North Carolina Community Banking Forum 2014

Transcription

North Carolina
Community Banking Forum 2014
Thursday, November 20, 2014
Grandover Resort - One Thousand Club Road, Greensboro, NC
8:30 am - 9:00 am
Registration & Continental Breakfast
9:00 am - 9:05 am
Welcome
Jason Caskey, Financial Services Practice Leader, Elliott Davis
9:05 am - 10:00 am
Investment Banking Update
Bill Sammon, Managing Director, Raymond James & Associates
Bill Wagner, Managing Director, Raymond James & Associates
10:00 am - 10:50 am
Issues Facing Community Bank CFOs
Jason Caskey—Moderator
Terry Early, Chief Financial Officer, Yadkin Bank
Tony VunCannon, Chief Financial Officer, HomeTrust Bank
Kirk Whorf, Chief Financial Officer, North State Bank
10:50 am - 11:00 am
Break
11:00 am - 12:05 pm
Economic Update
John Silvia, Chief Economist, Wells Fargo Securities, LLC
12:05 pm - 1:00 pm
Lunch - Grandville A&B
1:00 pm - 1:50 pm
A&A Update
Garry Rank, Shareholder, Elliott Davis
1:50 pm - 2:50 pm
Attorney Panel Discussion
Tony Gaeta, Attorney, Wyrick Robbins Yates & Ponton, LLP
Bill Lathan, Partner, Ward & Smith, PA
Bob Singer, Partner, Brooks, Pierce, McLendon, Humphrey & Leonard, LLP
2:50 pm - 3:00 pm
Break
3:00 pm - 4:00 pm
Empowering Your ALCO with the Tools & Critical Information for Successful Strategy Development
Mark Haberland, Managing Director, Darling Consulting Group
4:00 pm - 5:00 pm
Regulatory Panel Discussion
Jeff Burgess, Territory Supervisor, Federal Deposit Insurance Corporation
Jim Euge, National Bank Examiner, Office of the Comptroller of the Currency
Paul Frey, Supervisory Examiner, Federal Reserve Bank of Richmond
Ray Grace, State of NC Commissioners of Banks
5:00 pm
Adjourn Meeting
F I N A N C I A L S E RV I C ES
F i n a n c i a l S e r v i c e s - 3 6 0 ° I n d u st r y Pe rs p e c t i v e
The banking industry is complex and rapidly evolving. You deserve the right team with the right leadership to
serve you. More than 100 banks in the Southeast, large and small, depend on Elliott Davis’ Financial Services
Practice for personal attention, industry experience and services including external and internal audit, SEC
reporting, taxation and compliance. With a 60-year reputation and a team of 90 professionals serving financial
institutions, we help banks operate stronger, wiser, better.
A R E YO U. . .
Concerned about risk?
Considering a merger or acquisition?
Interested in preserving your capital?
Looking for strategies to manage effective tax rates?
Struggling to stay abreast of complex SEC reporting and regulations?
Searching for a resource to assist with ever-changing accounting standards?
S O LU T I O N S
A s s u ra n c e
• Audit services
• Financial statement preparation
Non-Audit Services
• Bank Secrecy Act compliance reviews
• Information system audits
• Independent loan reviews
• Outsourced internal audit
• SSAE No. 16 reports
• ALLL validation
Tax
• Income tax preparation and planning
• State and local tax services
• Tax estimates
• Evaluation of deferred tax asset
S EC Re l ate d S e r v i c e s
• Preparation of 10-Qs and 10-Ks
• SEC registration and compliance
• SOX 404 documentation and testing
Consulting
• ALCO model testing
• Business valuation services
• Cost segregation studies
• Director training
• Loan and deposit compliance
• Management and regulatory services
• Mergers and acquisitions
• Strategic planning
• Stock compensation calculations
• Compliance with enforcement actions
Elliott Davis is a member of The Leading Edge Alliance, a worldwide association of independently owned accounting firms.
e l l i o ttd av i s . c o m © Elliott Davis LLC © Elliott Davis PLLC
ValuCast
TM
Acquired Loan Valuation Solution
Recent industry convergence in the banking industry is unprecedented, creating opportunities for banks
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OUR EXPERIENCE
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credentials and experience to our client engagements:
• Prepared valuations for more than a dozen FDIC-assisted and open bank transactions with more than $5 billion in total
assets acquired
• Assisted in detailed credit reviews of loan portfolio and other real estate owned (OREO) properties
• Formulated general ledger accounts to book Day 1 entries
• Advised on transitioning the acquisition to banks’ core processing systems for seamless Day 2 accounting
PRE-ACQUISITION
DUE DILIGENCE
Before a transaction is finalized, our seasoned team performs due diligence services, delivering the financial information
you need to make key pre-acquisition decisions.
SERVICE PROVIDED
CLIENT BENEFIT
Perform a pro forma valuation of acquired assets and
liabilities
Provides understanding of fair value marks related to loans, OREO,
deposits, advances and other borrowings, and indemnification asset
Preparation of transparent and flexible valuation model
Ability to change assumptions in real time to measure impact of various
scenarios and to perform sensitivity and stress testing type analyses
Review of loan portfolio and OREO
Obtain more accurate reflection of the credit marks and liquidity
marks on acquired assets
DAY 1 VALUATION
Our team of professionals can assist you with the preparation of the valuation of assets acquired and liabilities assumed as well as
consideration given in accordance with ASC 805 – Business Combinations as well as ASC 820 – Fair Value Measurements.
