x 15x 13x 1.35 1.30 2.17 2.53 2.90 7% - 1.8x 1,589 1% 15% WestAmerica / WABC 13x 17x 15x 15x 2.04 4.14 3.24 3.50 3.69 24% 3% 4.2x 1,563 4% 33% BancorpSouth / BXS 14x >99x 16x 10x 1.45 0.99 0.07 0.90 1.34 12% 6% 1.2x 1,170 12% 9% SCBT Financial / SCBT 41x 7x 16x 13x 1.52 0.74 4.30 1.96 2.35 10% 2% 1.5x 391 3% 11% Boston Private / BPFH nm 62x 16x 11x (4.85) (0.41) 0.11 0.43 0.59 -6% 1% 1.5x 516 2% 9% Rockville Financial / RCKB 22x 17x 16x 15x (0.09) 0.53 0.69 0.73 0.77 6% 2% 1.4x 226 56% 14% UMB Financial / UMBF 16x 16x 16x 14x 2.38 2.22 2.21 2.22 2.53 8% 2% 1.6x 1,432 20% 13% First Busey / BUSE nm 21x 16x 9x (1.06) (7.85) 0.23 0.30 0.51 -4% 3% 1.7x 319 19% 9% Santander Chile / SAN 19x 18x 16x 14x 4.72 4.92 5.07 5.73 6.68 22% - 5.1x 16,726 <1% 39% Univest Corp. of PA / UVSP 25x 21x 16x 14x 1.60 0.75 0.91 1.17 1.36 13% 4% 1.5x 314 5% 15% Northwest Bancorp / NWBI 37x 20x 16x 14x 0.44 0.30 0.57 0.69 0.82 7% 4% 1.1x 1,235 64% 15% City National / CYN >99x 24x 16x 13x 2.11 0.50 2.19 3.21 4.04 12% 1% 2.0x 2,707 13% 13% CIT Group / CIT nm 19x 16x 13x (2.69) (0.01) 2.17 2.54 3.19 0% - 1.0x 8,271 <1% 15% First Financial Bank / FFIN 18x 18x 16x 15x 2.55 2.58 2.68 2.89 3.12 15% 3% 2.7x 983 7% 29% BancFirst / BANF 19x 16x 16x 13x 2.85 2.09 2.56 2.48 3.10 13% 2% 1.5x 622 53% 13% Hancock Holding / HBHC 13x 24x 16x 13x 2.05 2.27 1.25 1.86 2.36 13% 3% 1.4x 1,129 3% 13% Danvers Bancorp / DNBK 49x 17x 16x 14x (0.15) 0.31 0.88 0.93 1.07 6% 1% 1.2x 324 17% 13% Old National Bancorp / ONB 72x 21x 17x 11x 0.95 0.14 0.47 0.60 0.94 9% 3% 1.3x 873 2% 11% First Midwest / FMBI nm 42x 17x 11x 1.00 (0.71) 0.29 0.73 1.11 12% % 1.3x 906 2% 12% Simmons First / SFNC 16x 18x 17x 16x 1.91 1.74 1.58 1.69 1.83 10% 3% 1.6x 492 8% 16% NewAlliance / NAL 27x 19x 17x 15x 0.45 0.47 0.66 0.72 0.82 3% 2% 1.5x 1,322 9% 15% Umpqua Holdings / UMPQ nm 62x 18x 15x 0.82 (2.36) 0.18 0.63 0.76 5% 2% 1.3x 1,272 1% 12% Iberiabank / IBKC 7x 26x 18x 13x 2.97 8.03 2.02 2.95 3.94 12% 3% 1.3x 1,408 5% 14% Webster Financial / WBS nm 41x 18x 13x (6.36) (1.40) 0.43 0.99 1.35 3% % 1.4x 1,387 1% 8% Comerica / CMA nm 45x 18x 12x 1.26 (0.79) 0.85 2.13 3.18 11% 1% 1.2x 6,732 <1% 12% Susquehanna / SUSQ nm 66x 19x 10x 0.95 (0.05) 0.13 0.46 0.83 7% % 1.2x 1,118 1% 8% Meridian Interstate / EBSB 63x 20x 19x 17x (0.09) 0.17 0.53 0.56 0.65 3% - 1.2x 242 59% 14% Brookline Bancorp / BRKL 30x 21x 19x 18x 0.22 0.33 0.47 0.51 0.54 3% 3% 1.3x 582 4% 22% Southwest Bancorp / OKSB 22x 20x 20x 12x 1.00 0.60 0.67 0.67 1.12 11% 1% .9x 255 6% 8% KeyCorp / KEY nm >99x 20x 11x (2.97) (2.27) 0.02 0.40 0.71 4% % 1.0x 7,069 <1% 8% State Bancorp/NY / STBC nm 38x 21x 15x 0.12 (1.16) 0.24 0.43 0.60 -2% 2% 1.3x 152 15% 9% People's United / PBCT 44x 34x 22x 18x 0.41 0.30 0.39 0.59 0.75 8% 5% 1.3x 4,877 <1% 22% Columbia Banking / COLB nm 37x 26x 17x 0.30 (0.38) 0.52 0.73 1.16 9% % 1.3x 756 2% 18% NASB Financial / NASB 7x 39x 67x 23x 1.18 2.38 0.45 0.26 0.75 14% - .8x 137 63% 10% TFS Financial / TFSL >99x 97x 79x 46x 0.17 0.05 0.09 0.11 0.19 5% 3% 1.5x 2,682 74% 25%




By Average Annual ROE (past seven years) 7-Yr GAAP Return on Equity (%) P/E P/E (Est.) Price/ Market Avg … Years Ago Last This Next In Div. Tang. Value Insider Company / Ticker ROE LTM 1 2 3 4 5 6 7 FY FY FY 2 Yrs Yield Book ($mn) Own. BBVA Frances / BFR 54% 33 41 44 55 52 94 87 6 7x 11x 12x 10x 7% 2.7x 1,823 76% Bancolombia / CIB 27% 19 18 15 24 28 34 36 34 20x 19x 15x 13x 2% 3.7x 13,032 43% Banco Macro / BMA 27% 26 32 23 15 19 34 8 56 11x 13x 12x 11x 2% 4.0x 2,635 41% WestAmerica / WABC 24% 19 27 15 22 23 27 27 28 13x 17x 15x 15x 3% 4.2x 1,563 4% Santander Chile / SAN 22% 31 27 27 17 23 23 20 19 19x 18x 16x 14x - 5.1x 16,726 <1% Bank of Hawaii / BOH 22% 19 17 25 25 26 24 22 15 15x 13x 14x 12x 4% 2.3x 2,192 1% TrustCo Bank NY / TRST 19% 12 12 14 17 19 26 25 23 15x 15x 13x 11x 5% 1.6x 420 4% Barclays / BCS 19% 34 22 15 21 25 21 19 11 13x 9x 7x na 1% .8x 54,879 12% Santander Brasil / BSBR 18% 13 9 8 37 n/a n/a n/a n/a 8x 17x 13x 11x - 2.4x 57,197 <1% Credicorp / BAP 18% 23 23 21 23 18 17 14 10 21x 18x 15x 13x - 4.1x 10,075 36% City Holding / CHCO 18% 14 14 10 17 18 20 23 25 12x 13x 12x 11x 4% 2.0x 508 4% First Financial / FFBC 17% 41 56 8 13 7 12 11 10 3x 16x 13x 10x 2% 1.5x 980 1% CVB Financial / CVBF 17% 10 9 14 15 19 21 20 19 14x 12x 11x 10x 4% 1.4x 837 19% Valley National / VLY 17% 9 8 9 16 17 20 23 24 20x 16x 15x 13x 6% 2.2x 2,032 5% S.Y. Bancorp / SYBT 17% 11 11 16 18 17 18 17 19 20x 15x 14x 11x 3% 2.1x 332 8% Arrow Financial / AROW 16% 15 16 16 14 14 16 17 18 13x 14x 14x 12x 4% 2.1x 288 5% Northern Trust / NTRS 16% 12 13 17 17 18 17 16 14 15x 17x 14x 12x 2% 1.9x 11,800 6% First Interstate / FIBK 16% 6 2 14 31 n/a n/a n/a n/a 12x 17x 14x 9x 4% 1.1x 540 66% Wells Fargo / WFC 16% 8 9 4 17 20 20 20 19 13x 11x 8x 6x 1% 2.1x 123,404 <1% First Financial Bank / FFIN 15% 13 14 15 16 16 16 15 14 18x 18x 16x 15x 3% 2.7x 983 7% Tompkins Financial / TMP 15% 14 14 14 14 15 16 16 16 14x 13x 12x 11x 3% 2.0x 441 15% NBT Bancorp / NBTB 14% 11 11 14 13 15 16 16 16 15x 13x 13x 12x 4% 1.9x 766 3% Banco Latino Amer. / BLX 14% 6 9 9 12 10 13 23 24 10x 13x 9x 8x - .8x 559 25% Lakeland Financial / LKFN 14% 8 9 13 14 15 17 15 16 15x 14x 11x 9x 3% 1.3x 306 9% Bank of Marin / BMRC 14% 11 11 13 14 14 16 16 15 15x 14x 13x 11x 2% 1.5x 178 3% NASB Financial / NASB 14% 6 12 6 10 14 18 19 20 7x 39x 67x 23x - .8x 137 63% First Bancorp / FBNC 14% 6 23 11 13 12 11 14 15 4x 17x 11x 10x 2% 1.0x 220 11% S&T Bancorp / STBA 14% 7 1 15 17 15 17 16 16 >99x 15x 12x 9x 3% .9x 518 3% First Bancorp / FNLC 14% 8 10 12 12 12 16 17 16 12x 13x 12x 11x 6% 1.4x 138 15% Hancock Holding / HBHC 13% 8 10 11 13 20 12 14 13 13x 24x 16x 13x 3% 1.4x 1,129 3% BancFirst / BANF 13% 9 8 11 15 15 15 14 13 19x 16x 16x 13x 2% 1.5x 622 53% Univest Corp. of PA / UVSP 13% 4 5 10 13 14 15 15 17 25x 21x 16x 14x 4% 1.5x 314 5% First of Long Island / FLIC 13% 13 12 13 12 12 14 14 13 14x 11x 12x 12x 4% 1.7x 218 25% Sterling Bancorp / STL 13% 5 5 13 12 8 16 17 18 25x 23x 14x 9x 4% 1.5x 252 5% First Midwest / FMBI 12% -3 -5 7 11 18 19 19 18 nm 42x 17x 11x % 1.3x 906 2% BB&T Corp. / BBT 12% 5 5 12 14 13 15 15 12 20x 20x 11x 8x 3% 1.7x 15,689 <1% Bank of America / BAC 12% -1 -1 2 11 18 16 19 22 nm 13x 8x 6x % 1.2x 120,206 <1% City National / CYN 12% 4 2 6 14 16 17 16 16 >99x 24x 16x 13x 1% 2.0x 2,707 13% CNB Financial / CCNE 12% 11 13 8 13 14 13 12 14 14x 13x 12x 10x 5% 1.7x 167 6% Dime Community / DCOM 12% 12 9 10 8 11 13 16 19 18x 12x 11x 11x 4% 1.9x 493 17% Park National / PRK 12% 11 12 2 4 17 17 17 17 13x 14x 12x 10x 6% 1.7x 979 3% HSBC Holdings / HBC 12% 9 5 5 16 16 16 15 12 31x 14x 10x na 3% 1.7x 184,113 <1% BOK Financial / BOKF 12% 10 10 8 12 13 14 14 14 15x 13x 12x 10x 2% 1.5x 3,052 63% Community Trust / CTBI 12% 9 8 8 13 15 14 14 13 17x 14x 13x 12x 4% 1.6x 419 4% Iberiabank / IBKC 12% 15 18 7 10 12 9 13 14 7x 26x 18x 13x 3% 1.3x 1,408 5% FirstMerit Corp. / FMER 12% 7 8 13 14 11 14 11 12 20x 16x 13x 11x 4% 1.9x 1,958 <1% BancorpSouth / BXS 12% 1 7 10 12 13 12 12 16 14x >99x 16x 10x 6% 1.2x 1,170 12% East West Bancorp / EWBC 12% 13 2 -5 15 16 17 18 18 42x 21x 13x 10x % 1.5x 2,448 2% Southwest Bancorp / OKSB 11% 4 4 6 10 14 14 16 14 22x 20x 20x 12x 1% .9x 255 6% Bar Harbor Bank / BHB 11% 10 12 12 11 12 11 10 10 9x 10x 8x 8x 4% 1.1x 105 2%




