M a y 8, H o t e l N i k k o S a n F r a n c i s c o Aaron J. Axton

Transcription

1 M a y 8, H o t e l N i k k o S a n F r a n c i s c o Aaron J. Axton Managing Director, Depositories Investment Banking aaxton@kbw.com

2 General Information and Limitations This presentation, and the oral or video presentation that supplements it, have been developed by and are proprietary to Keefe, Bruyette & Woods, Inc. ( KBW ) and were prepared exclusively for the benefit and internal use of the recipient. Neither this printed presentation, nor the oral or video presentation that supplements it, nor any of their contents, may be used, reproduced, disseminated, quoted or referred to for any other purpose without the prior written consent of KBW. The analyses contained herein rely upon information obtained from the recipient or from public sources, the accuracy of which has not been independently verified, and cannot be assured by KBW. In addition, many of the projections and financial analyses herein are based on estimated financial performance prepared by or in consultation with the recipient and are intended only to suggest a reasonable range of results for discussion purposes. This presentation is incomplete without the oral or video presentation that supplements it. Neither KBW nor any other party makes any representation or warranty regarding the information contained herein and no party may rely on such information, and KBW expressly disclaims any and all liability relating to or resulting from recipient s use of these materials. The information, data and analyses contained herein are current only as of the date(s) indicated, and KBW has no intention, obligation or duty to update these materials after such date(s). This information should not be construed as, and KBW is not undertaking to provide, any advice relating to legal, regulatory, accounting or tax matters. This presentation is protected under applicable copyright laws and does not carry any rights of publication or disclosure. KBW, a U.S. registered broker-dealer and a member of the Financial Industry Regulatory Authority, is a full service investment bank specializing in the financial services industry. KBW and Stifel, Nicolaus & Company, Incorporated ( Stifel ) are affiliated broker-dealer subsidiaries of Stifel Financial Corp. ( Stifel Financial ) and, unless otherwise indicated, information presented herein with respect to the experience of KBW also includes transactions effected and matters conducted by the Financial Institutions Group of Stifel prior to February 15, In addition, certain pro forma information regarding KBW and Stifel also includes transactions effected and matters conducted by the Capital Markets Division of Legg Mason Wood Walker, Inc. (acquired by Stifel Financial on December 1, 2005), Ryan Beck & Co., Inc. (acquired by Stifel Financial on February 28, 2007), Thomas Weisel Partners LLC (acquired by Stifel Financial on July 1, 2010), Miller Buckfire & Co. LLC (acquired on December 20, 2012) and their respective affiliates. On March 15, 2013, Stifel Financial, the parent company of Stifel, entered into an Agreement to acquire Knight Capital Group s Institutional Fixed Income Brokerage unit, subject to customary closing conditions and regulatory approvals. All transaction announcements included herein appear as a matter of record only. Dollar volume represents full credit to underwriter. Independence of Research KBW prohibits its employees from directly or indirectly offering a favorable research rating or specific price target, or offering or threatening to change a rating or price target, as consideration or inducement for the receipt of business or for compensation. 2

3 Table of Contents I. Introduction to KBW II. The Banking Industry s Role in Real Estate Finance III. Regulatory Focus on CRE What Does the Future Bring? IV. Post-Election Impacts to the Bank Equity Market

4 Introduction to KBW

5 Market Leading Sector Expertise #1 M&A Advisor Most completed M&A transactions since 2000 #1 Capital Markets Team Most IPO & follow-on offering experience since 2000 Subsidiary of Stifel Financial Corp. (NYSE: SF) Largest U.S. FIG investment banking practice Depositories Complete coverage of the Top 100 and 1,250 banks and thrifts #1 Research Most financial services companies under coverage Non-bank financials Financial Technology Specialty Finance Insurance #1 Sales Force Largest Financial Services specialist sales force globally Private client group with 2,957 brokers and +$200 bn AUM 5

6 The Banking Industry s Role in Real Estate Finance

7 Total Loans by Category Across All Commercial Banks Select Balance Sheet Items ($bn) Cash 2,375.8 Total Securities 3,360.6 Gross Loans 9,156.8 Loan Loss Reserves Total Assets 16,217.9 Total Deposits 11,685.3 Total Borrowings 1,957.5 C&I 24% HELOC 4% 1-4 Fam 20% Wholesale 14% Other Consumer 7% Credit Card/Revolving 8% CRE 23% Source: Federal Reserve and KBW Research. CRE Loan Detail Amount ($bn) % of Total CRE Construction & Land Dev % Farm % Multifamily % Other CRE 1, % Total CRE 2, % 7