SERVICE PROVIDED
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Provide timely deliverables through efficient model and
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Updates accounting books and records for fair value accounting in
an expedient manner
Deliver a full report that includes discussion and analysis as
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Provides management insight into the methodology used as well as
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Assist management in establishing general ledger accounts
and Day 1 entries
Help with setting up accounts required for Day 1 and ongoing Day 2
accounting
POST-ACQUISITION
DAY 2 ACCOUNTING
ank acquisitions involve highly complex financial and tax reporting, making Day 2 accounting critical to long-term success.
B
Our professionals serve more than 100 banks in the Southeast and have developed a proprietary solution, ValuCastTM, to
account for loans and related indemnification asset (if applicable) acquired in an acquisition.
SERVICE PROVIDED
CLIENT BENEFIT
Assist with accounting policies and procedures
documentation, playbooks, and other documentation in
establishing an effective control environment
A partnership to help in some of the most complex and technical
accounting decisions the company will face
Transparent and flexible model to perform ongoing
processing and recasting for future expected cash flows
Allows management to clearly identify changes in expected cash
flows; in addition, allows management to more effectively manage
significant model assumptions
Advice to management based on developing trends and
best practices
Establishes information source for management related to an
evolving accounting methodology that is not similar to
traditional banking
ValuCast has the following capabilities relating to ASC 310-30 Accounting:
TM
• Project future cash flows on both loan and indemnification asset
• Assess loan level carrying values and accretion
• Perform recast analyses
• Deliver accounting packages for monthly closings
• Perform sensitivity and stress testing with real time insights into cash flow projections
• Provide static carrying value and accretable yield percentage projections
• Customize cash flow modeling, output exhibits, and input methodology with no writing of code
WHAT WE DELIVER TO YOU
Unlike other solutions, our team has developed tools that provide you with –
✔ Transparency of formulas and test models
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✔ Timeliness of results
✔ Stress and Sensitivity Testing to see impact of assumptions and related impacts
✔ Improved Decision-Making through accurate budgeting, planning and projections
✔ Resource Utilization due to speed and ease of analysis
✔ Ongoing Advisory on best practices, policies and procedures moving forward
Financial Services Shareholder Contact Information
Bill Bossong, CPA, CBA
Jason Caskey, CPA
Shareholder
Direct: 864.552.4763
E-mail: [email protected]
Shareholder
Direct: 803.255.1497
Financial Services Practice Leader
Direct: 803.255.1203
Lee Haynes, CPA
Andy Mitchell, CPA
George Noonan, CPA
Shareholder
Direct: 704.808.5208
Shareholder
Direct: 864.242.2691
Shareholder
Direct: 704.808.5293
Paul Pickett, CPA
Christopher Purvis, CPA
Shareholder
Direct: 804.887.2256
Shareholder
Direct: 704-808-5216
Garry A. Rank, CPA
Barbara Rushing, CPA
Beverly A. Seier, CPA, CPCU
Stacy Stokes, CPA
Shareholder
Direct: 864.242.2625
Shareholder
Direct: 803.255.1214
Shareholder
Direct: 803.255.1472
Bob Beckwith, CPA
Shareholder
Direct: 864.242.2638
2014 Community Banking Forum
Thursday November 20, 2014
© 2014 Elliott Davis, PLLC © 2014 Elliott Davis, LLC
Is this the new normal?
A capital markets perspective
Discussion Materials | November 2014
RAYMOND JAMES FINANICAL SERVICES INVESTMENT BANKING AND
FINANCIAL INSTITUTIONS SALES & TRADING
THE FUNDAMENTALS OF COMMUNITY BANKING HAVE CHANGED…
Median
Metrics
2006
2014
Southeast
U.S.
Southeast
U.S.
133,698
104,602
201,361
166,697
ROAA (%)
1.05
1.00
0.73
0.81
ROATCE (%)
10.9
10.1
7.1
8.0
TCE / TA (%)
7.7
7.9
9.4
9.5
NPAs / Assets (%)
0.29
0.26
1.94
1.10
64
66
74
71
NIM (%)
4.34
4.14
3.85
3.72
Loan Growth (%)
8.8
7.1
3.9
5.5
Loans / Deposits (%)
82
81
76
76
1.61
1.44
1.02
1.07
Assets ($000s)
Efficiency Ratio (%)
Pre-Tax Pre-LLP ROAA (%)
Note: Banks with assets under $10 billion
Source: SNL Financial LC; LTM data as of December 31, 2006 and September 30, 2014
2
...MEDIAN RESULTS NO LONGER COMMAND A PREMIUM TO TBV
Historical Median Price to Tangible Book Value
250%
234%
232%
229%
171%
173%
Interquartile Range
Floor and ceiling of
middle 50% with
median indicated
200%
168%
179%
150%
137%
140%
145%
135%
129%
135%
133%
107%
100%
106%
107%
95%
104%
95%
88%
66%
73%
74%
70%
62%
50%
47%
45%
39%
100%
68%
65%
2013
11/10/14
44%
0%
2004
2005
2006
2007
2008
2009
Note: Banks with assets under $10 billion, excludes MHCs
Source: SNL Financial LC; data as of November 11, 2014
2010
2011
2012
3
WHAT WILL IT TAKE TO COMMAND A PREMIUM TO BOOK VALUE?