7-Yr GAAP Return on Equity (%) P/E P/E (Est.) Price/ Market Avg … Years Ago Last This Next In Div. Tang. Value Insider Company / Ticker ROE LTM 1 2 3 4 5 6 7 FY FY FY 2 Yrs Yield Book ($mn) Own. Prosperity / PRSP 11% 9 9 7 9 11 13 14 14 13x 12x 11x 10x 2% 3.3x 1,495 8% Comerica / CMA 11% -2 -2 4 13 18 17 15 13 nm 45x 18x 12x 1% 1.2x 6,732 <1% M&T Bank / MTB 11% 8 5 9 10 14 14 13 13 26x 14x 13x 11x 4% 2.4x 8,960 10% German American / GABC 11% 11 11 13 10 12 12 9 9 16x 15x 14x 13x 3% 1.8x 195 7% SCBT Financial / SCBT 10% 17 3 7 12 13 13 12 14 41x 7x 16x 13x 2% 1.5x 391 3% Simmons First / SFNC 10% 8 8 10 10 11 11 11 12 16x 18x 17x 16x 3% 1.6x 492 8% F.N.B. / FNB 10% 4 3 5 13 13 14 13 10 28x 15x 12x 10x 5% 2.1x 1,021 1% State Street / STT 10% 12 -16 16 14 16 13 13 14 12x 12x 11x 9x % 2.5x 20,100 <1% Washington Federal / WFSL 10% 6 3 5 11 12 13 12 14 33x 14x 14x 10x 1% 1.1x 1,703 <1% Fulton Financial / FULT 10% 5 4 0 10 13 13 14 15 31x 16x 12x 9x 1% 1.4x 1,895 2% Wainwright B & T / WAIN 10% 10 7 4 9 10 12 14 11 30x 16x 14x 13x 2% 2.0x 138 30% Renasant / RNST 10% 4 5 6 10 11 12 12 14 19x 21x 14x 12x 4% 1.8x 408 4% Deutsche Bank / DB 10% 15 15 -11 18 19 13 9 5 6x 11x 6x na - 1.3x 52,206 <1% Community Bank Sys. / CBU 10% 9 7 9 9 8 11 11 11 18x 13x 12x 11x 4% 2.7x 771 4% JPMorgan Chase / JPM 9% 9 6 4 13 13 8 6 15 17x 10x 8x 7x 1% 1.4x 145,844 <1% Columbia Banking / COLB 9% 2 -2 2 11 13 14 13 14 nm 37x 26x 17x % 1.3x 756 2% Wintrust Financial / WTFC 9% 7 7 2 7 10 12 13 13 14x 27x 14x 10x 1% 1.2x 976 2% Old National Bancorp / ONB 9% 2 1 10 12 12 9 9 9 72x 21x 17x 11x 3% 1.3x 873 2% MB Financial / MBFI 9% 0 -4 2 11 10 13 15 15 nm 76x 13x 9x % 1.3x 897 5% NY Community / NYB 9% 10 8 2 7 7 9 12 15 15x 14x 12x 11x 6% 2.5x 7,195 3% Fifth Third Bancorp / FITB 8% -3 6 -26 11 12 17 17 19 18x 29x 12x 9x % 1.4x 9,659 <1% People's United / PBCT 8% 2 2 3 5 9 11 18 7 44x 34x 22x 18x 5% 1.3x 4,877 <1% UMB Financial / UMBF 8% 9 9 11 9 7 7 5 7 16x 16x 16x 14x 2% 1.6x 1,432 20% Century Bancorp / CNBKA 8% 12 8 8 7 5 7 9 12 13x 11x 10x 8x 2% .9x 130 36% First Commonwealth / FCF 8% -1 -3 7 8 10 11 8 13 nm 33x 14x 10x 1% 1.0x 486 11% Susquehanna / SUSQ 7% 0 0 5 5 10 10 11 12 nm 66x 19x 10x % 1.2x 1,118 1% Northwest Bancorp / NWBI 7% 4 3 8 8 9 5 10 9 37x 20x 16x 14x 4% 1.1x 1,235 64% First Community / FCBC 7% -14 -19 1 14 14 14 13 15 nm 13x 11x 9x 3% 1.4x 248 16% Signature Bank / SBNY 7% 10 7 9 7 9 5 12 2 30x 18x 15x 13x - 1.8x 1,589 1% Peapack-Gladstone / PGC 7% 5 6 -23 11 10 14 15 15 19x 17x 11x 8x 2% 1.1x 109 17% Danvers Bancorp / DNBK 6% 5 2 -2 6 7 18 n/a n/a 49x 17x 16x 14x 1% 1.2x 324 17% First Niagara / FNFG 6% 4 3 6 6 7 8 6 7 25x 14x 11x 10x 5% 1.4x 2,415 <1% Rockville Financial / RCKB 6% 7 6 -1 5 5 3 5 19 22x 17x 16x 15x 2% 1.4x 226 56% First Merchants / FRME 6% -3 -12 6 10 9 10 10 10 nm 23x 14x 6x 1% .9x 203 2% Citigroup / C 6% -3 -8 -32 3 19 22 17 20 nm 10x 9x 7x - 1.0x 114,445 <1% Umpqua Holdings / UMPQ 5% -3 -13 4 5 9 10 9 11 nm 62x 18x 15x 2% 1.3x 1,272 1% National Penn / NPBC 5% -35 -36 4 12 13 13 13 16 nm 59x 14x 9x 1% 1.3x 815 2% TFS Financial / TFSL 5% 1 1 3 2 4 13 n/a n/a >99x 97x 79x 46x 3% 1.5x 2,682 74% Mitsubishi UFJ / MTU 4% -9 12 -21 -6 3 2 10 27 6x 14x 10x na - .8x 65,412 5% Citizens & Northern / CZNC 4% -13 -33 8 8 9 10 12 14 nm 10x 9x 9x 3% 1.3x 166 2% KeyCorp / KEY 4% -11 -21 -20 12 14 15 14 13 nm >99x 20x 11x % 1.0x 7,069 <1% Webster Financial / WBS 3% -5 -6 -22 5 8 12 11 15 nm 41x 18x 13x % 1.4x 1,387 1% Meridian Interstate / EBSB 3% 5 2 -1 2 3 10 n/a n/a 63x 20x 19x 17x - 1.2x 242 59% Brookline Bancorp / BRKL 3% 5 4 3 3 4 4 3 2 30x 21x 19x 18x 3% 1.3x 582 4% NewAlliance / NAL 3% 4 3 3 2 4 4 1 3 27x 19x 17x 15x 2% 1.5x 1,322 9% CIT Group / CIT 0% 34 0 -49 -2 15 15 13 11 nm 19x 16x 13x - 1.0x 8,271 <1% Huntington / HBAN -1% -15 -73 -3 2 17 16 17 17 nm 38x 13x 9x 1% 1.3x 4,079 <1% State Bancorp/NY / STBC -2% -7 -15 2 6 14 -46 14 13 nm 38x 21x 15x 2% 1.3x 152 15% First Busey / BUSE -4% -134 -96 -8 9 16 17 17 17 nm 21x 16x 9x 3% 1.7x 319 19% Boston Private / BPFH -6% -4 -8 -75 1 9 10 11 11 nm 62x 16x 11x 1% 1.5x 516 2%




By Market Value to Total Assets ∆ to Market Total MV/ P/E P/E (Est.) 7-Yr Price/ Price 52-Week Value Assets Total Last This Next In Avg Div. Tang. Insider Company / Ticker ($) Low High ($mn) ($mn) Assets FY FY FY 2 Yrs ROE Yield Book Own. Deutsche Bank / DB 57 -13% 36% 52,206 2,682,905 2% 6x 11x 6x na 10% - 1.3x <1% Barclays / BCS 18 -16% 38% 54,879 2,524,448 2% 13x 9x 7x na 19% 1% .8x 12% Mitsubishi UFJ / MTU 5 -3% 24% 65,412 2,402,406 3% 6x 14x 10x na 4% - .8x 5% First Merchants / FRME 8 -37% 28% 203 4,183 5% nm 23x 14x 6x 6% 1% .9x 2% Bank of America / BAC 12 -2% 66% 120,206 2,363,878 5% nm 13x 8x 6x 12% % 1.2x <1% Century Bancorp / CNBKA 23 -28% 7% 130 2,434 5% 13x 11x 10x 8x 8% 2% .9x 36% Citigroup / C 4 -21% 28% 114,445 1,937,656 6% nm 10x 9x 7x 6% - 1.0x <1% First Bancorp / FBNC 13 -9% 29% 220 3,318 7% 4x 17x 11x 10x 14% 2% 1.0x 11% JPMorgan Chase / JPM 37 -5% 30% 145,844 2,141,595 7% 17x 10x 8x 7x 9% 1% 1.4x <1% Wintrust Financial / WTFC 31 -20% 43% 976 13,709 7% 14x 27x 14x 10x 9% 1% 1.2x 2% Peapack-Gladstone / PGC 12 -15% 34% 109 1,477 7% 19x 17x 11x 8x 7% 2% 1.1x 17% First Interstate / FIBK 13 -12% 35% 540 7,225 7% 12x 17x 14x 9x 16% 4% 1.1x 66% KeyCorp / KEY 8 -34% 23% 7,069 94,167 8% nm >99x 20x 11x 4% % 1.0x <1% HSBC Holdings / HBC 52 -17% 23% 184,113 2,418,454 8% 31x 14x 10x na 12% 3% 1.7x <1% Webster Financial / WBS 18 -40% 28% 1,387 17,743 8% nm 41x 18x 13x 3% % 1.4x 1% Huntington / HBAN 6 -38% 30% 4,079 51,771 8% nm 38x 13x 9x -1% 1% 1.3x <1% First Commonwealth / FCF 6 -28% 36% 486 6,058 8% nm 33x 14x 10x 8% 1% 1.0x 11% Susquehanna / SUSQ 9 -41% 40% 1,118 13,892 8% nm 66x 19x 10x 7% % 1.2x 1% MB Financial / MBFI 17 -12% 69% 897 10,644 8% nm 76x 13x 9x 9% % 1.3x 5% Southwest Bancorp / OKSB 13 -55% 23% 255 3,011 8% 22x 20x 20x 12x 11% 1% .9x 6% First Busey / BUSE 5 -38% 16% 319 3,699 9% nm 21x 16x 9x -4% 3% 1.7x 19% Fifth Third Bancorp / FITB 12 -28% 31% 9,659 112,025 9% 18x 29x 12x 9x 8% % 1.4x <1% BancorpSouth / BXS 14 -11% 79% 1,170 13,421 9% 14x >99x 16x 10x 12% 6% 1.2x 12% Boston Private / BPFH 7 -33% 32% 516 5,868 9% nm 62x 16x 11x -6% 1% 1.5x 2% National Penn / NPBC 6 -20% 31% 815 9,222 9% nm 59x 14x 9x 5% 1% 1.3x 2% State Bancorp/NY / STBC 9 -29% 15% 152 1,615 9% nm 38x 21x 15x -2% 2% 1.3x 15% NASB Financial / NASB 17 -27% 59% 137 1,416 10% 7x 39x 67x 23x 14% - .8x 63% Bar Harbor Bank / BHB 28 -12% 17% 105 1,085 10% 9x 10x 8x 8x 11% 4% 1.1x 2% Wells Fargo / WFC 24 -2% 45% 123,404 1,225,862 10% 13x 11x 8x 6x 16% 1% 2.1x <1% BB&T Corp. / BBT 23 -4% 58% 15,689 155,083 10% 20x 20x 11x 8x 12% 3% 1.7x <1% First Bancorp / FNLC 14 -13% 31% 138 1,326 10% 12x 13x 12x 11x 14% 6% 1.4x 15% SCBT Financial / SCBT 31 -18% 34% 391 3,619 11% 41x 7x 16x 13x 10% 2% 1.5x 3% TrustCo Bank NY / TRST 5 -5% 32% 420 3,829 11% 15x 15x 13x 11x 19% 5% 1.6x 4% Sterling Bancorp / STL 9 -34% 18% 252 2,284 11% 25x 23x 14x 9x 13% 4% 1.5x 5% First Community / FCBC 14 -29% 27% 248 2,247 11% nm 13x 11x 9x 7% 3% 1.4x 16% Old National Bancorp / ONB 10 -9% 43% 873 7,701 11% 72x 21x 17x 11x 9% 3% 1.3x 2% Renasant / RNST 16 -21% 11% 408 3,594 11% 19x 21x 14x 12x 10% 4% 1.8x 4% Fulton Financial / FULT 10 -26% 23% 1,895 16,627 11% 31x 16x 12x 9x 10% 1% 1.4x 2% F.N.B. / FNB 9 -29% 9% 1,021 8,833 12% 28x 15x 12x 10x 10% 5% 2.1x 1% First Midwest / FMBI 12 -26% 47% 906 7,805 12% nm 42x 17x 11x 12% % 1.3x 2% Lakeland Financial / LKFN 19 -14% 17% 306 2,634 12% 15x 14x 11x 9x 14% 3% 1.3x 9% Umpqua Holdings / UMPQ 11 -15% 43% 1,272 10,827 12% nm 62x 18x 15x 5% 2% 1.3x 1% First Niagara / FNFG 12 -3% 29% 2,415 20,518 12% 25x 14x 11x 10x 6% 5% 1.4x <1% Dime Community / DCOM 14 -28% 3% 493 4,148 12% 18x 12x 11x 11x 12% 4% 1.9x 17% Comerica / CMA 38 -31% 20% 6,732 55,885 12% nm 45x 18x 12x 11% 1% 1.2x <1% CVB Financial / CVBF 8 -16% 51% 837 6,860 12% 14x 12x 11x 10x 17% 4% 1.4x 19% East West Bancorp / EWBC 17 -51% 24% 2,448 19,967 12% 42x 21x 13x 10x 12% % 1.5x 2% Citizens & Northern / CZNC 14 -40% 1% 166 1,339 12% nm 10x 9x 9x 4% 3% 1.3x 2% State Street / STT 40 -19% 35% 20,100 162,075 12% 12x 12x 11x 9x 10% % 2.5x <1% Washington Federal / WFSL 15 -8% 43% 1,703 13,710 12% 33x 14x 14x 10x 10% 1% 1.1x <1%




