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TRANSCRIPT
Investing in Banks
UGA Banking School
May 11, 2017
Clarifying Roles within the Investment Community
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Buy Side Asset Managers and
Hedge Funds
Determine investment thesis
Invest clients’ funds for a fee
Sell Side Stock Brokers and
Research Firms
Facilitate investment transaction
Earn commission on transaction
Institutions
Investment Decision
How they make $$$
Buy Side vs. Sell Side
Sell side research
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Target Ratings and EPS Estimates
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Broker Analyst 2Q17 3Q17 4Q17 2017
Consensus 0.59 0.62 0.64 2.39
Jefferies Casey Haire 0.61 0.64 0.66 2.50
Bernstein Research Kevin St. Pierre 0.59 0.65 0.66 2.47
Stephens Inc Tyler Stafford 0.61 0.63 0.66 2.47
Barclays Matthew J. Keating 0.61 0.62 0.66 2.46
JP Morgan Steven Alexopoulos 0.59 0.63 0.67 2.45
Goldman Sachs Ryan M. Nash 0.60 0.64 0.65 2.45
SunTrust Robinson Humphrey Jennifer H. Demba 0.59 0.63 0.65 2.43
Raymond James Michael Rose 0.58 0.62 0.64 2.40
Evercore ISI John Pancari 0.60 0.61 0.63 2.39
Sandler O'Neill & Partners Brad J. Milsaps 0.59 0.61 0.63 2.39
Keefe Bruyetter & Woods Brady Gailey 0.58 0.62 0.62 2.39
Compass Point Research Scott Valentin 0.58 0.63 0.65 2.38
BofAML Ebrahim Poonawala 0.60 0.62 0.64 2.38
FIG Partners Christopher Marinac 0.56 0.64 0.60 2.36
Morgan Stanley Ken Zerbe 0.57 0.60 0.61 2.34
Hovde Group Kevin Fitzsimmons 0.57 0.59 0.62 2.32
JMP Securities Emlen Harmon 0.56 0.60 0.62 2.30
Wells Fargo Securities Jared Shaw 0.58 0.59 0.60 2.30
Robert W. Baird David A. George 0.63 0.66 0.67 2.21
Dissecting the buy side
Retail vs. Institutional
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Investment Orientation
Retail 22.70%
Institutional 77.30%
Active 48.10% Passive
51.90%
Dissecting the buy side
Investments by turnover
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Investment by style
Very Active
10.50%
High 5.90%
Medium 25.00%
Low 58.60%
Index 35.50%
Value 16.00%
Growth 15.40%
Alt 13.70%
Broker 10.00% Other
9.40%
Valuing Bank Stocks
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Guidance and long-term targets
Long-term Targets
EPS Growth 10+%
Return on Assets 1.00+%
Adjusted Efficiency Ratio*
Below 60%
•Average loan growth of 5% to 7% •Average Core deposits fund loan growth
•Net interest income growth of 8% to 10% •Adjusted non-interest income* growth of 2% to 4%
•Total non-interest expense up 2% to 4% •Maintain positive operating leverage
2017 Guidance
•Net charge-off ratio of 15 to 20 bps •LLR ratio trend slightly downward but expected to remain above 1% •NPLs and NPAs expected to remain relatively flat
•Quarterly $0.15 common shareholder dividend •Share repurchase authorization of up to $200 million
Balance Sheet Growth
Revenues
Expense Management
Credit Quality
Capital Management
* Non-GAAP financial measure
Driving Premium Valuation
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Institution Name Ticker
Closing
Price ($)* P/E Ratio
Price/
Tangible
Book (%)
Synovus Financial Corp. SNV 42.08 16.98 186.0
People's United Financial, Inc. PBCT 17.34 18.07 195.5
BOK Financial Corporation BOKF 83.15 16.12 190.6
First Citizens BancShares, Inc. FCNCA 350.40 NA 145.3
Cullen/Frost Bankers, Inc. CFR 91.35 17.03 254.8
Associated Banc-Corp ASB 25.15 17.10 193.5
First Horizon National Corporation FHN 18.05 15.48 197.4
Webster Financial Corporation WBS 51.88 20.56 255.6
Commerce Bancshares, Inc. CBSH 55.92 19.46 250.7
Hancock Holding Company HBHC 47.55 14.60 205.0
Prosperity Bancshares, Inc. PB 66.49 15.11 264.8
* Clos ing Price as of 5/9/2017 Source: SNL Financia l
Long-term Strategy Reputation Credibility
Appendix
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Investment Orientation
• Active - An investment strategy that involves subjective analysis by investment staff professionals on buy, sell, or hold decisions. (IR-active)
• Passive - An investment strategy that relies solely on computer-driven quantitative models, as well as strategies that replicate a selected index. (IR-immune)
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Investment Styles • Aggressive Growth - Invest in companies that have very high revenue, EPS growth rates and multiples relative to the overall
market. These companies usually do not pay any dividends and are at the early stages of growth. Aggressive Growth investors exhibit a higher portfolio turnover than other styles of investors.
• Growth – Invest in companies with multiples and growth rates higher than the market but do not like to pay extremely high multiples. Growth Investors are not sensitive to yield.
• GARP – Invest in companies that are valued at a discount to the market but are expected to grow faster than the overall market. GARP investors tend to exhibit longer holding periods, and are not sensitive to yield. Portfolio holdings include companies that are temporarily out of favor in the market.
• Index - Construct portfolios with the primary objective to achieve approximately the same returns as a specific market index such as the S&P 500 or the FTSE 100. Index Investors tracking a particular market index generally invest in the same companies that are in the index in the same proportion. Portfolio turnover for such funds is low and mirrors changes in the market index when companies go in and out of the index. Index Investors have the same risks associated to the market index being tracked. Due to this particular style of investing, Index investors practice a more passive style of portfolio management.
• Value - Invest in companies that trade at low valuation levels (low P/Es, Price/Book, and PEG) in general, in relation to the market and their peers, and also in relation to their own historic valuation levels. Companies are fundamentally strong and exhibit slow and steady growth characteristics over time. Value investors are long term holders with low portfolio turnover rates.
• Deep Value - Employ an extreme style of value investing where they invest in companies with very low valuations versus their own historic valuation, and in relation to the overall market. Usually the companies or the industries they are in have been out of favor in the marketplace for an extended period of time.
• Broker - This style is applied to firms whose holdings are the result of brokerage inventory. • Specialty - Applied to firms with investment strategies that cannot be categorized due to the specific nature of their focus.
Industry or sector specific focus is the most common example of a Specialty investor. • Alternative - Applied to Hedge Funds that primarily use various strategies that fall outside the traditional investment
strategies that can be categorized as the above. • Yield - Sensitive to a high dividend yield and invest in companies with yield levels very high compared to the market yield,
and have a history of paying and increasing dividends over time. • Other - Inclusive of all other investment styles not holding more than 1% of the institutionally managed shares. Additionally,
this style is applied to companies that are not investment firms, such as public companies. 15
Portfolio Turnover
• The measure of how frequently a portfolio buys or sells securities. A portfolio with a turnover rate of 100% replaces its entire portfolio throughout the course of a 12-month period, whereas, a fund with a 50% turnover rate replaces half of its holdings during the same time.
– Low (0-33.3% per year)
– Medium (33.3 -66.6% per year)
– High (66.6-100% per year)
– Very Active (Over 100% per year)
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