• From an investor’s
perspective, earnings
are ultimately why
bank stocks trade
above book value
(or below book value)
• Based on a range of
P/E multiples of 11x –
15x, a bank with 9.0%
TCE / TA must earn
between 0.60% and
0.82% ROAA in order
to trade at book value
• However, to trade at a
healthy premium to
book value (150%), a
bank must earn
between 0.90% and
1.23% ROAA
ROAA Required to Trade at Book Value Assuming 9% Tang Common Equity / Tang Assets
2.5
2.5
250%
Value
Book
Tang
Price
Value
BookValue
Tang Book
Price /// Tang
Price
Commentary
• For many banks,
improvement in asset
quality hasn’t led to a
trading price above
book value
22
200%
15x
1.5
1.5
150%
11x
11
100%
0.5
50%
0.5
0%
00
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
ROAA
ROAA
ROAA
Current & Historical
Bank Stock Index
P/E Multiples
SNL U.S. Bank < $500M
SNL U.S. Bank $500M-$1B
SNL U.S. Bank $1B-$5B
SNL U.S. Bank $5B-$10B
SNL U.S. Bank > $10B
Source: SNL Financial LC; index data since January 1993; trading data as of November 13, 2014
Historic
Median P / E
15.2x
15.1x
15.7x
16.1x
14.0x
Current
P/E
14.7x
15.2x
18.1x
17.3x
13.5x
4
WHY SHOULD A BANK STOCK TRADE AT A PREMIUM TO TBV?
• What makes $1 of tangible book value (TBV) in a bank superior to $1 under the mattress?
• In theory, the $1 of TBV should deliver returns that the $1 under the mattress cannot
• One way investors determine how much to pay for a bank stock relative to its TBV is by comparing
Price / TBV and ROATCE (or Return on Average Tangible Common Equity)
• A general rule is that every 6.5% to 7.0% of ROATCE is worth approximately 1.0x TBV (1)
• With this mind, it is logical to see that the change in industry fundamentals (lower net income and
higher TCE levels) has led to lower valuation multiples for community banks
• Absent an M&A takeout premium, its difficult for investors to envision underperforming community
banks generating the level of standalone profitability required to provide them with an adequate internal
rate of return
• In the following examples, we use a simplified 7.0% ROATCE = 1.0x TBV approach to evaluate how
much investors can pay for a bank assuming the investors seek a 15% IRR over three years
(1) Correlation supported by historical data based on Raymond James Research analysis
Source: SNL Financial LC; data as of November 11, 2014
5
INVESTORS STRUGGLE TO PAY TBV PREMIUM AND MEET IRR...
Projected Stock Price of Example Bank Corp. (0.73% ROAA) Based on 7.0% ROE = 1.0x TBV
It is difficult for investors to meet
their desired return hurdles and
pay a premium to tangible book
value for today’s median bank
without strong growth.
Projected Stock Price of Example Bank Corp.
Based on 7% ROE = 1.0x TBV
$24.00
$22.00
$20.00
15.0% Growth
10.0% Growth
3.9% Growth
Projected TBV - 3.9% Growth
$23.46
$20.36
$18.63
$17.67
Example Bank Corp.
$18.00
$16.93
Actual Southeast LTM Medians
Total Assets
TCE / TA
ROAA
Efficiency Ratio
LTM Loan Growth
$
201,361
9.4%
0.73%
74%
3.9%
$15.33
$16.00
$14.00
$15.39
$13.98
$13.30
$12.70
$14.36
$13.42
$12.89
$12.42
$12.00
$13.38
$13.89
$12.52
$11.97
$11.65
Implied Earnings and Book Value
Implied Tangible Common Equity
$
Implied Net Income
Share and Per Share Values
Shares Outstanding
Earnings Per Share
Tangible Book Value Per Share
Based on the
projected growth
above, what is the
resulting change in
tangible book value?
18,928
1,470
1,892,800
$0.78
$10.00
$10.00
$10.00
$8.00
Today
$10.81
Year 1
Year 2
ROE
3.9% Growth
10.0% Growth
15.0% Growth
Projected TBV
3.9% Growth
10.0% Growth
15.0% Growth
Today
$10.00
$10.00
$10.00
Year 3
Year 4
Year 5
Year 1
7.8%
8.2%
8.5%
Year 2
7.5%
8.3%
9.0%
Year 3
7.2%
8.4%
9.4%
Year 4
7.0%
8.5%
9.9%
Year 5
6.8%
8.6%
10.2%
Year 1
$10.81
$10.85
$10.89
Year 2
$11.65
$11.79
$11.92
Year 3
$12.52
$12.83
$13.10
Year 4
$13.42
$13.96
$14.46
Year 5
$14.36
$15.22
$16.02
6
TYPES OF CAPITAL / FINANCING: COST VERSUS TREATMENT
~ 15.0%
Common
Equity
Cost of Financing
Conv.
Preferred
Equity
Non-Cum.
Preferred
Equity
Conv.
Debt
~ 5.0%
Sub Debt
Senior Debt
Low / None
Equity Treatment by Rating / Bank Regulatory Agencies
High
CAPITAL MARKETS ALTERNATIVES – IPOS
Commentary
• The capital markets
are supportive of
growth-oriented
healthy community and
regional banks
• The bank IPO market
continues to gain
strength
• The IPO market is
available to smaller
and less profitable
companies than before
- However, valuation
is impacted by size
and profitability
• The smaller the bank,
the more important its
growth story
• Investors’ faith in the
management team can
open and shut the door
for institutions on the
size “bubble”
Bank IPO Activity (1)
Number of IPOs
Total Amount Raised ($MM)
4
$1,000
$800
3
$600
2
$400
1
$200
1 1 0 0 0 1 1 2 0 1 3 0 0 2 3 3 3
0
$0
4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
'10 2011 - Q
2012 - Q
Company
City, State
Triumph Bancorp, Inc.
Great Western Bancorp, Inc.
Veritex Holdings, Inc.
C1 Financial, Inc.
Green Bancorp, Inc.
FCB Financial Holdings, Inc.
Investar Holding Corporation
ServisFirst Bancshares, Inc.
Opus Bank
Square 1 Financial, Inc.
Talmer Bancorp, Inc.