∆ to Market Total MV/ P/E P/E (Est.) 7-Yr Price/ Price 52-Week Value Assets Total Last This Next In Avg Div. Tang. Insider Company / Ticker ($) Low High ($mn) ($mn) Assets FY FY FY 2 Yrs ROE Yield Book Own. S&T Bancorp / STBA 19 -29% 39% 518 4,139 13% >99x 15x 12x 9x 14% 3% .9x 3% CNB Financial / CCNE 14 -23% 39% 167 1,325 13% 14x 13x 12x 10x 12% 5% 1.7x 6% Banco Latino Amer. / BLX 15 -22% 8% 559 4,412 13% 10x 13x 9x 8x 14% - .8x 25% City National / CYN 52 -30% 24% 2,707 21,231 13% >99x 24x 16x 13x 12% 1% 2.0x 13% Danvers Bancorp / DNBK 15 -20% 12% 324 2,529 13% 49x 17x 16x 14x 6% 1% 1.2x 17% BOK Financial / BOKF 45 -8% 25% 3,052 23,737 13% 15x 13x 12x 10x 12% 2% 1.5x 63% UMB Financial / UMBF 35 -10% 26% 1,432 11,062 13% 16x 16x 16x 14x 8% 2% 1.6x 20% Community Trust / CTBI 28 -20% 15% 419 3,209 13% 17x 14x 13x 12x 12% 4% 1.6x 4% M&T Bank / MTB 75 -20% 28% 8,960 68,154 13% 26x 14x 13x 11x 11% 4% 2.4x 10% Hancock Holding / HBHC 31 -12% 50% 1,129 8,500 13% 13x 24x 16x 13x 13% 3% 1.4x 3% BancFirst / BANF 41 -14% 16% 622 4,628 13% 19x 16x 16x 13x 13% 2% 1.5x 53% FirstMerit Corp. / FMER 18 -8% 36% 1,958 14,523 13% 20x 16x 13x 11x 12% 4% 1.9x <1% Iberiabank / IBKC 52 -20% 22% 1,408 10,377 14% 7x 26x 18x 13x 12% 3% 1.3x 5% Wainwright B & T / WAIN 19 -69% 1% 138 1,012 14% 30x 16x 14x 13x 10% 2% 2.0x 30% First of Long Island / FLIC 25 -10% 12% 218 1,598 14% 14x 11x 12x 12x 13% 4% 1.7x 25% Park National / PRK 64 -19% 10% 979 7,093 14% 13x 14x 12x 10x 12% 6% 1.7x 3% Tompkins Financial / TMP 41 -15% 7% 441 3,162 14% 14x 13x 12x 11x 15% 3% 2.0x 15% Meridian Interstate / EBSB 11 -24% 15% 242 1,728 14% 63x 20x 19x 17x 3% - 1.2x 59% Rockville Financial / RCKB 12 -24% 11% 226 1,602 14% 22x 17x 16x 15x 6% 2% 1.4x 56% NBT Bancorp / NBTB 22 -14% 17% 766 5,415 14% 15x 13x 13x 12x 14% 4% 1.9x 3% Community Bank Sys. / CBU 23 -30% 14% 771 5,448 14% 18x 13x 12x 11x 10% 4% 2.7x 4% Valley National / VLY 13 -8% 28% 2,032 14,113 14% 20x 16x 15x 13x 17% 6% 2.2x 5% German American / GABC 18 -19% 2% 195 1,341 15% 16x 15x 14x 13x 11% 3% 1.8x 7% Arrow Financial / AROW 26 -17% 11% 288 1,960 15% 13x 14x 14x 12x 16% 4% 2.1x 5% Northern Trust / NTRS 49 -7% 23% 11,800 80,049 15% 15x 17x 14x 12x 16% 2% 1.9x 6% First Financial / FFBC 17 -29% 26% 980 6,607 15% 3x 16x 13x 10x 17% 2% 1.5x 1% Bank of Marin / BMRC 34 -14% 7% 178 1,186 15% 15x 14x 13x 11x 14% 2% 1.5x 3% Univest Corp. of PA / UVSP 19 -20% 16% 314 2,089 15% 25x 21x 16x 14x 13% 4% 1.5x 5% CIT Group / CIT 41 -40% 4% 8,271 54,917 15% nm 19x 16x 13x 0% - 1.0x <1% NewAlliance / NAL 13 -15% 7% 1,322 8,712 15% 27x 19x 17x 15x 3% 2% 1.5x 9% Northwest Bancorp / NWBI 11 -16% 15% 1,235 8,136 15% 37x 20x 16x 14x 7% 4% 1.1x 64% Signature Bank / SBNY 39 -26% 11% 1,589 10,383 15% 30x 18x 15x 13x 7% - 1.8x 1% Prosperity / PRSP 32 -12% 36% 1,495 9,609 16% 13x 12x 11x 10x 11% 2% 3.3x 8% Simmons First / SFNC 29 -15% 5% 492 3,025 16% 16x 18x 17x 16x 10% 3% 1.6x 8% Bank of Hawaii / BOH 45 -10% 19% 2,192 12,856 17% 15x 13x 14x 12x 22% 4% 2.3x 1% NY Community / NYB 17 -37% 10% 7,195 42,011 17% 15x 14x 12x 11x 9% 6% 2.5x 3% Columbia Banking / COLB 19 -30% 30% 756 4,289 18% nm 37x 26x 17x 9% % 1.3x 2% S.Y. Bancorp / SYBT 24 -18% 6% 332 1,860 18% 20x 15x 14x 11x 17% 3% 2.1x 8% City Holding / CHCO 33 -19% 15% 508 2,639 19% 12x 13x 12x 11x 18% 4% 2.0x 4% Brookline Bancorp / BRKL 10 -12% 18% 582 2,659 22% 30x 21x 19x 18x 3% 3% 1.3x 4% People's United / PBCT 13 -4% 30% 4,877 21,950 22% 44x 34x 22x 18x 8% 5% 1.3x <1% TFS Financial / TFSL 9 -1% 66% 2,682 10,940 25% >99x 97x 79x 46x 5% 3% 1.5x 74% BBVA Frances / BFR 10 -48% 2% 1,823 7,160 25% 7x 11x 12x 10x 54% 7% 2.7x 76% Santander Brasil / BSBR 15 -35% 3% 57,197 204,962 28% 8x 17x 13x 11x 18% - 2.4x <1% First Financial Bank / FFIN 47 -8% 19% 983 3,336 29% 18x 18x 16x 15x 15% 3% 2.7x 7% WestAmerica / WABC 54 -12% 14% 1,563 4,727 33% 13x 17x 15x 15x 24% 3% 4.2x 4% Banco Macro / BMA 44 -49% 8% 2,635 7,671 34% 11x 13x 12x 11x 27% 2% 4.0x 41% Bancolombia / CIB 66 -42% 3% 13,032 34,688 38% 20x 19x 15x 13x 27% 2% 3.7x 43% Santander Chile / SAN 92 -43% 8% 16,726 42,975 39% 19x 18x 16x 14x 22% - 5.1x <1% Credicorp / BAP 126 -47% 1% 10,075 23,830 42% 21x 18x 15x 13x 18% - 4.1x 36%




Banking Glossary and Definitions The following definitions originate from the FDIC, company filings and other sources, and are edited by The Manual of Ideas research team.

Basel III. New international regulatory framework for banks. The following is an overview of this framework, as summarized by Citigroup:

Basel I to Basel III:

Basel III Phase-In:

C&D (construction and development loans). Construction and land development loans secured by real estate held in domestic offices.

C&I (commercial and industrial loans). Excludes loans secured by real estate, loans to individuals, loans to depository institutions and foreign governments, loans to states and political subdivisions and lease financing receivables.

Capital measures. A bank is deemed… • Well capitalized if the bank (i) has a total risk-based capital ratio of

10.0% or greater; and (ii) has a Tier 1 risk-based capital ratio of 6.0% or greater; and (iii) has a leverage ratio of 5.0% or greater; and (iv) is




not subject to any written agreement, order, capital directive, or prompt corrective action directive issued by the FDIC.

• Adequately capitalized if the bank (i) has a total risk-based capital ratio of 8.0% or greater; and (ii) has a Tier 1 risk-based capital ratio of 4.0% or greater; and (iii) has (a) a leverage ratio of 4.0% or greater, or (b) a leverage ratio of 3.0% or greater if the bank is rated composite 1 under the CAMELS rating system in the most recent examination of the bank and is not experiencing or anticipating significant growth, and (iv) does not meet the definition of a well capitalized bank.

• Undercapitalized if the bank (i) has a total risk-based capital ratio that is less than 8.0%; or (ii) has a Tier 1 risk-based capital ratio that is less than 4.0% or (iii) (a) has a leverage ratio that is less than 4.0%; or (b) has a leverage ratio that is less than 3.0% if the bank is rated composite 1 under the CAMELS rating system in the most recent examination of the bank and is not experiencing or anticipating significant growth.

• Significantly undercapitalized if the bank has (i) a total risk-based capital ratio less than 6.0%; or (ii) a Tier 1 risk-based capital ratio that is less than 3.0%; or (iii) a leverage ratio that is less than 3.0%.

• Critically undercapitalized if the insured depository institution has a ratio of tangible equity to total assets that is equal to or less than 2.0%.

Core capital. See Tier 1 capital. Loan loss allowance. Each bank must maintain an allowance (reserve) for loan and lease losses adequate to absorb estimated credit losses associated with its loan and lease portfolio (includes off-balance-sheet credit instruments).

Net loans and leases. Total loans and lease financing receivables minus unearned income and loan loss allowances.

OREO (other real estate owned). Includes direct and indirect investments in real estate. The amount is reflected net of valuation allowances.

Restructured loans and leases. Total loans and leases restructured and in compliance with modified terms.

Tier 1 capital. Tier 1 (core) capital includes: common equity plus noncumulative perpetual preferred stock plus minority interests in consolidated subsidiaries less goodwill and other ineligible intangible assets. The amount of eligible intangibles (including mortgage servicing rights) included in core capital is limited in accordance with supervisory capital regulations.

