greg bruno daniel glotzbach rajani meka drew osika first pactrust bancorp may 3, 2011
TRANSCRIPT
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Greg BrunoDaniel Glotzbach Rajani MekaDrew Osika
First PacTrust Bancorp
May 3, 2011
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AgendaIndustry OverviewIndustry OutlookKey Industry DriversPorter’s 5 ForcesRecent Industry PerformanceCompany OverviewFinancial HighlightsSWOT AnalysisStrategy & Management TeamComparable AnalysisValuation
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Savings Banks & ThriftCollects retail deposits from general
public- Preferably in CDs or saving accounts
Provides basic banking services- Checking accounts- ATMs
Originates first mortgages- Secured by owner occupied real estate
Home equity loans Limited unsecured loans
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Commercial BankingPrimarily deals with deposits & loans
from corporationsConstruction lending
- Used to finance construction on Real EstateBusiness lending
- Loans secured by business assetsCommercial Lending
- Warehouses, hotels, office buildings, etc.
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Key Industry DriversTotal deposits
- Deposits are liabilities, which are then lent out at a spread
Home Prices- Rising Home prices increases available equity
Prime Rate / Yield Curve- Low prime rate entices loan demand- Steep yield curve increases bank profits
Nonperforming Loans- Destroyer of bank equity
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Porter’s 5 Forces of Thrift Industry• Threat of new entrants: MODERATE
– Entry more or less favorable depending on region– Pro: Growth of online banking and leasing locations
limit large capital investment– Con: High regulation and decreasing profits
discourage entry in most places
• Threat of substitutes: HIGH– Commercial banks, credit unions, government
agencies, and mortgage brokers all offer competing financial services
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Porter’s 5 Forces of Thrift Industry• Supplier power: HIGH
– Depositors have shifted more towards reliability which increases thrifts’ need for strong community relationships
– Deposits have moved to large commercial banks, which are seen as more stable
• Buyer power: LOW– Borrowers have little influence because rates are
dependent on credit history and state of broader economy
• Rivalry: HIGH– Low concentration within industry though intense outside
competition– Fewer deposits for players to fight over
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Recent Industry PerformanceSavings Banks & Thrifts Industry
Revenue
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Deposits
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California Housing Price Index
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Mortgage Rates
Data Source: Federal Reserve Data Download
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2yr-10yr Spread on US Debt
Data Source: Bloomberg
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Nonperforming Loans
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Nonperforming Loans - Pacific
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First Pactrust Bancorp Holding company for Pacific Trust Bank Founded in 1941, headquartered in Chula Vista,
California Financial Services through 9 banking offices in San
Diego and Riverside counties Offers retail and business deposit accounts Loan portfolio : 78.7% of Total assets, $678.2 million
Source: http://www.snl.com/Cache/10802316.pdf?O=3&IID=4074352&OSID=9&FID=10802316
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Company Highlights
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CAMEL SUMMARY
Source: http://www.snl.com/Cache/1001156918.PDF?D=&O=PDF&IID=4074352&Y=&T=&FID=1001156918
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Financial HighlightsYear Ending in, 2006 2007 2008 2009 2010
Total Revenue 20.634 17.577 11.46 13.165 26.077
Growth Over Prior Year (0.23%) (14.82%) (34.80%) 14.88% 98.08%
EBIT 4.714 2.961 (0.529) (0.999) 2.825
Margin % 22.85% 16.85% (4.62%) (7.59%) 10.83%
Net Income 4.714 2.961 (0.529) (0.999) 2.825
Margin % 22.85% 16.85% (4.62%) (7.59%) 10.83%
Total Assets 808.343 774.72 876.52 893.921 861.621
Growth Over Prior Year 7.04% (4.16%) 13.14% 1.99% (3.61%)
Source: CapIQ
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Key Ratios Year Ending in, 2006 2007 2008 2009 2010
ROA 0.59% 0.38% (0.06)% (0.11)% 0.32%