Dallas, TX
Sioux Falls, SD
Dallas, TX
Saint Petersburg, FL
Houston, TX
Weston, FL
Baton Rouge, LA
Birmingham, AL
Irvine, CA
Durham, NC
Troy, MI
< $500MM
2013 - Q
Bank IPOs since January 1, 2014
Total Assets ($000s)
$500MM
to $2B
1,407,072
9,292,283
710,382
1,449,214
1,751,563
5,167,500
673,964
3,572,914
3,738,887
2,326,427
4,741,945
?
2014 - Q
Completion Date
11/6/2014
10/14/2014
10/8/2014
8/13/2014
8/7/2014
7/31/2014
6/30/2014
5/13/2014
4/15/2014
3/26/2014
2/11/2014
$2B to
$5B
(1) Bank IPOs completed since September 30, 2010 with at least $10mm raised, excludes mutual-to-stock conversions
Source: SNL Financial LC
Amount Offered ($000s)
80,400
331,200
40,365
46,943
80,860
181,280
45,994
56,875
163,328
119,670
232,555
> $5B
8
CAPITAL MARKETS ALTERNATIVES – FOLLOW-ONS
Commentary
• Capital markets have
improved significantly
over the last four years
• At the early part of the
recovery, the ability to
issue common equity
was only an option for
larger banks
• As the economy has
improved investors
have become more
willing to provide
common equity to
community banks
• The second quarter of
2014 was the most
active quarter in the
last few years and
indicates there is a
healthy market for
bank equities
Bank Follow-On Activity (1)
10
$800
Number of Underwritten Follow-Ons
Total Amount Raised
8
$600
6
$400
4
$200
2
8
9
5
1
4
4
2
2
6
1
4
4
6
2
7
0
2
0
$0
4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
'10 2011 - Q
2012 - Q
Company
City, State
Southern First Bancshares, Inc.
Anchor BanCorp Wisconsin Inc.
River Valley Bancorp
Chemical Financial Corporation
Signature Bank
Shore Bancshares, Inc.
Banc of California, Inc.
Bankwell Financial Group, Inc.
Old Second Bancorp, Inc.
Guaranty Federal Bancshares, Inc.
Texas Capital Bancshares, Inc.
Greenville, SC
Madison, WI
Madison, IN
Midland, MI
New York, NY
Easton, MD
Irvine, CA
New Canaan, CT
Aurora, IL
Springfield, MO
Dallas, TX
< $500MM
2013 - Q
Bank Follow-Ons since January 1, 2014
$500MM
to $2B
1,007,553
2,121,249
483,943
6,338,328
23,104,422
1,049,514
4,030,634
812,055
2,004,034
619,888
11,714,691
2014 - Q
Completion Date
11/5/2014
10/21/2014
6/30/2014
6/19/2014
6/10/2014
5/20/2014
5/15/2014
5/15/2014
4/3/2014
3/4/2014
1/23/2014
$2B to
$5B
17,280
11,122
19,401
80,500
297,649
34,155
112,288
48,649
68,310
17,250
112,969
> $5B
(1) Bank underwritten follow-on offerings completed since September 30, 2010 with at least $10mm raised; excludes “secondary only” offerings
9
CAPITAL MARKETS ALTERNATIVES – PREFERRED
Commentary
• Historically, preferred
stock was issued mostly
by larger banks and
only to a limited extent
by community banks
Bank Preferred Stock Offering Activity (1)
$1,000
10
$800
8
• Without TruPS as an
option for Tier 1 capital,
preferred stock has
become more popular
as the only alternative
to common equity for
Tier 1 capital
• As the economy has
improved, bank-focused
and other investors
have created a market
for community bank
preferred equity
Number of Preferred Offerings
12
$600
6
$400
4
2
$200
0 4 3 3 1 2 1 2 10 7 3 1 6 1 7 1 0
0
$0
4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
'10 2011 - Q
2012 - Q
2013 - Q
Company
Bank Preferred Stock Offerings since January 1, 2014
City, State
Central Federal Corporation
MVB Financial Corp.
Katahdin Bankshares Corporation
Commerce Bancshares, Inc.
Merchants Bancorp
Kinderhook Bank Corporation
Highlands Bankshares, Inc.
Cordia Bancorp Inc.
Golden State Bank
Worthington, OH
Fairmont, WV
Patten, ME
Kansas City, MO
Gresham, OR
Kinderhook, NY
Abingdon, VA
Midlothian, VA
Upland, CA
< $500MM
(1)
$500MM
to $2B
258,989
997,425
639,618
22,837,120
173,083
354,019
598,312
235,148
77,584
?
2014 - Q
Completion Date
7/15/2014
6/30/2014
6/27/2014
6/12/2014
5/24/2014
5/5/2014
4/16/2014
4/10/2014
3/3/2014
$2B to
$5B
12,000
7,834
10,000
150,000
2,200
7,400
7,169
15,428
10,300
> $5B
Bank preferred offerings completed since September 30, 2010 with at least $5mm raised; excludes mandatorily convertible issuances and
offerings issued under SBLF and TARP
10
CAPITAL MARKETS ALTERNATIVES – PRIVATE PLACEMENTS
Commentary
• Early on, most of the
capital being raised
was through private
placements and was
related to the
recapitalization of
distressed banks
• The Southeast saw a
large number of private
placements given this
region saw a
significant number of
troubled banks directly
related to the decline
in real state activity
and values
• The recapitalization
phase is over, so
private placements are
returning to a more
normal level
Private Placements (1)
30
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
Number of Private Placements
20
10
25 23 18 12 13 8 10 16 21 7 11 15 21 11 18 12 9
0
4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
'10 2011 - Q
2012 - Q
Private Placements since September 30, 2014
Company
City, State
Umpqua Holdings Corporation
Texas Capital Bancshares, Inc.