Tier 2 risk-based capital consists of, but is not limited to, limited subordinated debt, cumulative perpetual preferred stock, allowance for loan and lease losses, total mandatory convertible debt and a portion of unrealized gains on available-for-sale equity securities.

Total risk weighted assets includes gross risk weighted assets minus disallowed loan and lease allowance minus allocated transfer risk reserve plus unrealized loss on equity securities.

Unearned income. Loan revenue received in advance of being earned.




Favorite Stock Screens For Value Investors

Company Ticker Price Market Value

Enterprise Value

Relevant Financial Data Point Notable Shareholders Industry

"Magic Formula," based on Trailing Financials

Trailing EBIT / EV

1 Synta Pharma SNTA $3.67 $149mn $102mn 91% AIG, BlackRock Major Drugs

2 Terra Nova Royalty TTT $7.76 $235mn $150mn 39% Paradigm, RenTech Misc. Financial Services

3 * Daily Journal DJCO $73.00 $101mn $35mn 34% Ashford, Fairholme Printing & Publishing

"Magic Formula," based on This Year's EPS Estimates EPS Yield FY0 1 ITT Educational ESI $61.13 $1,951mn $1,839mn 18% Blum, Wanger Schools

2 Bridgepoint Edu. BPI $14.34 $784mn $578mn 14% FMR, Wells Fargo Schools

3 Career Education CECO $17.51 $1,423mn $1,112mn 17% Blum, RS, Kornitzer Schools

"Magic Formula," based on Next Year's EPS Estimates

EPS Yield FY1

1 ITT Educational ESI $61.13 $1,951mn $1,839mn 20% Blum, Wanger Schools

2 Bridgepoint Edu. BPI $14.34 $784mn $578mn 17% FMR, Wells Fargo Schools

3 Career Education CECO $17.51 $1,423mn $1,112mn 19% Blum, RS, Kornitzer Schools

Contrarian: Biggest YTD Losers (deleveraged & profitable)

∆ Price YTD

1 China Sky One CSKI $8.43 $142mn $77mn -63% Pope, Guerrilla Biotechnology & Drugs

2 Duoyuan Global Water DGW $13.56 $333mn $119mn -62% Royce, Tiger Global Misc. Capital Goods

3 A-Power Energy APWR $7.46 $338mn $277mn -59% Hudson Bay, DnB Electric Utilities

Value with Catalyst: Cheap Repurchasers of Stock ∆ Shares Q-Q 1 United Overseas Bank UOVEY $28.54 $21,491mn n/m -20% n/a Regional Banks

2 Brasil Telecom SA BTM $21.25 $4,156mn $5,553mn -12% Aviva, Brandes Comms Services

3 Dillard's DDS $26.41 $1,745mn $2,490mn -6% Southeastern, Smith Retail (dep't & discount)

Profitable Dividend Payors with Decent Balance Sheets

Div. Yield

1 Am. Capital Agency AGNC $27.90 $939mn $865mn 20% Vanguard, BlackRock Real Estate Operations

2 Fifth Street Finance FSC $11.53 $629mn n/m 11% Greenlight, Opus Misc. Financial Services

3 Himax Tech HIMX $2.31 $411mn $253mn 11% FMR, RenTech Semiconductors

Deep Value: Lots of Revenue, Low Enterprise Value EV/Revenue 1 Tech Data TECD $42.88 $1,999mn $1,478mn .06x Perkins, Acadian Computer Hardware

2 Ingram Micro IM $17.79 $2,788mn $2,377mn .07x Artisan, Tradewinds Computer Hardware

3 World Fuel Services INT $26.84 $1,597mn $1,301mn .09x Argyll, Frontier Oil & Gas Operations

Deep Value: Neglected Gross Profiteers

EV/GP

1 * Zoran ZRAN $7.71 $383mn $4mn .02x Pzena, Advisory Semiconductors

2 * Stewart Information STC $11.09 $204mn $141mn .09x Artisan, Prescott Property & Casualty

3 Winn-Dixie Stores WINN $6.95 $385mn $262mn .13x Advisory, Sterling Retail (grocery)

Activist Targets: Potential Sales, Liquidations or Recaps NCAV / MV * 1 Qiao Xing Universal XING $1.71 $158mn -$263mn 206% Shah Comms Services

2 Qiao Xing Mobile QXM $3.71 $196mn -$121mn 200% Shah, Weiss, Pope Comms Services

3 Audiovox VOXX $6.38 $146mn $87mn 145% Baupost, Aegis Comms Equipment

* NCAV = net current asset value = current asset minus total liabilities




“Magic Formula,” based on Trailing Operating Income Companies with high returns on capital employed, trading at high trailing EBIT-to-enterprise value yield

▼ ▼ Move To Trailing EBIT/ Price/ Insiders Price 52-Week MV EV EV/ EBIT/ Capital Tax Tangible % Buys/ Company Ticker ($) Low High ($mn) ($mn) Sales EV Employed Rate Book Own. Sells

1 Synta Pharma SNTA 3.67 -31% 89% 149 102 .7x 91% infinite n/m 4.2x 44% 6 / 1

2 Terra Nova Royalty TTT 7.76 -39% 40% 235 150 .3x 39% infinite 62% 1.1x 21% - / -

3 * Daily Journal DJCO 73.00 -28% 5% 101 35 .9x 34% infinite 38% 1.7x 64% - / -

4 ITT Educational ESI 61.13 -18% 100% 1,951 1,839 1.2x 33% 1547% 39% >9.9x 0% 11 / 5

5 Bridgepoint Edu. BPI 14.34 -11% 92% 784 578 1.0x 31% infinite 42% 3.9x 1% 5 / 6

6 EarthLink ELNK 8.75 -10% 7% 946 621 1.0x 31% 1325% n/m 1.4x 1% 13 / 9

7 ePlus PLUS 20.55 -28% 9% 166 134 .2x 25% infinite 39% 1.0x 40% 11 / 3

8 Apollo Group APOL 36.00 -1% 109% 5,321 4,621 .9x 30% 711% 46% 6.0x 15% 16 / 12

9 H&R Block HRB 10.78 -6% 115% 3,326 3,346 .9x 23% infinite 38% n/m 4% 7 / 2

10 Unisys UIS 30.78 -45% 31% 1,312 1,652 .4x 25% 801% 13% n/m 1% 6 / 3

11 InterDigital IDCC 29.89 -38% 3% 1,317 832 2.3x 26% 448% 28% 9.4x 2% 12 / 11

12 Impax Labs IPXL 21.14 -66% 6% 1,341 1,013 1.4x 33% 266% 36% 3.5x 5% 11 / 9

13 Metropolitan Health MDF 3.99 -54% 13% 162 130 .4x 25% 337% 38% 3.3x 24% 9 / 5

14 Amedisys AMED 25.10 -9% 156% 723 812 .5x 30% 281% 39% n/m 1% 6 / 3

15 Career Education CECO 17.51 -7% 105% 1,423 1,112 .5x 29% 265% 34% 4.5x 0% 6 / 4

16 United Online UNTD 5.73 -17% 59% 501 682 .7x 18% infinite 39% n/m 4% 2 / 8

17 InfoSpace INSP 8.49 -22% 43% 306 83 .3x 18% infinite 9% 1.4x 1% 10 / 8

18 Oshkosh OSK 31.63 -22% 41% 2,864 3,880 .4x 34% 196% 33% n/m 1% 15 / 6

19 SuperGen SUPG 2.35 -27% 62% 142 39 .8x 19% 894% n/m 1.3x 16% - / 1

20 USA Mobility USMO 15.65 -37% 7% 345 216 .8x 27% 232% 38% 2.1x 0% 5 / 5

21 SanDisk SNDK 36.99 -48% 37% 8,621 7,405 1.6x 20% 338% 22% 1.7x 2% 12 / 6

22 Amerigroup AGP 43.30 -52% 2% 2,209 1,819 .3x 16% infinite 37% 2.7x 1% 17 / 13

23 Foster Wheeler FWLT 24.03 -15% 46% 3,064 2,275 .5x 18% 334% 22% 4.1x 0% 3 / 1

24 Tessera Technologies TSRA 19.09 -22% 57% 959 522 2.0x 19% 296% 44% 2.0x 2% 4 / 4

25 Global Cash Access GCA 3.88 -11% 139% 260 422 .7x 15% infinite 38% n/m 0% 2 / 5

26 VirnetX VHC 17.61 -89% 14% 836 708 3.5x 15% infinite 32% >9.9x 29% 4 / -

27 Medicis Pharma MRX 30.29 -32% 2% 1,823 1,448 2.2x 15% infinite 38% 4.0x 2% - / -

28 Nephros NEP 7.27 -61% 59% 215 173 1.7x 35% 129% 23% 2.4x 31% - / -

29 Zalicus ZLCS 1.33 -43% 52% 118 69 1.2x 15% 606% n/m 2.4x 9% 1 / -

30 Genoptix GXDX 17.33 -22% 125% 305 165 .8x 30% 124% 46% 1.5x 1% 7 / 8

31 AmSurg AMSG 18.23 -10% 28% 564 826 1.2x 27% 131% 16% n/m 3% 9 / 1

32 Corinthian Colleges COCO 4.77 -11% 305% 421 526 .3x 46% 118% 39% 4.2x 0% 7 / 3

33 Forest Labs FRX 33.92 -29% 0% 9,686 6,396 1.5x 18% 201% 29% 2.4x 1% 7 / 8

34 * Internet Gold IGLD 26.64 -68% 28% 509 618 .7x 32% 119% 38% 4.0x 77% - / -

35 ViroPharma VPHM 15.36 -53% 9% 1,196 932 2.5x 17% 236% 43% 7.1x 1% 6 / 4

36 * Value Line VALU 14.38 -17% 136% 144 100 1.8x 14% infinite 28% 6.8x 87% - / -

37 AutoChina AUTC 25.35 -39% 91% 499 337 .7x 14% infinite 24% 2.5x 1% - / -

38 Almost Family AFAM 31.72 -26% 39% 293 265 .8x 18% 166% 41% 5.5x 11% 7 / 4

39 Aeropostale ARO 25.70 -26% 25% 2,376 2,079 .9x 20% 137% 40% 4.8x 1% 1 / 3

40 Argan AGX 9.36 -21% 74% 127 56 .3x 16% 186% 34% 1.7x 41% - / -

41 * Kirkland's KIRK 13.18 -18% 93% 262 196 .5x 28% 106% 31% 2.6x 27% 9 / 2

42 Providence Service PRSC 17.23 -35% 8% 223 358 .4x 17% 159% 39% n/m 2% 12 / 3

43 * Nova Measuring NVMI 5.85 -56% 18% 117 71 1.1x 16% 168% n/m 2.3x 2% - / -

44 * KBR KBR 25.20 -31% 2% 3,938 2,804 .3x 20% 121% 31% 2.4x 0% 2 / -

45 * Select Comfort SCSS 8.24 -43% 46% 457 374 .6x 13% infinite n/m 9.2x 4% 10 / 7

Company website SEC Y! Price Charts Proxy Y!