ROE 5.91% 3.54% (0.62)% (1.03)% 2.68%
Dividend Payout Ratio 58.90% 109.30% n/a n/a 56.90%
Interest Rate Spread 2.11% 1.89% 2.64% 3.25% 3.60%
Net Interest Margin 2.44% 2.27% 2.92% 3.39% 3.68%
Ratio of Operating Expense to Assets 1.70% 1.81% 1.64% 1.78% 2.52%
Efficiency Ratio 65.26% 73.13% 53.92% 52.13% 63.41%
Avg. interest-earning assets to Avg. interest bearing liabilities 109.15% 109.84% 109.36% 107.03% 106.31%
Non-performing Assets to Total Assets 0.24% 1.82% 4.15% 3.24% 3.07%
Equity to Assets 10.00% 10.71% 10.45% 10.87% 11.97%
Source: http://www.snl.com/Cache/1500032774.PDF?D=&O=PDF&IID=4074352&Y=&T=&FID=1500032774, Pg. 45
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FPTB DuPont Analysis
Source: Capital IQ
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Recent Stock Performance PEG( 5 year expected ) is 1.09 vs Industry at 1.95
Source: http://finance.yahoo.com/q/ta?t=5y&s=FPTB&l=on&z=l&q=l&p=m20&p=m200&c=^gspc
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Strategy so farAsset & Liability Management
Originating & purchasing adjustable-rate mortgage loans
Originating shorter-term loansManaging deposits to establish stable relationshipsUsing FHLB advances to align maturities and re-pricing
termsAttempting to limit the % fixed rate loans
Growth Strategy: AcquisitionsBanks with less than $500 million to $1 billion in Assets
having difficulties in achieving profitabilityDistressed banksEstablishing stable customer relationships to increase
deposits
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Key Ratios
Source: http://www.snl.com/Cache/1001156918.PDF?D=&O=PDF&IID=4074352&Y=&T=&FID=1001156918
First Pactrust Bancorp Has an additional $10 million over the reserve requirements by Fed
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SWOT AnalysisStrength Weakness
Access to capital and above well capitalized minimum requirements
Expansion completely dependent on demand in San Diego and Riverside counties
Green Accounts Falling real estate prices
Strong Management Team Defaults continue to pose serious problems
Opportunity Threat
Atleast 150 potential targets with less than $1billion assets
Trend of moving from thrifts towards commercial banks
Increase loans in CRE, construction and C&I asset classes
Lower Interest rates
FDIC regulations to increase consumer confidence
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Growth StrategyOrganic Growth
Increase market penetration within bank’s primary footprint
Diversify Portfolio and grow by originating high quality commercial real estate loans
Traditional M&AExplore Traditional AcquisitionsFocus on banks with certain characteristicsStrategic Benefits to franchise development
FDIC – Based M&APursue strategic transactions with FDIC assistanceAcquire attractive assets from the FDIC
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Keys to SuccessScalable BusinessManagement TeamStrong Balance SheetAccess to CapitalMarket Opportunity
Mission Statement: “To be the premier community bank in Southern California serving the needs of growing families, high net worth individuals, professionals, small to mid sized businesses and their owners”
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Management TeamGreg Mitchell: President & CEO – First Pac
Trust Bancorp
Richard Herrin: Chief Administrative Officer
Matt Bonaccordso: Chief Credit Officer
Hans Ganz: President & CEO – Pacific Trust Bank
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Business Plan2011 Goals
Grow core earnings
Open 3-5 de novo branches in Southern California
Complete $200-500 million of M&A Activity
Purchase high quality assets at distressed prices
5 Year Objectives4% + NIM
1.2% ROAA
Reach critical mass in each of LA, Orange, and San Diego Counties
Provide dividend growth that exceeds inflation
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ComparablesAs of April 16, 2011 Market Cap
($ millions)Basic EPS TBV / Share
Provident Financial 90.7 1.1 11.99
Pacific Premier Bancorp
67.8 0.4 7.83
Riverview Bancorp 68.1 (0.1) 3.6
Timberland Bancorp 39.4 (0.3) 9.57
Malaga Financial 98.7 1.0 6.93
RMG Capital 16.9 (0.4) 13.38
BofI Holding 155.3 2.1 12.95
-
First PacTrust Bancorp
155.7 0.4 14.04
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Implied Share Price
P / Diluted EPS P / TBV
High $20.70 $35.52
Low $7.10 $6.46
Average $11.84 $14.24
Current FPTB Stock Price: $14.60
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Final Valuation