8 Year-over-Year Growth in CRE Loans 25.0% 20.0% CRE Loans Amount ($bn) QTD Growth * Small Commercial Banks 1, % Large Commercial Banks % All Commercial Banks 2, % 15.0% 10.0% 5.0% 0.0% (5.0%) (10.0%) (15.0%) Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 All Banks Large Banks Small Banks Source: Federal Reserve and KBW Research. * QTD annualized. 8

9 Regional CRE Migration Regional Commercial Loan Portfolio Composition by Year (%) 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 45% 37% 37% 36% 30% 26% 24% 26% 26% 24% 19% 21% Northeast/Mid-Atlantic Southeast West Midwest Southwest U.S Regional CRE Loan Growth as a Percent of Gross Loan Growth 60% 50% 40% 30% 20% 10% 0% 57% 49% 41% 36% 24% 25% 25% 27% 20% 20% 23% 17% Northeast/Mid-Atlantic Southeast West Midwest Southwest U.S Source: SNL Financial and KBW Research. Note: Reflects banks within the KBW research small and mid-cap (SMID) coverage universe; data per KBW research. 9

10 1973Q1 1974Q1 1975Q1 1976Q1 1977Q1 1978Q1 1979Q1 1980Q1 1981Q1 1982Q1 1983Q1 1984Q1 1985Q1 1986Q1 1987Q1 1988Q1 1989Q1 1990Q1 1991Q1 1992Q1 1993Q1 1994Q1 1995Q1 1996Q1 1997Q1 1998Q1 1999Q1 2000Q1 2001Q1 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 2017Q1 Loan Growth vs. Nominal GDP Growth 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0% Nominal GDP Total loans Source: Federal Reserve, Bureau of Economic Analysis and KBW Research. 10

11 Regulatory Focus on CRE What Does the Future Bring?

12 Regulatory Focus on CRE Concentrations In December 2015, the Federal Reserve, FDIC, and OCC issued a joint statement regarding prudent risk management for commercial real estate (CRE) lending, reiterating guidance first laid out in December 2006 and in response to increased concerns around: Recent substantial growth in CRE lending Low cap rates supporting elevated CRE values Regulators have identified CRE-heavy institutions as those with: CRE(1) / Total Risk-based Capital ratios above 300%, and Three-year CRE(1) growth above 50% KBW has received fairly detailed insights from CRE-heavy banks within our coverage universe: Regulators appear particularly concerned about: Companies that trip the CRE growth trigger The amount of underwriting "exceptions" that have been made on a given loan Broker originated, acquisitive, or purchased loans since they were not originally sourced by the bank Regulatory inquiries seem to be satisfied by: The ability to offer loan level detail and segmentation The ability to show the potential loss impact when stressing the portfolios for "second areas of weakness" Detailing the level of loans that have been refinanced with a cash-out component (1) Defined as non-owner occupied CRE, multi-family and construction loans (utilizing Call Report definitions). 12

13 (% of Loans =+OREO) 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 (in billions) Credit Conditions Have Improved Dramatically Over 20 straight quarters of improving credit quality is the longest since 1991 $350 $300 $250 $200 Maybe it still can get better. $150 $100 $50 $0 Nonaccrual Loans (ex Gov't guaranteed)** Restructured Loans OREO 4.00% 3.50% 3.00% Near Pre- Crisis Levels 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% -0.50% Looks Familiar to NCO / Avg. Loans Provision / Avg. Loans Reserve / Loans Source: KBW Research and FDIC. Note: Data is for all FDIC-insured commercial banks as of 2Q16. **Nonaccrual loan balances exclude loans and leases that are wholly or partially guaranteed by the U.S. Government. 13

14 Capital & Reserves Continue to Build Tangible Common Equity + Loan Loss Reserves / Tangible Assets 14.0% 12.0% 10.0% %-10% 8.0% 6.0% 4.0% 2.0% % 2016 YTD TCE / TA Reserves Source: FDIC and KBW Research. Note: Data for all FDIC insured commercial banks. 14

15 CECL is Coming but will it be Too Late for next credit cycle? Current Expected Credit Loss ( CECL ) Evidence of Next Cycle and What Happens if it Hits (1) Requires life of loan estimates of losses to be recorded for unimpaired loans at origination or purchase Improves banks Rear View Mirror policy basis Set to take effect yrs from now Benefits More flexibility is allowed when recognizing loan losses Simplifies the ALLL process for purchased loans Coverage / NIM ratios will be more consistent Imbedded Forward Looking view Bank CRE/Capital ratios hitting regulatory ceilings Burn down of LLR levels due to cycle factors Look back policy influence on LLR vs NCO levels GAAP frowns on Reserve Building ( mgmt. of earnings ) $600 CRE Transaction Volume ($bn) $0 Q2 4.0% LLR / Loans (%) 2.0% 0.0% * 2020 NCOs / Avg. Loans (%) Concerns Significant cost to implement Complexities around ability to accurately forecast the future Small assumption can make huge changes to loss estimates New metrics and terminology needed to communicate effectively with investors, auditors and regulators 12.0% TCE + LLR/ TA (%) TCE / TA (%) Q2 9.9% 9.2% 8.0% 0.0% 0.0% * 2020 NPAs + 90 Days Past Due / Loans + REO * 2016 and earlier data is source: FDIC and SNL Financial. (1) Data beyond 2016 is KBW Investment Banking speculative stressed scenario analysis and is not derived from any KBW Research or 3rd party sources. 15