* New additions are highlighted. Screening criteria: ► Market value > $100 million ► ADRs and banks excluded


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“Magic Formula,” based on This Year’s EPS Estimates Companies with high returns on capital employed, trading at high earnings yields (based on this FY EPS estimates)

▼ ▼ Move To This FY EBIT/ Price to Insiders Price 52-Week MV EV EV/ EPS Capital Tax Tangible % Buys/ Company Ticker ($) Low High ($mn) ($mn) Sales Yield Employed Rate Book Own. Sells




4 Impax Labs IPXL 21.14 -66% 6% 1,341 1,013 1.4x 15% 266% 36% 3.5x 5% 11 / 9



7 Penwest Pharma PPCO 4.98 -74% 2% 159 146 4.1x 18% 158% n/m 5.8x 1% 5 / 12

8 Nephros NEP 7.27 -61% 59% 215 173 1.7x 19% 129% 23% 2.4x 31% - / -

9 GT Solar SOLR 8.40 -46% 12% 1,260 983 1.6x 11% infinite 38% 8.3x 0% 12 / 12



12 SanDisk SNDK 36.99 -48% 37% 8,621 7,405 1.6x 11% 338% 22% 1.7x 2% 12 / 6

13 USA Mobility USMO 15.65 -37% 7% 345 216 .8x 12% 232% 38% 2.1x 0% 5 / 5

14 InterDigital IDCC 29.89 -38% 3% 1,317 832 2.3x 11% 448% 28% 9.4x 2% 12 / 11

15 EarthLink ELNK 8.75 -10% 7% 946 621 1.0x 10% 1325% n/m 1.4x 1% 13 / 9


17 PMC-Sierra PMCS 7.47 -8% 30% 1,719 1,525 2.5x 10% infinite 22% 3.9x 1% 16 / 8

18 * pSivida PSDV 5.60 -49% 9% 104 86 3.7x 10% infinite n/m >9.9x 13% - / -

19 Lincoln Educational LINC 12.60 -23% 124% 329 338 .6x 20% 90% 41% 2.4x 3% 11 / 4

20 Lihua International LIWA 10.34 -39% 23% 301 216 .9x 12% 120% 29% 2.4x 48% - / -

21 * China Electric Motor CELM 5.30 -21% 86% 110 72 .8x 16% 94% 23% 1.8x 51% 7 / -

22 Kulicke and Soffa KLIC 6.01 -33% 59% 423 357 .6x 33% 84% n/m 2.2x 11% 9 / 12

23 Lam Research LRCX 43.88 -27% 0% 5,392 4,474 1.7x 13% 112% 16% 3.3x 1% - / 3

24 America's Car-Mart CRMT 26.44 -25% 3% 287 332 1.0x 10% 219% 36% 1.6x 13% 3 / 3

25 Almost Family AFAM 31.72 -26% 39% 293 265 .8x 10% 166% 41% 5.5x 11% 7 / 4

26 DeVry DV 45.15 -20% 65% 3,194 2,870 1.5x 10% 205% 32% 6.8x 12% 10 / 6

27 Veeco Instruments VECO 39.08 -42% 39% 1,598 1,285 1.9x 11% 131% 10% 4.1x 1% 11 / 9

28 Microsoft MSFT 25.38 -10% 24% 219,606 188,757 3.0x 9% 2834% 25% 6.7x 12% 14 / 11

29 Hewlett-Packard HPQ 42.87 -13% 28% 97,218 102,541 .8x 11% 143% 20% >9.9x 0% 3 / 11

30 GameStop GME 19.13 -11% 36% 2,876 3,035 .3x 14% 87% 35% 6.0x 4% 2 / 3

31 Teradyne TER 11.45 -29% 17% 2,076 1,658 1.3x 21% 69% 7% 2.7x 1% 12 / 5


33 Kirkland's KIRK 13.18 -18% 93% 262 196 .5x 11% 106% 31% 2.6x 27% 9 / 2

34 Gentiva Health GTIV 23.32 -19% 32% 695 736 .6x 12% 95% 39% >9.9x 6% 4 / 1

35 China Valves CVVT 7.86 -11% 89% 288 281 2.2x 16% 72% 21% 2.7x 41% - / -

36 Gulf Resources GFRE 8.30 -24% 80% 288 232 1.7x 17% 67% 27% 1.8x 50% - / -

37 Dell DELL 14.59 -22% 20% 28,364 21,176 .4x 9% infinite 27% >9.9x 12% 13 / 7

38 Gilead Sciences GILD 39.11 -19% 27% 31,893 31,579 4.0x 9% 188% 27% 6.3x 1% 15 / 2

39 * Cirrus Logic CRUS 13.22 -66% 60% 914 740 2.4x 11% 93% n/m 3.4x 1% 12 / 13

40 * GTx GTXI 3.37 -44% 225% 123 94 1.5x 9% infinite n/m 5.2x 71% 7 / 1

41 Endo Pharma ENDP 36.59 -48% 0% 4,223 3,562 2.4x 9% 237% 26% 6.0x 0% 4 / 1

42 VirnetX VHC 17.61 -89% 14% 836 708 3.5x 9% infinite 32% >9.9x 29% 4 / -

43 Integrated Silicon ISSI 8.94 -64% 56% 234 149 .7x 18% 61% 3% 1.5x 8% 1 / 3

44 * Xyratex XRTX 16.18 -39% 26% 490 405 .3x 27% 58% 2% 1.5x 3% - / -

45 * Cornerstone CRTX 6.22 -23% 22% 159 114 1.0x 9% infinite 32% 4.3x 71% - / 1


* New additions are highlighted. Screening criteria: ► MV > $100 million ► ADRs and banks excluded ► Enterprise value to MV < 1.5








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“Magic Formula,” based on Next Year’s EPS Estimates Companies with high returns on capital employed, trading at high earnings yields (based on next FY EPS estimates)

▼ ▼ Move To Next FY EBIT/ Price to Insiders Price 52-Week MV EV EV/ EPS Capital Tax Tangible % Buys/ Company Ticker ($) Low High ($mn) ($mn) Sales Yield Employed Rate Book Own. Sells




4 Penwest Pharma PPCO 4.98 -74% 2% 159 146 4.1x 27% 158% n/m 5.8x 1% 5 / 12



7 * SinoCoking Coal SCOK 8.10 -57% 563% 169 170 2.9x 22% 122% 10% 2.9x 39% - / -


9 Nephros NEP 7.27 -61% 59% 215 173 1.7x 17% 129% 23% 2.4x 31% - / -


11 Lihua International LIWA 10.34 -39% 23% 301 216 .9x 18% 120% 29% 2.4x 48% - / -


13 PMC-Sierra PMCS 7.47 -8% 30% 1,719 1,525 2.5x 11% infinite 22% 3.9x 1% 16 / 8

14 * China Electric Motor CELM 5.30 -21% 86% 110 72 .8x 21% 94% 23% 1.8x 51% 7 / -

15 America's Car-Mart CRMT 26.44 -25% 3% 287 332 1.0x 12% 219% 36% 1.6x 13% 3 / 3

16 Lincoln Educational LINC 12.60 -23% 124% 329 338 .6x 20% 90% 41% 2.4x 3% 11 / 4

17 Kulicke and Soffa KLIC 6.01 -33% 59% 423 357 .6x 25% 84% n/m 2.2x 11% 9 / 12

18 GT Solar SOLR 8.40 -46% 12% 1,260 983 1.6x 11% infinite 38% 8.3x 0% 12 / 12

19 Hewlett-Packard HPQ 42.87 -13% 28% 97,218 102,541 .8x 12% 143% 20% >9.9x 0% 3 / 11

20 Endo Pharma ENDP 36.59 -48% 0% 4,223 3,562 2.4x 11% 237% 26% 6.0x 0% 4 / 1

21 DeVry DV 45.15 -20% 65% 3,194 2,870 1.5x 11% 205% 32% 6.8x 12% 10 / 6

22 Veeco Instruments VECO 39.08 -42% 39% 1,598 1,285 1.9x 12% 131% 10% 4.1x 1% 11 / 9

23 Microsoft MSFT 25.38 -10% 24% 219,606 188,757 3.0x 10% 2834% 25% 6.7x 12% 14 / 11

24 SanDisk SNDK 36.99 -48% 37% 8,621 7,405 1.6x 11% 338% 22% 1.7x 2% 12 / 6

25 GameStop GME 19.13 -11% 36% 2,876 3,035 .3x 15% 87% 35% 6.0x 4% 2 / 3

26 * JDA Software JDAS 22.27 -12% 42% 931 1,057 2.1x 11% 170% 30% 5.1x 4% 5 / 11

27 China Valves CVVT 7.86 -11% 89% 288 281 2.2x 18% 72% 21% 2.7x 41% - / -

28 Kirkland's KIRK 13.18 -18% 93% 262 196 .5x 12% 106% 31% 2.6x 27% 9 / 2

29 Dell DELL 14.59 -22% 20% 28,364 21,176 .4x 10% infinite 27% >9.9x 12% 13 / 7


31 Teradyne TER 11.45 -29% 17% 2,076 1,658 1.3x 17% 69% 7% 2.7x 1% 12 / 5

32 Gilead Sciences GILD 39.11 -19% 27% 31,893 31,579 4.0x 10% 188% 27% 6.3x 1% 15 / 2

33 Gulf Resources GFRE 8.30 -24% 80% 288 232 1.7x 18% 67% 27% 1.8x 50% - / -

34 Lam Research LRCX 43.88 -27% 0% 5,392 4,474 1.7x 11% 112% 16% 3.3x 1% - / 3

35 * USA Mobility USMO 15.65 -37% 7% 345 216 .8x 10% 232% 38% 2.1x 0% 5 / 5

36 Gentiva Health GTIV 23.32 -19% 32% 695 736 .6x 12% 95% 39% >9.9x 6% 4 / 1

37 Nat. Am. University NAUH 6.86 -33% 82% 289 249 2.6x 10% 282% 39% 5.5x 68% 10 / 3

38 * CSG Systems CSGS 18.91 -16% 26% 644 575 1.1x 12% 81% 24% >9.9x 1% 9 / 3

39 * Cirrus Logic CRUS 13.22 -66% 60% 914 740 2.4x 12% 93% n/m 3.4x 1% 12 / 13

40 Integrated Silicon ISSI 8.94 -64% 56% 234 149 .7x 19% 61% 3% 1.5x 8% 1 / 3

41 * Exceed Company EDS 7.91 -23% 53% 156 80 .2x 22% 56% 6% .8x 40% - / -

42 China Yida CNYD 9.80 -20% 73% 192 165 2.8x 21% 56% 29% 1.7x 57% 1 / -

43 * Cornerstone CRTX 6.22 -23% 22% 159 114 1.0x 9% infinite 32% 4.3x 71% - / 1

44 * Cephalon CEPH 64.10 -17% 14% 4,820 4,907 2.0x 12% 76% 28% >9.9x 1% - / 1

45 * Xyratex XRTX 16.18 -39% 26% 490 405 .3x 16% 58% 2% 1.5x 3% - / -


* New additions are highlighted. Screening criteria: ► MV > $100 million ► ADRs and banks excluded ► Enterprise value to MV < 1.5























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Contrarian: Biggest YTD Losers (deleveraged & profitable) Non-financial companies with no net debt, positive analyst estimates for next year's EPS, and large YTD price drop

▼ Price Change Since Price to Next Insiders Price MV EV December 31, Tangible FY % Buys/ Company Ticker ($) ($mn) ($mn) 2003 2008 2009 Book P/E Own. Sells