Banc of California, Inc.
Southern First Bancshares, Inc.
Boston Private Financial Holdings, Inc.
Regent Bancorp, Inc.
Broadway Financial Corporation
Anchor BanCorp Wisconsin Inc.
Prime Pacific Financial Services
Portland, OR
Dallas, TX
Irvine, CA
Greenville, SC
Boston, MA
Davie, FL
Los Angeles, CA
Madison, WI
Lynnwood, WA
< $500MM
2013 - Q
$500MM
to $2B
22,488,059
14,266,502
4,537,996
1,007,553
6,388,823
357,408
334,684
2,121,249
125,961
2014 - Q
Completion Date
7/15/2014
6/30/2014
6/27/2014
6/12/2014
5/24/2014
5/5/2014
4/16/2014
4/10/2014
3/3/2014
$2B to
$5B
763,885
252,425
149,848
23,455
21,007
20,000
9,713
9,671
9,228
> $5B
(1) Private placements of common equity since September 30, 2010 with at least $3mm raised; excludes rights offerings and IPOs
11
CAPITAL MARKETS ALTERNATIVES – SUBORDINATED DEBT
Commentary
• The capital markets
are currently very
receptive to community
bank sub debt
• In Q3 2014 alone, over
$400 million of sub
debt was raised
• The emergence of
Kroll ratings for bank
has helped open up
the sub debt markets
- In particular, Kroll’s
BBB- ratings (or
“investment grade
but for size”) allow
insurance
companies to buy
bank sub debt
• Larger issuers can
raise sub debt at
5.50% to 7.50% while
smaller issuers are
typically closer to
7.00% to 9.00%
Bank Sub Debt Activity (1)
9
8
7
6
5
4
3
2
1
0
$500
Number of Sub Debt Offerings
$400
$300
$200
$100
3
0
0
0
0
3
1
4
2
3
1
3
3
2
4
8
3
$0
4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
'10 2011 - Q
2012 - Q
Bank Sub Debt Activity since June 30, 2014
Company
City, State
First Community Financial Partners, Inc.
New Hampshire Thrift Bancshares, Inc.
Presidio Bank
BNC Bancorp
United Financial Bancorp, Inc.
Brookline Bancorp, Inc.
Pacific Premier Bancorp, Inc.
First Business Financial Services, Inc.
Eagle Bancorp, Inc.
Greer Bancshares Incorporated
Independent Bank Group, Inc.
Joliet, IL
Newport, NH
San Francisco, CA
High Point, NC
Glastonbury, CT
Boston, MA
Irvine, CA
Madison, WI
Bethesda, MD
Greer, SC
McKinney, TX
< $500MM
?
2013 - Q
$500MM
to $2B
917,891
1,483,112
483,593
3,683,230
5,159,478
5,587,486
1,921,525
1,306,503
3,914,444
363,296
2,353,675
2014 - Q
Completion Date
10/31/2014
10/29/2014
10/22/2014
9/25/2014
9/18/2014
9/11/2014
8/29/2014
8/26/2014
7/31/2014
7/23/2014
7/17/2014
$2B to
$5B
(1) Bank sub debt offerings completed since September 30, 2010 with at least $3mm raised
9,800
17,000
10,000
60,000
75,000
75,000
60,000
15,000
70,000
3,975
65,000
> $5B
12
SUPERIOR SIZE AND SCALE LEAD TO SUPERIOR PROFITABILITY...
Size and Scale Provide Operational Advantages
Commentary
• Operational metrics reveal
that scale is almost linearly
correlated with performance;
this correlation is expected to
further drive consolidation in
the banking industry
Return on Average Assets
1.04%
0.90%
0.82%
0.86%
75%
0.53%
68%
64%
62%
$2.5B $5.0B
$5.0B $15.0B
50%
25%
0%
0.00%
<$250M $250M - $500M $500M
$1B
$1.0B $2.5B
$2.5B $5.0B
<$250M $250M - $500M $500M
$1B
$5.0B $15.0B
15.0%
3.00%
9.5%
6.0%
9.9%
2.81%
2.44%
11.7%
12.0%
$1.0B $2.5B
Net Operating Expense (1)
Return on Avg. Tang. Common Equity
9.0%
• Ultimately, larger size typically
results in better profitability, as
measured by ROAA and
ROATCE
70%
75%
0.30%
• The median bank with assets
between $2.5 billion and $5
billion requires $0.11 less in
operating expense to produce
$1 of revenue compared to
the median bank with assets
between $250 million and
$500 million
83%
0.90%
0.67%
0.60%
• Larger banks are typically
more efficient than smaller
banks
Efficiency Ratio
100%
1.20%
2.20%
10.3%
2.09%
1.87%
2.00%
1.60%
7.5%
5.3%
1.00%
3.0%
0.0%
0.00%
<$250M $250M - $500M $500M
$1B
$1.0B $2.5B
$2.5B $5.0B
$5.0B $15.0B
<$250M $250M - $500M $500M
$1B
$1.0B $2.5B
$2.5B $5.0B
(1) Defined as non-interest expense as a percentage of average assets minus non-interest income as a percentage of average assets
Source: SNL Financial LC; data for all publicly traded banks and thrifts; reflects LTM financials for the most recent reported period
$5.0B $15.0B
13
...SUPERIOR PROFITABILITY LEADS TO SUPERIOR VALUATION
Median Pricing Multiples by Asset Size
Commentary
• Valuation is driven by
profitability, and profitability is
driven by size
200%
191%
P / 2015E
• Larger size alone does not
result in a better valuation
180%
• This graph illustrates that
price to forward earnings
multiples, regardless of asset
size bucket, are generally in
the 12.5x to 14.0x range
160%
• However, there is an
extremely strong correlation
between asset size bucket
and price to tangible book
value multiples
16.0x
195%
Price / Tang. Book
15.0x
153%
154%
14.0x
13.9x
141%
140%
Price /
2015E EPS
137%
13.3x
127%
146%
142% 13.8x
13.2x
13.1x
13.3x
13.0x
12.8x
12.6x
120%