16 Industry Structure Changing: Turns of the Regulatory Cycle Source: World Bank and KBW Research. 16

17 Post-Election Impacts to the Bank Equity Market

18 Bank Equity Market Conditions Four key factors have contributed to the rally since Election Day: Renewed expectation for higher rates (yield curve steepening) Increased optimism for corporate tax reform & reduced regulations Substantial inflows into the financial sector from both passive and active funds Improved outlook for earnings growth Price Performance Since Election (11/8/16) KRX Monthly Price Performance Since the Election 23.6% 21.7% 19.3% 16.2% 11.7% 6.2% 2.2% 1.4% (1.3%) (1.3%) (5.0%) S&P 500 BKX KRX Russell 2000 Nov Dec Jan Feb Mar Apr May Source: SNL Financial. Note: Data as of 5/4/

19 Bond Yield & Index Moves Treasury Yields 2.36% 1.88% 1.32% 0.87% 11/8/2016 5/4/ yr Treasury 10-yr Treasury LIBOR 0.88% 0.99% 1.18% 0.54% 11/8/2016 5/4/ Month LIBOR 3 Month LIBOR Source: SNL Financial. Note: Market data as of 5/4/

20 Bank Stock Valuations Bank Stock Forward Earnings Multiples vs. S&P 500 Since x Long Term Median S&P500 Median: 15.5x KRX Median: 14.9x BKX Median: 12.8x 20.0x 5/4/17: 17.6x 17.0x 15.0x 14.3x 10.0x 5.0x 12/31/00 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 KBW Bank Index (BKX) KBW Regional Bank Index (KRX) S&P500 Source: FactSet. Market data as of 5/4/2017. Note I: The KBW Bank Index ( BKX ) is a capitalization-weighted index composed of 24 geographically diverse stocks representing national money center banks and leading regional institutions. Note II: The KBW Regional Bank Index ( KRX ) is a composition of 50 regionally diversified mid & small-cap banking institutions in the U.S. and is calculated using an equal-weighted method. Note III: BKX and KRX constituents as of 5/4/2017; P/ NTM Earnings multiples represent the median of respective index constituents. 20

21 Relative P/E Bank Stock Valuations (con t) Relative Forward P/E KRX versus S&P % 120% 100% 80% 60% 40% 20% Relative Forward P/Es: KRX vs. S&P 500 Long-Term Avg. Source: KBW Research, SNL Financial and FactSet. Note: Publicly traded banks where data is available. 21

22 Number of Transactions Nationwide M&A Consolidation Trends Number of Deals Per Year / As a % of Total Banks (1) # of Transactions As % of Banks Median P / TBV (2) % 1.63x % 1.32x % 1.40x % 1.35x Median Since % 1.67x Median % 1.68x Median % 2.14x 5.0% 4.0% Median % of Banks: 3.00% 3.0% 2.0% As a % of Total Banks % * 0.0% Total # of Deals # of Deals (2017 Annualized) # of Deals / # of Banks (%) Source: SNL Financial and FDIC Website. (1) Includes whole bank & thrifts transactions announced since 1/1/2006. Excludes government assisted transactions and thrift merger conversions. (2) Annualized for full year transactions YTD as of 5/4/

23 Median Purchase Price / TBV M&A Landscape: Transaction Multiples by Quarter Median KRX Price / Tangible Book Multiple vs. M&A Transaction Multiples # of Deals x 2.50x 2.25x 2.00x 1.75x 1.50x 1.64x 1.65x 1.59x 1.46x 1.55x Post Election Median Multiple (1) 1.88x 1.47x 1.77x 1.85x 2.25x 2.00x 1.75x 1.50x Median Price / TBV of the KRX 1.25x 1.25x 1.00x Q Q Q Q Q Q Q Q x Purchase Price/TBV (LHS) KRX Price/TBV (RHS) Source: SNL Financial. Data as of 3/31/2017. Note: Includes nationwide transactions with deal values greater than $40 million; Excludes transactions in which the buyer is not a depository. (1) Includes transactions announced between 11/8/2016 and 12/31/