1 China Sky One CSKI 8.43 142 77 603% -47% -63% 1.1x 3x 37% - / -

2 Duoyuan Global Water DGW 13.56 333 119 n/m n/m -62% 1.2x 9x 49% - / -

3 A-Power Energy APWR 7.46 338 277 n/m 73% -59% 1.3x 6x 28% - / -

4 Fuqi International FUQI 7.45 206 81 n/m 19% -58% .7x 5x 43% - / -

5 SmartHeat HEAT 6.39 210 179 n/m 6% -56% 2.1x 7x 43% - / -

6 Alphatec ATEC 2.38 208 227 n/m 1% -55% 3.6x 20x 2% 8 / 1

7 Tiens Biotech TBV 1.41 101 95 -88% -28% -53% .6x 12x 95% - / -

8 Genoptix GXDX 17.33 305 165 n/m -49% -51% 1.5x 17x 1% 7 / 8

9 Cumberland Pharma CPIX 6.67 135 77 n/m n/m -51% 2.1x 12x 36% 5 / 2

10 * Universal Travel UTA 5.22 104 53 n/m 98% -49% 1.3x 3x 20% - / -

11 SurModics SRDX 12.09 211 189 -49% -52% -47% 1.5x 19x 11% 3 / 4

12 drugstore.com DSCM 1.72 182 165 -69% 39% -44% 4.1x 57x 14% 7 / 13

13 Charming Shoppes CHRS 3.61 417 346 -34% 48% -44% 1.7x 361x 1% 13 / 5

14 Jinpan International JST 13.38 220 208 305% 84% -44% 1.8x 9x 30% - / -

15 Energy Recovery ERII 3.89 204 153 n/m -49% -43% 2.0x 49x 34% 2 / 1

16 Value Line VALU 14.38 144 100 -71% -58% -43% 6.8x 13x 87% - / -

17 Nat. Am. University NAUH 6.86 289 249 n/m -6% -42% 5.5x 10x 68% 10 / 3

18 AgFeed Industries FEED 2.92 146 128 n/m 81% -42% 1.4x 5x 36% - / -

19 China Nepstar NPD 4.26 449 278 n/m -16% -42% 2.0x 30x 76% - / -

20 China Green Agri. CGA 8.64 232 170 n/m 179% -41% 2.0x 5x 31% - / -

21 Sykes Enterprises SYKE 15.01 711 539 75% -21% -41% 1.8x 13x 12% 11 / -

22 * Apollo Group APOL 36.00 5,321 4,621 -47% -53% -41% 6.0x 8x 15% 16 / 12

23 KongZhong KONG 7.40 261 129 n/m 121% -40% 2.9x 23x 0% - / -

24 Orion Marine ORN 12.69 341 326 n/m 31% -40% 1.7x 11x 1% - / -

25 * Strayer Education STRA 130.30 1,810 1,669 20% -39% -39% 8.0x 11x 1% 8 / 3

26 China Fire CFSG 8.39 232 204 n/m 23% -38% 2.0x 6x 76% - / 1

27 CAMAC Energy CAK 2.90 415 393 5700% 346% -38% 1.0x 97x 68% 9 / 5

28 NutriSystem NTRI 19.52 525 436 1035% 34% -37% 4.4x 15x 5% 7 / 6

29 * Monolithic Power MPWR 15.10 552 363 n/m 20% -37% 2.2x 11x 9% 6 / 8

30 * NVIDIA NVDA 11.80 6,773 5,024 53% 46% -37% 3.0x 17x 5% 8 / 7

31 * ITT Educational ESI 61.13 1,951 1,839 30% -36% -36% 13.7x 5x 0% 11 / 5

32 Neutral Tandem TNDM 14.57 482 295 n/m -10% -36% 1.9x 12x 3% 5 / 6

33 * Tri-Tech Holding TRIT 13.13 102 70 n/m n/m -36% 1.9x 10x 35% - / -

34 Aviat Networks AVNW 4.45 264 136 3% -14% -36% 1.1x 14x 2% - / -

35 Telestone Tech TSTC 12.78 135 133 n/m 806% -36% 2.1x 5x 31% - / -

36 * Sterling Construct. STRL 12.33 200 124 n/m -33% -36% 1.6x 12x 5% 10 / 2

37 Shanda Games GAME 6.59 1,898 1,448 n/m n/m -35% 6.0x 10x 71% - / -

38 * Consolidated Water CWCO 9.38 137 112 -6% -25% -34% 1.1x 15x 2% - / -

39 RINO International RINO 18.24 522 449 -74% 421% -34% 2.0x 9x 68% 1 / -

40 AsiaInfo Holdings ASIA 20.15 1,495 1,226 202% 70% -34% 5.7x 12x 33% 12 / 5

41 * Blue Nile NILE 42.12 603 557 n/m 72% -33% 19.9x 37x 3% 9 / 6

42 Heidrick & Struggles HSII 21.05 369 276 -3% -2% -33% 2.2x 15x 2% 6 / -

43 * RTI Biologics RTIX 2.60 143 137 -76% -6% -32% 1.0x 15x 1% 1 / 1

44 * Insteel Industries IIIN 8.89 156 112 n/m -21% -32% 1.0x 9x 7% 5 / 5

45 Vanda Pharma VNDA 7.81 219 12 n/m 1462% -31% 11.0x 41x 2% - / -

Company website SEC Y! Stock Price Charts Proxy Y!

* New additions are highlighted. Screening criteria: ► Positive net cash ► Positive next FY EPS estimate ► Market value > $100 million


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Value with Catalyst: Cheap Repurchasers of Stock Companies that may be creating value by reducing their shares outstanding at relatively cheap prices

▼ Q-Q Next Price to Net Cash Insiders Price MV EV Change FY Tangible as % of % Buys/ Company Ticker ($) ($mn) ($mn) in Shares P/E Book MV Own. Sells

1 United Overseas Bank UOVEY 28.54 21,491 n/m -19.9% 10x 1.8x n/m 35% - / -

2 Brasil Telecom SA BTM 21.25 4,156 5,553 -12.5% 5x .7x -34% 48% - / -

3 Dillard's DDS 26.41 1,745 2,490 -6.4% 14x .8x -43% 34% 20 / 1

4 Platinum Underwriter PTP 43.03 1,690 n/m -6.3% 8x .8x n/m 1% 13 / 4

5 IAC/InterActiveCorp IACI 26.10 2,730 1,359 -6.1% 22x 1.9x 50% 17% 10 / 2

6 Harris Corp. HRS 43.80 5,652 6,404 -5.8% 9x 17.9x -13% 0% 10 / 10

7 Gilead Sciences GILD 39.11 31,893 31,579 -5.5% 10x 6.3x 1% 1% 15 / 2

8 Hanover Insurance THG 45.87 2,060 n/m -5.5% 11x .9x n/m 1% 11 / 3

9 PartnerRe PRE 81.53 6,163 n/m -5.3% 8x 1.0x n/m 1% - / -

10 Axis Capital AXS 34.46 4,135 n/m -5.0% 8x .8x n/m 5% - / -

11 RenaissanceRe RNR 60.60 3,325 n/m -4.9% 8x 1.1x n/m 1% - / -

12 O2Micro OIIM 6.01 203 109 -4.6% 14x 1.2x 46% 6% - / -

13 Validus VR 28.79 3,211 n/m -4.4% 6x .9x n/m 1% 9 / 2

14 * Xilinx XLNX 25.20 6,523 6,000 -4.4% 11x 3.2x 8% 0% 4 / 3

15 Seacor Holdings CKH 90.56 1,923 1,859 -4.3% 19x 1.0x 3% 6% 13 / 6

16 Assurant AIZ 41.37 4,408 n/m -4.2% 8x 1.1x n/m 0% 14 / 10

17 Primerica PRI 21.26 1,546 n/m -4.2% 9x 1.2x n/m 1% 3 / -

18 ITT Educational ESI 61.13 1,951 1,839 -3.8% 5x 13.7x 6% 0% 11 / 5

19 Biogen Idec BIIB 58.75 14,213 14,323 -3.7% 12x 6.3x -1% 0% 12 / 7

20 Tech Data TECD 42.88 1,999 1,478 -3.7% 10x 1.0x 26% 4% 10 / 12

21 * Oil-Dri of America ODC 21.92 154 147 -3.3% 14x 1.8x 4% 28% 2 / 2

22 Navigators Group NAVG 45.89 726 n/m -3.2% 13x .9x n/m 23% 2 / 1

23 SAIC SAI 15.76 5,858 6,359 -3.2% 11x 9.7x -9% 1% 13 / 8

24 * Am. Physicians Cap. ACAP 41.50 387 n/m -3.2% 14x 1.6x n/m 4% - / -

25 Hudson Pacific HPP 16.12 358 368 -3.1% 17x .9x -3% 1% 12 / 1

26 Qlogic QLGC 16.73 1,828 1,479 -2.9% 12x 4.2x 19% 0% 11 / 6

27 FPIC Insurance FPIC 36.97 350 n/m -2.7% 14x 1.4x n/m 5% 9 / 6

28 Transatlantic TRH 51.62 3,291 n/m -2.7% 8x .8x n/m 0% 3 / 2

29 America's Car-Mart CRMT 26.44 287 332 -2.7% 9x 1.6x -15% 13% 3 / 3

30 NASDAQ OMX NDAQ 20.66 4,188 n/m -2.7% 9x n/m n/m 30% 14 / -

31 Argo Group AGII 35.74 1,111 n/m -2.4% 11x .8x n/m 6% 1 / -

32 Amgen AMGN 57.55 55,160 52,369 -2.3% 11x 5.9x 5% 0% 23 / 13

33 * CSG Systems CSGS 18.91 644 575 -2.3% 8x 10.3x 11% 1% 9 / 3

34 * Health Net HNT 27.11 2,641 n/m -2.1% 10x 2.6x n/m 1% 2 / 2

35 Everest Re RE 84.06 4,728 n/m -2.1% 7x .8x n/m 14% - / -

36 RF Micro Devices RFMD 6.56 1,791 1,807 -2.0% 10x 4.8x -1% 6% 13 / 8

37 Infinity Property IPCC 52.40 663 n/m -2.0% 12x 1.2x n/m 1% 9 / 2

38 H&R Block HRB 10.78 3,326 3,346 -2.0% 6x n/m -1% 4% 7 / 2

39 Novellus Systems NVLS 27.60 2,537 2,082 -2.0% 9x 2.4x 18% 1% 10 / 5

40 CVS Caremark CVS 31.36 42,594 53,444 -1.9% 11x 169.7x -25% 0% 7 / -

41 Aetna AET 0.00 13,023 n/m -1.9% 10x 2.8x n/m 0% 8 / 5

42 * Hawaiian Holdings HA 0.00 366 264 -1.9% 9x 14.1x 28% 4% - / -

43 Integrated Device Technology, IDTI 0.00 950 617 -1.8% 9x 2.2x 35% 0% 12 / 11

44 Oplink Comms OPLK 0.00 358 208 -1.8% 10x 1.6x 42% 3% 4 / -

45 White Mountains WTM 0.00 2,709 n/m -1.8% 22x .8x n/m 11% - / -

Company website SEC Y! Proxy Y!

* New additions are highlighted. Criteria: ► MV < 2 * BV ► Next FY P/E < 12 ► Debt/equity < 0.4 ► MV > $100mn ► Q-Q ∆ shares < 0


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Profitable Dividend Payors with Decent Balance Sheets Dividend-paying companies with no net debt and EPS estimates in excess of 75% of the indicated annual dividend

▼ Move To Dividend Yield Est. P/E Price to Insiders Price 52-Week MV EV Last 12 Annual This Next Tangible % Buys/ Company Ticker ($) Low High ($mn) ($mn) Months Indicated FY FY Book Own. Sells