99%
100%
111%
106%
11.9x 12.0x
12.7x
12.0x
91%
80%
80%
60%
Source: SNL Financial LC; excludes banks with total assets greater than $10 billion; data as of November 11, 2014
11.0x
10.0x
14
M&A ENVIRONMENT – WHAT HAS CHANGED
Pre-Recession Environment
• Buyers were willing to take on significant book value
dilution and the market was willing to accept it
• Buyers were willing to take earnings per share
dilution in the first and sometimes second year of a
transaction
• Sellers were willing to accept high-priced stocks
trading off of future growth prospects (often young
banks) with limited liquidity
• Wholesale funding was accepted as a way to
leverage franchise value
• Trust preferred allowed buyers to pay high prices by
financing some or all of the transaction with low cost
debt
Current Environment
• Buyers are focused on managing tangible book
value dilution (10% or less) and earning back the
dilution taken in a reasonable period of time (3 to 4
years)
• Buyers want meaningful and immediate earnings per
share accretion (10% or more)
• Sellers are focused on the quality of the buyer’s
stock (liquidity, dividend, historical performance) and
that it is trading at a reasonable valuation with
potential upside
• Wholesale funding has fallen out of favor with
regulators
• Trust preferred does not exist; alternative sources of
capital (preferred equity, sub debt) are significantly
more expensive
• Regulators want higher capital levels, comprised
mostly of common equity
15
NORTH CAROLINA SNAPSHOT
9/30/2014
9/30/2013
69
11
0
2
80
5
Absolute
Change
Change
(%)
Bank Statistics
# of Banks
Acquisitions (Closed)
Failures
Banks with Texas ratio > 100%
-11
-3
-13.8%
-60.0%
Financial Metrics - LTM Medians
ROA
ROE
TCE
Leverage Ratio
NPAs
LLR / Gross Loans
LTM Loan Growth
Pricing Ratios
Price / TBV
Price / EPS
0.53%
4.41%
10.16%
10.12%
2.09%
1.44%
5.39%
0.45%
4.14%
9.96%
10.03%
2.49%
1.72%
0.38%
0.08
0.27
0.20
0.09
-0.40
-0.28
5.01
17.8%
6.5%
2.0%
0.9%
-16.1%
-16.0%
1317.1%
105%
19.9x
84%
14.1x
21
5.8
25.4%
41.5%
(1)
(1) Excludes companies with over $10 billion in total assets
16
M&A ENVIRONMENT – WHAT HAS STAYED THE SAME?
• Level of profitability and earnings growth are significant drivers of value
• Demonstrated loan growth is critical
• Diversification in loan portfolio more important than ever
• Core deposits and customer relationships are key
• Growth markets remain attractive
• Buyers wary of seller asset quality
• Fee income only valuable if it is creating bottom-line earnings
• Good management with strong culture creates attractive franchises
• Mergers of peers remain financially attractive but difficult to consummate
17
CURRENT M&A ENVIRONMENT
Buyer Perspective & Issues
• Increased stock price allows higher offer
prices
Seller Perspective & Issues
• Pricing improving to attractive levels
• Some still holding onto pre-recession pricing
• No need to stretch as far
• Seller expectations are rising faster than
bank values
• No relief from interest rate and regulatory
challenges
• Prior purchase accounting accretion fading
• Shareholder liquidity and ability to reinstate a
dividend
• Asset values more stable – NPAs less of a
concern
• Market becoming more competitive for
attractive targets
• Regulatory focus on post-merge capital
levels require thorough analysis
• Private equity backed banks and large
community banks very interested in making
acquisitions
• Length of time to close deal
• Double dip opportunity
• Comprehensive understanding of deferred
taxed on NOLs necessary
• Raising capital remains expensive / dilutive
18
M&A ACTIVITY ON THE RISE AS FAILED BANK OPPORTUNITIES DISAPPEAR
Deal Volume is Increasing
Number of Deals
250
200
200
176
153
175
166
150
102
87
100
63
50
28
48
57
2010
2011
102
121
105
22
0
Number of Bank Failures
2001
180
160
140
120
100
80
60
40
20
0
2002
2003
2004
2005
2006
2007
2008
2009
2012
2013
2014
Banks Failures are Decreasing
157
140
92
51
26
4
2001
11
2002
3
4
0
0
3
2003
2004
2005
2006
2007
2008
24
2009
2010
2011
Note: Excludes transactions with deal value less than $10 million and equity ownership acquired less than 100%
2012
2013
17
2014
19
ACQUISITION PRICING IS IMPROVING
Pricing is Increasing
18x
201
23x
240
246
20x
200
150
22x
242
23x
253
22x
23x
231
186
22x
21x
18x
18x
19x
25
20
15
168
100
119
129
120
124
132
147
10
50
5
0
0
2001
2002
2003
2004
250
18x
20x
20x
264
200
150
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Price / TBV (Seller ROAA > 0.75)
300
Price / TBV (%)
23x
201
21x
258
21x
264
20x
21x
279
256
25
19x
17x
17x
15x
15x
201
188
156
100
138
153
14x
14x
139
147
20
15
163
10
50
5
0
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Price / LTM EPS
Price / TBV (%)
250
30
25x
