N A T E T O B I K F O U N D E R C O M P L E T E B A N K D A T A

OPPORTUNITIES IN U.S. BANK EQUITIES

WHO AM I?

•  Write on the Oddball Stocks Blog about small cap value stocks and banks.

•  Founded CompleteBankData in 2013 •  Launched CompleteBankData on the Bloomberg

Terminal (APPS BANKS <GO>) in February 2015.

WHY BANKS AND BANKING?

•  ~1,000 traded banks with the same business model

•  Banks easily compare against each other

•  Banks are a bet on two things: •  Local economy •  Management team

•  Banking is about exclusion •  Avoid loan losses with market rate deposits and loans =

above average bank

HOW DO WE LOOK AT BANKS?

•  Multiple ways to value: •  Relative valuation: P/TBV, P/E, P/anything •  Deposit Premium •  Discount Dividend Model •  Acquisition Value

•  Intrinsic Value •  What a well informed private buyer would pay •  Acquisition value is our proxy for maximum private market

value •  Relative value metrics approximate deal multiples.

CALCULATING ACQUISITION VALUE

•  Particular formula popularized by Richard Lashley of PL Capital

•  (Net Income + (cost savings ( 1- tax rate))) x 10

•  This is how bankers and regulators look at their and competitor banks.

OPPORTUNITIES BY ASSET SIZE

Assets   #  Banks  

Less  $100m   1873  

$100m  -­‐  $500m   3283  

$500m-­‐$1b   674  

$1b-­‐$5b   496  

$5b-­‐10b   84  

$10b-­‐20b   36  

$20b-­‐$50b   36  

$50b-­‐$150b   23  

$150b+   13  

EASTERN VIRGINIA BANKSHARES (EVBS)

•  A bank with $1b in assets and 20+ branches located around Richmond, Virginia. •  Market cap: $79m

•  Acquired Virginia Community Bank in Nov 2014

•  Asset growth of 10.9% annually since 2003

•  Trades at 86% of TBV

EVBS: DOWNSIDES

•  Bank still has TARP outstanding •  Initial $24m in TARP à $15m repaid = $9m outstanding

•  High cost operations •  89% efficiency ratio

•  Low profitability •  ROA .52% •  ROE 4.29%

•  High integration expenses •  $1.8m

•  Messy capital structure •  Short term borrowing •  Trust Preferreds

EVBS GOOD NEWS

•  All issues can be “fixed” •  Asset quality improving

EVBS: GOOD NEWS

•  Rapidly repaying TARP •  Should result in $.03-$.04 EPS improvement

•  Integration costs ending

•  Growing loans with a management aware of their issues.

EVBS VALUE?

MANY OTHER CHEAP SMALL BANKS

•  Many opportunities with small banks •  Low P/TBV and P/E banks •  Opportunity set shrinking

•  Growing small banks •  Mutual conversions

•  Too many tickers to list….ask me afterwards!

REGIONAL BANKS

•  Not too big •  Not too small

•  Lending still moves the needle •  Tied to regional economies (Midwest, Mid-Atlantic

etc)

•  Non-SIFI means less regulatory burden

•  Innovative and forward looking

RELATIVE VALUES > $100B

FIFTH THIRD BANCORP

•  A large Midwest bank: $119b in assets •  Trades at •  10.5x earnings •  1.1x book value •  1.3x tangible book value

•  Quick stats •  9.64% ROE •  1.1% ROA •  7.96% TE/TA •  3.21% Nim •  59% efficiency ratio

FIFTH THIRD (FITB)

•  Third best ROA of peers •  ROA/Relative Value –> best of peer group

•  Great operating metrics

FIFTH THIRD (FITB)

•  Why cheap? •  US Bancorp killing Fifth Third in similar markets •  Inability to organically grow

FIFTH THIRD (FITB)

•  Deposit Marketshare

FIFTH THIRD (FITB)

•  Why cheap? •  Higher funding cost compared to peers •  Lower NIM •  Slight fall in revenue recently

•  A potential acquirer to First Niagara? •  Would expand from $119b to $160b and put them in the

same ranks as BB&T.

•  Compared to peers they are the best cheapest regional bank

FIFTH THIRD (FITB)

LARGE BANKS

•  Large banks are unique in that they’re growth constrained. •  Many don’t derive the majority of their revenue

from banking at all à trading, investment banking, derivatives , capital market activity •  All are classically undervalued: low P/B •  Face regulatory headwinds

•  Some such as WFC and BAC are potentially good “buy and hold” investments •  Collect dividends as they conduct traditional banking

LARGE BANKS

•  Will large banks ever trade at 2-3x book? •  Doubtful they fail •  Also doubtful they grow like weeds

•  Investors will benefit •  Buybacks •  Dividends

NON-U.S. BANKS

•  U.S. Bank market unique •  French banking market fairly unique as well •  Credit Agricole Regional Banks worth a look

•  Most countries are concentrated •  Look for conservative lending and performance

through past crises

QUESTIONS?