1 Am. Capital Agency AGNC 27.90 -15% 8% 939 865 20% 20% 5x 6x 1.2x 0% 1 / 1

2 Fifth Street Finance FSC 11.53 -19% 18% 629 n/m 10% 11% 12x 10x 1.1x 5% 3 / -

3 Himax Tech HIMX 2.31 -7% 42% 411 253 26% 11% 14x 12x 1.1x 12% - / -

4 Mesabi Trust MSB 41.60 -77% 5% 546 n/m 4% 9% 15x 14x >9.9x 0% - / -

5 TICC Capital TICC 10.40 -54% 3% 280 n/m 6% 8% 12x 11x 1.2x 3% 2 / -

6 Cherokee CHKE 18.62 -16% 15% 166 158 9% 8% 13x 12x >9.9x 12% 1 / 1

7 BGC Partners BGCP 6.97 -47% 2% 633 n/m 5% 8% 11x 10x 3.0x 30% 5 / 4

8 Telecom Argentina TEO 22.95 -36% 1% 4,518 4,429 9% 8% 10x 9x 4.0x 59% - / -

9 * Cal. First Nat. Banc CFNB 13.19 -16% 14% 135 87 4% 8% 16x 16x .7x 84% 2 / 2

10 EarthLink ELNK 8.75 -10% 7% 946 621 7% 7% 10x 12x 1.4x 1% 13 / 9

11 NGP Capital NGPC 10.00 -35% 2% 216 n/m 7% 7% 17x 11x .9x 4% 4 / -

12 Gladstone Investment GAIN 7.36 -41% 1% 163 n/m 5% 7% 14x 13x .8x 1% 3 / -

13 BBVA Banco Frances BFR 11.50 -54% 1% 2,056 n/m 6% 6% 12x 12x 3.0x 76% - / -

14 American Software AMSWA 6.13 -26% 10% 158 121 6% 6% 23x 18x 3.2x 12% 2 / 2

15 K-Fed Bancorp KFED 7.78 -7% 34% 103 n/m 6% 6% 11x 9x 1.1x 69% 2 / -

16 Value Line VALU 14.38 -17% 136% 144 n/m 25% 6% 13x 13x 6.8x 87% - / -

17 First Bancorp FNLC 14.13 -13% 24% 138 n/m 6% 6% 13x 12x 1.4x 15% 1 / 1

18 Life Partners LPHI 18.21 -19% 35% 272 n/m 4% 5% 8x 7x 3.9x 51% 3 / -

19 Crexus Investment CXS 12.42 -5% 17% 225 n/m 2% 5% 21x 10x .9x 25% 4 / -

20 Nat'l Australia Bank NABZY 23.98 -23% 20% 49,870 n/m 6% 5% 12x 10x 1.6x 1% - / -

21 Lorillard LO 84.05 -16% 0% 12,752 12,746 5% 5% 13x 12x n/m 0% 1 / -

22 Colony Financial CLNY 18.79 -12% 12% 275 n/m 2% 5% 18x 12x 1.0x 1% 1 / -

23 Banco Santander STD 13.38 -35% 34% 110,102 n/m 5% 5% 9x 7x 2.3x 21% - / -

24 Tower Bancorp TOBC 22.19 -20% 26% 158 n/m 5% 5% 18x 9x 1.1x 21% 24 / -

25 Westpac Banking WBK 110.40 -22% 21% 66,024 n/m 6% 5% 11x 11x 2.7x 0% - / -

26 Lenovo LNVGY 13.47 -25% 19% 6,573 4,200 1% 5% 27x 20x n/m 63% - / -

27 CNB Financial CCNE 13.77 -24% 38% 168 n/m 5% 5% 13x 12x 1.7x 6% 15 / -

28 Bristol Myers Squibb BMY 26.96 -20% 4% 46,232 45,316 5% 5% 13x 12x 6.0x 0% 5 / 9

29 TrustCo Bank Corp NY TRST 5.49 -5% 31% 423 n/m 5% 5% 15x 13x 1.7x 4% 2 / 1

30 United Bankshares UBSI 26.90 -39% 19% 1,172 n/m 4% 4% 17x 16x 2.5x 6% 4 / 7

31 Nokia NOK 11.06 -28% 44% 41,419 34,694 5% 4% 16x 13x 5.2x 0% - / -

32 Paychex PAYX 28.00 -12% 17% 10,127 9,677 4% 4% 20x 19x >9.9x 11% 10 / 7

33 American Ecology ECOL 16.33 -21% 19% 299 267 4% 4% 28x 21x 3.3x 7% 8 / -

34 Safety Insurance SAFT 45.73 -28% 2% 687 n/m 3% 4% 13x 13x 1.1x 9% 1 / 1

35 Microchip Technology MCHP 31.35 -25% 2% 5,829 4,855 4% 4% 14x 13x 4.0x 3% 11 / 8

36 Maxim Integrated MXIM 19.36 -19% 10% 5,776 5,249 4% 4% 14x 12x 3.0x 1% 12 / 11

37 Washington Trust WASH 19.44 -28% 5% 314 n/m 4% 4% 14x 13x 1.6x 15% 11 / 5

38 * Credit Suisse CS 42.00 -13% 40% 49,740 n/m 5% 4% 8x 7x 1.9x 3% - / -

39 Renasant RNST 16.41 -22% 11% 411 n/m 4% 4% 14x 15x 1.9x 4% 3 / 2

40 * Christopher & Banks CBK 5.84 -6% 99% 209 113 4% 4% 37x 24x 1.1x 1% 6 / 6

41 GFI Group GFIG 4.89 -16% 43% 598 n/m 4% 4% 14x 10x 2.4x 43% 4 / 4

42 Electro Rent ELRC 14.97 -34% 4% 359 319 3% 4% 20x 17x 1.6x 31% 7 / 4

43 CNinsure CISG 26.03 -37% 10% 1,188 n/m 1% 4% 21x 17x 7.7x 0% - / -

44 * Baldwin & Lyons BWINB 25.03 -20% 6% 371 n/m 5% 4% 22x 17x 1.0x 45% 11 / 4

45 Am. National Insur. ANAT 78.05 -5% 55% 2,093 n/m 4% 4% 17x 20x .6x 4% 6 / 1


* New additions are highlighted. Criteria: ► Positive net cash ► Positive EPS estimates for this FY and next FY ► MV > $100 million


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Deep Value: Lots of Revenue, Low Enterprise Value Companies that trade at low multiples of net revenue

▼ Move To Est. P/E Price to Insiders Price 52-Week MV EV EV/ This Next Tangible % Buys/ Company Ticker ($) Low High ($mn) ($mn) Sales FY FY Book Own. Sells

1 Tech Data TECD 42.88 -19% 14% 1,999 1,478 .06x 11x 10x 1.0x 4% 10 / 12

2 Ingram Micro IM 17.79 -17% 7% 2,788 2,377 .07x 10x 8x 1.0x 5% 2 / 1

3 World Fuel Services INT 26.84 -17% 14% 1,597 1,301 .09x 12x 11x 2.8x 4% 8 / 3

4 Cardinal Health CAH 31.99 -12% 15% 11,234 10,608 .11x 13x 12x 3.7x 0% 9 / 9

5 AmerisourceBergen ABC 32.06 -31% 4% 8,940 8,989 .12x 15x 14x >9.9x 1% 11 / 6

6 Eastman Kodak EK 3.93 -17% 131% 1,056 1,038 .13x 17x n/m n/m 0% 4 / 3

7 * Kelly Services KELYA 15.64 -36% 21% 574 627 .14x 26x 16x 1.1x 21% 6 / 9

8 McKesson MCK 61.08 -9% 17% 15,969 14,982 .14x 13x 11x 6.1x 0% 12 / 12

9 * Kindred Healthcare KND 13.58 -15% 47% 536 600 .14x 10x 10x .6x 2% - / 12

10 Office Depot ODP 4.63 -27% 98% 1,278 1,779 .15x n/m 42x 1.9x 4% 12 / 1

11 OfficeMax OMX 15.15 -37% 31% 1,288 1,096 .15x 21x 15x 3.1x 0% 11 / 3

12 SYNNEX SNX 29.64 -24% 9% 1,060 1,298 .16x 9x 9x 1.3x 35% 6 / 8

13 Nash-Finch NAFC 42.80 -34% 3% 527 820 .16x 14x 13x 3.2x 0% - / -

14 Insight Enterprises NSIT 15.79 -39% 7% 731 716 .16x 11x 10x 1.8x 1% 10 / 4

15 Sunoco SUN 39.20 -38% 4% 4,726 5,783 .17x 20x 16x 1.7x 0% 6 / 2

16 Tesoro TSO 13.20 -21% 27% 1,884 3,538 .18x n/m 10x .6x 1% 8 / 5

17 * Brightpoint CELL 7.43 -23% 14% 520 623 .19x 10x 9x 6.8x 1% 1 / 6

18 Valero Energy VLO 17.65 -12% 23% 9,995 16,028 .20x 12x 8x .7x 0% 10 / 8

19 BJ's Wholesale Club BJ 42.54 -25% 12% 2,322 2,247 .21x 17x 16x 2.1x 1% 13 / 7

20 Celestica CLS 8.41 -12% 35% 2,083 1,399 .22x - - 1.4x 9% - / -

21 Tutor Perini TPC 23.02 -32% 11% 1,083 894 .22x 11x 10x 1.8x 46% 10 / 4

22 Flextronics FLEX 6.23 -22% 35% 4,893 5,557 .22x - - 2.8x 0% - / -

23 Barnes & Noble BKS 15.01 -21% 67% 900 1,353 .22x n/m n/m n/m 49% 3 / 10

24 Owens & Minor OMI 28.33 -10% 16% 1,794 1,845 .23x 15x 13x 3.3x 2% 11 / 12

25 * Western Refining WNR 6.58 -39% 5% 586 1,818 .23x n/m 13x 1.0x 42% 9 / -

26 Sears Holdings SHLD 76.32 -22% 64% 8,445 10,438 .24x 38x 35x 2.1x 4% 5 / 4

27 Avnet AVT 28.80 -22% 18% 4,373 4,561 .24x 8x 8x 1.8x 90% 8 / 12

28 SUPERVALU SVU 10.80 -10% 66% 2,291 9,212 .24x 7x 7x n/m 1% 15 / 1

29 Arrow Electronics ARW 28.28 -23% 15% 3,332 4,095 .24x 7x 7x 1.7x 3% - / 1

30 Bunge BG 61.74 -27% 20% 8,661 10,838 .25x 21x 11x 1.0x 1% - / -

31 EMCOR Group EME 26.62 -17% 12% 1,766 1,317 .25x 15x 13x 4.0x 2% 1 / 5

32 KBR KBR 25.20 -31% 2% 3,938 2,804 .25x 14x 13x 2.4x 0% 2 / -

33 Frontier Oil FTO 13.11 -16% 26% 1,385 1,292 .25x 27x 12x 1.4x 2% 2 / 6

34 Kroger KR 21.80 -12% 11% 13,903 20,683 .26x 12x 11x 3.5x 6% 17 / 16

35 Manpower MAN 55.98 -29% 12% 4,604 4,712 .26x 34x 20x 4.6x 1% 5 / 4

36 Shaw Group SHAW 31.98 -23% 27% 2,701 1,862 .26x 15x 13x 2.6x 1% 2 / 2

37 Jabil Circuit JBL 14.18 -28% 30% 3,089 3,531 .26x 7x 6x 2.1x 10% - / 3

38 Tyson Foods TSN 15.63 -24% 32% 5,900 7,648 .27x 8x 8x 2.1x 21% 9 / 6

39 Andersons ANDE 39.69 -40% 7% 730 832 .27x 13x 12x 1.7x 7% 9 / 10

40 Sanmina-SCI SANM 12.79 -52% 59% 1,018 1,645 .27x 10x 7x 1.6x 2% 2 / 3

41 Rite Aid RAD 0.96 -10% 84% 853 7,071 .28x n/m n/m n/m 29% 19 / 6

42 Retail Ventures RVI 13.00 -54% 1% 637 483 .28x 8x 11x 3.2x 53% - / -

43 Centene CNC 24.29 -29% 7% 1,255 1,214 .28x 13x 12x 2.5x 2% 8 / 8

44 Sonic Automotive SAH 10.65 -24% 26% 561 1,913 .29x 11x 9x n/m 33% 8 / 3

45 Administaff ASF 26.76 -39% 10% 701 490 .30x 32x 24x 3.2x 12% 7 / 8


* New additions are highlighted. Criteria: ► EV to trailing revenue less than 0.5x ► MV does not exceed revenue ► MV > $500 million





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Deep Value: Neglected Gross Profiteers Companies that trade at low multiples of gross profit

▼ Move To Enterprise Value / Est. P/E Price/ Insiders Price 52-Week MV EV Gross This Next Tang. % Buys/ Company Ticker ($) Low High ($mn) ($mn) Sales Profit EBIT FY FY Book Own. Sells

1 * Zoran ZRAN 7.71 -12% 60% 383 4 .0x .0x n/m n/m >99x .9x 1% 3 / -

2 * Stewart Information STC 11.09 -30% 35% 204 141 .1x .1x .1x n/m 13x .9x 7% 9 / -

3 Winn-Dixie Stores WINN 6.95 -10% 100% 385 262 .0x .1x 9.0x n/m >99x .5x 1% 5 / 10

4 WellCare WCG 28.55 -22% 37% 1,213 233 .0x .3x n/m 12x 11x 1.9x 4% 14 / 7

5 Charming Shoppes CHRS 3.61 -21% 91% 417 346 .2x .3x n/m n/m >99x 1.7x 1% 13 / 5

6 RealNetworks RNWK 3.04 -15% 78% 412 111 .2x .4x n/m n/m n/m 1.2x 38% 4 / 4

7 American Equity AEL 11.25 -44% 3% 659 395 .3x .4x .3x 6x 6x .7x 5% 2 / 1

8 Humana HUM 56.97 -37% 0% 9,641 2,674 .1x .4x 1.4x 9x 10x 2.3x 1% 3 / 6

9 Eastman Kodak EK 3.93 -17% 131% 1,056 1,038 .1x .4x 1.7x 17x n/m n/m 0% 4 / 3

10 Office Depot ODP 4.63 -27% 98% 1,278 1,779 .1x .5x n/m n/m 42x 1.9x 4% 12 / 1

11 E.W. Scripps SSP 8.14 -27% 44% 468 329 .4x .5x 22.5x 17x 23x .9x 45% 10 / 11

12 IDT Corp. IDT 14.65 -77% 34% 331 158 .1x .6x 5.5x - - 2.1x 24% 2 / 3

13 Haverty Furniture HVT 10.88 -12% 67% 238 183 .3x .6x 17.4x 27x 15x .9x 19% 13 / 11

14 OfficeMax OMX 15.15 -37% 31% 1,288 1,096 .2x .6x 14.9x 21x 15x 3.1x 0% 11 / 3

15 Tuesday Morning TUES 4.99 -58% 76% 215 191 .2x .6x 9.5x - - .9x 1% 2 / 2

16 Retail Ventures RVI 13.00 -54% 1% 637 483 .3x .6x 3.2x 8x 11x 3.2x 53% - / -

17 Imation IMN 10.66 -25% 18% 412 161 .1x .6x n/m 63x 41x .7x 21% 16 / 7

18 * Christopher & Banks CBK 5.84 -6% 99% 209 113 .2x .6x 19.2x 37x 24x 1.1x 1% 6 / 6