2011
2012
2013
Price / LTM EPS
300
2014
20
LARGER BANKS ARE SELLING FOR HIGHER PRICES
Banks Under $1.0B vs. Over $1.0B
400
Assets Over $1.0B
Price / TBV (%)
350
250
200
Assets Under $1.0B
346
300
301
237
241
275
219
150
188
171
100
129
125
50
87
91
172
165
114
135 122
128
143
116
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Deals Since 2008
Over / Under $1.0B in Assets
93 Deals
% Under $1.0B
81%
% Over $1.0B
19%
385 Deals
21
M&A PRICING TRENDS ARE IMPROVING IN THE CAROLINAS
Price / Tang. Book Value of
Carolinas Transactions Since January 1, 2011
Commentary
120%
2013 Median 100%
100%
2012 Median 81%
80%
2011 Median 61%
60%
40%
20%
Note: excludes investor recapitalizations, transactions without publicly available pricing, and transactions for which price to tangible
book value is not meaningful
Oct-14 FHN - TrustAtlantic
Oct-14 NBBC - Premier
Jun-14 FCNCA - FCBN
Jun-14 BNCN - Harbor
Mar-14 HTBI - BONC
Jan-14 YDKN - VSB
Dec-13 BNCN - SSFC
Dec-13 BNCN - Comm. First
Nov-13 NBBC - CapStone
Sep-13 NCBC - Select
Aug-13 CRLN - Forest
May-13 BNCN - RDBN
May-13 HTBI - BGVF
Feb-13 SCBT - FFCH
Jan-13 OZRK - FNSE
Sep-12 CRFN - ECBE
Sep-12 CPSE - PTOK
Jun-12 BNCN - NCFT
May-12 PSTB - CSBC
Mar-12 CBF - SCMF
Dec-11 BNCN - KeySource
Dec-11 SCBT - PBCE
0%
Sep-11 BNCN - Regent
• The market is becoming
more competitive as more
banks are looking to grow
through acquisitions
2014 Median 141%
140%
Apr-11 CFOK - Westminster
• Also, improving asset
quality, improving
earnings, lower credit
marks, and an overall
better operating
environment are making
sellers more valuable
160%
Apr-11 FNBN - GRAN
• Increased bank stock
prices have increased
acquirer capacity-to-pay,
leading to higher M&A
pricing both nationwide
and in the Carolinas
180%
Mar-11 PSTB - CPBK
• Initial tangible book value
dilution, the number of
years required to earn
back that dilution, and
EPS accretion are key
drivers of acquirer
capacity-to-pay
200%
22
Q&A
Questions?
23
Overview of Raymond James
RAYMOND JAMES RECENT NATIONWIDE ADVISORY TRANSACTIONS
Has entered into a
definitive agreement to
be acquired by
Has entered into a
be acquired by
Has agreed to
acquire nine
branches from
Has entered into a
definitive agreement
to acquire
Has announced a merger
of equals with
Has entered into a
be acquired by
Pending
Pending
Pending
Pending
Has acquired
Has acquired
Has acquired
Has been acquired by
Park Cities Financial
Group, Inc.
Pending
Pending
United Bancorp, Inc.
August 2014
July 2014
South Street Finance Corp.
Has completed a merger
of equals with
July 2014
Has acquired
October 2013
Has acquired
April 2014
October 2013
April 2014
February 2014
Southern Bancshares
(N.C.), Inc.
Lakeland Bancorp, Inc.
Has acquired
Has acquired
July 2013
BBCN Bancorp, Inc.
HPK Financial Corp.
Has acquired
Has acquired
Bulk Sale of
Classified Loans
February 2013
January 2013
May 2013
January 2013
December 2012
February 2014
January 2014
Has acquired
Mid-Wisconsin
Financial Services, Inc.
Has acquired
United Financial
Banking Com panies, Inc
January 2014
Has merged with
Has sold
two branches to
May 2013
April 2013
March 2013
OCEANIC BANK
Palm etto Bancshares Inc.
has sold two branches to
Hom e Federal Savings
Bank
the subsidiary of
September 2012
July 2012
Note: Blue box signifies North Carolina transactions
Raymond James served as financial advisor to the first institution listed in each tombstone
HMN Financial Inc.
January 2014
Bulk Sale of
Classified Loans
February 2013
has been acquired by
has sold one branch to
Piedmont Community
Bank Holdings, Inc.
March 2012
February 2012
24
Issues Facing Community Bank CFOs
Terry Early, Chief Financial Officer, Yadkin Bank
Tony VunCannon, Chief Financial Officer, HomeTrust Bank
Kirk Whorf, Chief Financial Officer, North State Bank
Economic Outlook: Cyclical Recovery, Structural Challenges
Elliott Davis NC Forum
John E. Silvia, Chief Economist
November 20, 2014
Where Are We Now?
Interest
Rates
Inflation
Growth
Five benchmarks for good
decision making
Profits
Source:
2
The Dollar
Wells Fargo vs. Consensus
Expectations for the Future
 Sustained-trend growth
 Employment—cyclical and structural change
 Still cautious on consumer segments
How do we differ from
consensus?
 Housing improving—multifamily especially
 State and local governments—still restructuring
 Unsustainable long-run fiscal policy
 Europe exits recession
 China growth stable at 7 percent plus
3
Upswing 2H 2014: One-off or Sustained?
U.S. Real GDP
Bars = CAGR
10%
Line = Yr/Yr Percent Change
10%
GDP - CAGR: Q3 @ 3.5%
8%
GDP - Yr/Yr Percent Change: Q3 @ 2.3%
6%
6%
Forecast
4%
Following a poor start to the
year, GDP growth has
rebounded smartly. Solid
growth prospects in the years
ahead.