19 TeleNav TNAV 4.88 -5% 135% 206 93 .5x .7x 1.4x 8x 8x 1.4x 51% 11 / 9

20 Corinthian Colleges COCO 4.77 -11% 305% 421 526 .3x .7x 2.2x 4x 5x 4.2x 0% 7 / 3

21 MedCath MDTH 10.23 -35% 26% 210 262 .5x .7x n/m n/m 41x .7x 4% 1 / -

22 Investment Tech ITG 14.95 -12% 74% 639 366 .6x .7x 6.7x 14x 11x 1.8x 1% 6 / 6

23 Blyth BTH 46.11 -44% 30% 379 368 .4x .7x 7.4x 16x 15x 1.8x 36% 8 / 2

24 * Coldwater Creek CWTR 3.48 -10% 151% 321 261 .2x .7x n/m n/m 87x 1.3x 35% 9 / 1

25 Brown Shoe BWS 12.79 -23% 56% 561 716 .3x .7x 9.3x 15x 11x 1.8x 2% 2 / 3

26 Saia SAIA 13.72 -18% 29% 218 294 .3x .7x 37.3x 86x 14x 1.1x 3% 4 / 4

27 THQ THQI 4.18 -20% 98% 283 167 .2x .8x n/m n/m 14x 1.6x 1% 11 / 4

28 Hot Topic HOTT 5.71 -20% 74% 255 193 .3x .8x 20.3x >99x 34x 1.1x 9% 8 / -

29 Molina Healthcare MOH 26.63 -36% 19% 795 425 .1x .8x 7.8x 16x 14x 3.3x 43% 8 / 9

30 * Career Education CECO 17.51 -7% 105% 1,423 1,112 .5x .8x 3.5x 6x 5x 4.5x 0% 6 / 4

31 Celadon Group CGI 13.43 -36% 25% 301 317 .6x .8x 23.9x 18x 13x 2.3x 7% 3 / 3

32 Barnes & Noble BKS 15.01 -21% 67% 900 1,353 .2x .8x n/m n/m n/m n/m 49% 3 / 10

33 Core-Mark CORE 33.86 -24% 2% 366 311 .0x .8x 7.8x 17x 12x 1.1x 2% 8 / 8

34 Sears Holdings SHLD 76.32 -22% 64% 8,445 10,438 .2x .9x 14.0x 38x 35x 2.1x 4% 5 / 4

35 * PC Connection PCCC 8.15 -32% 2% 221 174 .1x .9x 7.1x 14x 13x 1.1x 35% 1 / 4

36 Gleacher & Co. GLCH 2.10 -29% 309% 270 275 .8x .9x 7.2x 26x 9x 1.2x 18% 2 / 2

37 AMR Corp. AMR 7.42 -31% 42% 2,473 9,205 .4x .9x n/m n/m 19x n/m 1% 6 / 6

38 Kelly Services KELYA 15.64 -36% 21% 574 627 .1x .9x n/m 26x 16x 1.1x 21% 6 / 9

39 Fred's FRED 12.53 -28% 15% 491 449 .2x .9x 11.8x 17x 14x 1.3x 7% 31 / 2

40 Bob Evans Farms BOBE 29.04 -20% 17% 883 1,052 .6x .9x 10.2x 14x 12x 1.5x 2% 22 / 14

41 * Lincoln Educational LINC 12.60 -23% 124% 329 338 .6x .9x 3.0x 5x 5x 2.4x 3% 11 / 4

42 * Fidelity National FNF 12.78 -1% 26% 2,916 3,051 .5x .9x 1.6x 11x 11x 2.2x 5% 1 / 1

43 * Destination Maternity DEST 37.89 -56% 1% 241 257 .5x .9x 9.6x 16x 10x 3.7x 17% 5 / 3

44 Genesco GCO 32.56 -36% 7% 783 739 .5x .9x 10.5x 15x 13x 2.0x 4% 17 / 11

45 * Spartan Stores SPTN 15.37 -21% 12% 348 497 .2x .9x 8.6x 12x 11x 8.4x 3% 17 / 9


* New additions are highlighted. Criteria: ► EV not more than trailing gross profit ► MV not more than 2x gross profit ► MV > $200 million


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Activist Targets: Potential Sales, Liquidations or Recaps Companies that may unlock value through a corporate event

▼ Move To Price to Net Net Next Insiders Price 52-Week MV EV Tangible Net Cash ST Assets EV/ FY % Buys/ Company Ticker ($) Low High ($mn) ($mn) Book (% of MV) (% of MV) Sales P/E Own. Sells

1 Qiao Xing Universal XING 1.71 -20% 68% 158 (263) .3x 267% 206% n/m - 43% - / -

2 Qiao Xing Mobile QXM 3.71 -45% 41% 196 (121) .5x 162% 200% n/m - 62% - / -

3 Audiovox VOXX 6.38 -5% 53% 146 87 .6x 40% 145% .2x - 19% 8 / 8

4 Fuqi International FUQI 7.45 -39% 265% 206 81 .7x 61% 136% .2x 5x 43% - / -

5 Crexus Investment CXS 12.42 -5% 17% 225 (40) .9x 118% 116% n/m 10x 25% 4 / -

6 Opnext OPXT 1.54 -12% 105% 138 81 .6x 42% 112% .3x n/m 40% - / -

7 Volt Information VOL 8.60 -28% 57% 179 151 .6x 16% 111% .1x - 43% 1 / 1

8 PennyMac Mortgage PMT 17.30 -10% 11% 291 (50) .9x 117% 111% n/m 7x 1% 1 / 1

9 Imation IMN 10.66 -25% 18% 412 161 .7x 61% 100% .1x 41x 21% 16 / 7

10 Colony Financial CLNY 18.79 -12% 12% 275 (1) 1.0x 100% 99% n/m 12x 1% 1 / -

11 Nam Tai Electronics NTE 4.74 -15% 27% 212 9 .7x 96% 98% .0x 11x 26% - / -

12 Exceed Company EDS 7.91 -23% 53% 156 80 .8x 48% 98% .2x 5x 40% - / -

13 Movado MOV 11.14 -22% 31% 275 231 .8x 16% 96% .6x 74x 31% 2 / 1

14 CE Franklin CFK 6.73 -21% 11% 117 117 1.0x 1% 95% .3x - 56% - / -

15 FormFactor FORM 8.70 -21% 160% 437 39 .8x 91% 94% .2x n/m 3% 6 / 3

16 Zoran ZRAN 7.71 -12% 60% 383 4 .9x 99% 93% .0x >99x 1% 3 / -

17 Sprott Physical Gold PHYS 11.79 -18% 9% 815 82 1.1x 90% 90% n/m - 12% - / -

18 QLT QLTI 5.53 -40% 21% 290 104 .7x 64% 89% 2.3x - 16% 4 / -

19 Cutera CUTR 7.40 -6% 63% 100 8 1.0x 92% 89% .2x n/m 7% 8 / 3

20 Alvarion ALVR 2.17 -18% 105% 135 44 .9x 68% 89% .2x - 3% - / -

21 Ingram Micro IM 17.79 -17% 7% 2,788 2,377 1.0x 15% 88% .1x 8x 5% 2 / 1

22 Furiex Pharma FURX 12.02 -28% 66% 119 20 1.2x 83% 85% 2.1x - 1% - / 1

23 Tech Data TECD 42.88 -19% 14% 1,999 1,478 1.0x 26% 83% .1x 10x 4% 10 / 12

24 Callaway Golf ELY 7.17 -19% 42% 462 408 .8x 12% 83% .4x 22x 1% 7 / 1

25 Cynosure CYNO 10.33 -15% 36% 131 37 1.1x 72% 82% .5x >99x 23% - / -

26 PC Connection PCCC 8.15 -32% 2% 221 174 1.1x 21% 82% .1x 13x 35% 1 / 4

27 GigaMedia GIGM 1.96 -4% 146% 108 20 .6x 81% 81% .2x - 1% - / -

28 West Marine WMAR 9.55 -29% 43% 215 213 .9x 1% 81% .3x 9x 35% 6 / 4

29 Tuesday Morning TUES 4.99 -58% 76% 215 191 .9x 11% 79% .2x - 1% 2 / 2

30 Benchmark Electron. BHE 17.01 -18% 34% 1,059 719 1.0x 32% 78% .3x 11x 1% 1 / 1

31 Maxygen MAXY 6.35 -23% 13% 194 39 1.3x 80% 77% .8x n/m 10% 4 / 1

32 Hurco HURC 18.31 -24% 10% 118 73 1.1x 38% 76% .8x 24x 5% 3 / -

33 Cypress Bioscience CYPB 4.02 -49% 82% 155 50 1.3x 68% 74% 1.6x n/m 1% 1 / -

34 Electro Scientific ESIO 12.02 -22% 25% 336 167 1.0x 50% 74% .9x 13x 1% 14 / 4

35 * PCTEL PCTI 6.07 -21% 17% 114 45 1.1x 60% 73% .7x 21x 6% 6 / 5

36 Ascent Media ASCMA 28.30 -22% 8% 405 120 .7x 70% 73% .3x n/m 7% - / -

37 * Universal Travel UTA 5.22 -38% 170% 104 53 1.3x 49% 73% .4x 3x 20% - / -

38 Aviat Networks AVNW 4.45 -24% 85% 264 136 1.1x 49% 71% .3x 14x 2% - / -

39 Cogo Group COGO 7.58 -29% 5% 268 190 1.4x 29% 71% .5x 9x 35% - / -

40 * Hooker Furniture HOFT 11.14 -17% 61% 120 90 1.0x 25% 70% .4x 11x 4% 5 / -

41 SuperGen SUPG 2.35 -27% 62% 142 39 1.3x 72% 69% .8x 34x 16% - / 1

42 TomoTherapy TOMO 3.94 -34% 13% 213 68 1.2x 68% 69% .4x n/m 5% 14 / 2

43 * Celera CRA 5.79 -3% 33% 475 152 1.3x 68% 68% 1.1x n/m 2% - / 8

44 Axcelis Technologies ACLS 2.11 -64% 22% 221 173 1.1x 22% 68% 1.0x 11x 1% 4 / 6

45 * ModusLink MLNK 6.86 -16% 62% 302 140 1.1x 54% 67% .2x - 2% 7 / 5


* New additions are highlighted. Criteria: ► Tang. book > 50% of MV ► ST assets - liabilities > 50% of MV ► Net cash ► MV > $100mn


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This Month’s Top 10 Web Links A Selection of Our Favorite Freely Accessible Internet Resources Click on the link next to each title, or type the Web address into your Web browser:

Carol Loomis Interview with Warren Buffett http://bit.ly/blMPjw

T2 Partners on the Stock Market and Housing Market http://bit.ly/aQxmut

David Einhorn’s Presentation on St. Joe (JOE) http://bit.ly/9NhBvz

Guy Spier Interview: How Value Investing Has Changed http://bit.ly/a9iMQq

Buffett on His Biggest Investment Mistake http://bit.ly/bNmCMn

Bill Gross on His “Worst Trade” http://bit.ly/drhw7I

Frank K. Martin: Fighting the Last War http://bit.ly/cZGoL2

Jean Marie Eveillard Interview on Gold Related: Buffett on Gold – http://bit.ly/a2D4py

http://bit.ly/cFKntB

Carol Loomis on Buffett Recruit Todd Combs http://bit.ly/c9jPzn

Looking to 2012: China’s Next Generation of Leaders http://bit.ly/doPKlg


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