4%
2%
2%
0%
0%
-2%
-2%
-4%
-4%
-6%
-6%
-8%
-8%
-10%
2000
2002
2004
2006
2008
2010
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
8%
4
2012
2014
2016
-10%
Manufacturing & Services
ISM Manufacturing & Non-Manufacturing
Composite Index
65
Indexes on business activity
suggest an improving near-term
outlook
65
60
60
55
55
50
50
45
45
40
40
35
35
30
30
ISM Non-Manufacturing Index SA: Sep @ 58.6
ISM Manufacturing Index SA: Oct @ 59.0
25
98
99
00
01
02
03
04
05
06
07
08
Source: Institute for Supply Management and Wells Fargo Securities, LLC
5
09
10
11
12
13
14
25
Productivity & Income
Labor Productivity and Income
Average Annual Percent Change
4.0%
3.5%
If labor productivity growth
remains weak, the paltry pace of
real income growth that the
country has experienced in
recent years is set to continue
4.0%
Labor Productivity
Real Disposable Income Per Capita
3.5%
3.0%
3.0%
2.5%
2.5%
2.0%
2.0%
1.5%
1.5%
1.0%
1.0%
0.5%
0.5%
0.0%
1948-1973
1974-1995
1996-2004
2005-2013
Source: U.S. Department of Labor, U.S. Department of Commerce and Wells Fargo Securities, LLC
6
0.0%
Labor Force Participation
Labor Force Growth vs. Participation Rate
16 Years and Over, SA, Year-over-Year Percent Change
68%
Labor force growth has slowed
as the participation rate has
come down
67%
5%
66%
4%
65%
3%
64%
2%
63%
1%
62%
0%
61%
-1%
60%
-2%
59%
-3%
Labor Force Participation Rate: Oct @ 62.8% (Left Axis)
58%
57%
Labor Force Growth (3-MMA): Oct @ 0.6% (Right Axis)
60
65
70
75
80
85
90
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
6%
7
95
00
05
10
-4%
-5%
Small Businesses
Wells Fargo Small Business Survey & NFIB
Overall Situation, NFIB Small Business Optimism 1986=100
120
Small Businesses:
A full recovery in small business
optimism is still distant, taxes
and regulation the two big issues
115
100
110
80
105
60
100
40
95
20
90
0
85
-20
80
Wells Fargo Overall Situation: Q3 @ 49.0 (Left Axis)
-40
75
Small Business Optimism: Q3 @ 95.7 (Right Axis)
-60
04
05
06
07
08
09
10
11
12
13
14
Source: National Federation of Independent Businesses, Gallup, Wells Fargo Bank and Wells Fargo Securities, LLC
8
70
Manufacturing: Production and Jobs Gap
Production & Jobs in Manufacturing Sector
120
Index, 2007=100 on Left Axis, Right Axis in Millions
NAFTA
100
The gap between jobs and
production in the
manufacturing sector has
become massive – special role of
capital and manufacturing
productivity
China
Joins
WTO
18
80
16
60
14
40
12
20
Manufacturing Production: Sep @ 100.5 (Left Axis)
Manufacturing Employment: Oct @ 12.2 Million (Right Axis)
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Source: Institute for Supply Management, U.S. Department of Labor and Wells Fargo Securities, LLC
20
9
10
Initial Unemployment Claims: Cyclical
Initial Claims for Unemployment
Seasonally Adjusted, In Thousands
700
Year-over-Year Percent Change: Nov-1 @ -18.5%
Initial Claims: Nov-1 @ 278.0 Thousand
4-Week Moving Average: Nov-1 @ 279.0 Thousand
52-Week Moving Average: Nov-1 @ 315.5 Thousand
650
600
Signaling continued, moderate
job gains ahead
650
600
550
550
500
500
450
450
400
400
350
350
300
300
250
86
88
90
92
94
96
98
00
02
700
10
04
06
08
10
12
14
250
Employment: Structural
Unemployment vs. Employment-Population Ratio
16 Years and Over, Seasonally Adjusted
11%
Unemployment Rate: Oct @ 5.8% (Left Axis)
Employment-Population: Oct @ 59.2% (Right Axis - Inverted)
10%
Structural Change:
A much lower employment base
to support growth and spending,
especially for entitlements
58%
9%
59%
8%
60%
7%
61%
6%
62%
5%
63%
4%
64%
3%
86
88
90
92
94
96
98
00
02
57%
11
04
06
08
10
12
14
65%
Employment: Structural
Full Time vs. Part Time Job Growth
3-Month Moving Average, December 2007 = 100
115
Part-time employment has
stabilized, while full-time jobs
continue to recover—yet still not
to 2008 peak
Full Time: Oct @ 98.0
Part Time: Oct @ 111.6
110
110
105
105
100
100
95
95
90
90
85
00
01
02
03
04
05
06
07
08
115
12
09
10
11
12
13
14
85
Consumer Spending
Real Personal Consumption Expenditures
Bars = CAGR
8%
8%
6%
6%
4%
Faster job growth, asset
appreciation and more access to
credit are supportive to the
consumer spending outlook
Forecast
2%
2%
0%
0%
-2%
-2%
-4%
-4%
-6%
-8%
2000
-6%
PCE - CAGR: Q3 @ 1.8%
PCE - Yr/Yr Percent Change: Q3 @ 2.3%
2002
2004
2006
2008
2010
4%
13
2012
2014
2016
-8%
Consumer Confidence: By Income Group
Bloomberg Consumer Comfort by Income
12-Week Moving Average
80
Confidence improves with
income, but remains historically
low across all income ranges
70
70
60
60
50
50
40
40
30
30
20
20
10
Income
Income
Income
Income
Between $25K and $39.9K: Nov-02 @ 30.3
Over $100K: Nov-02 @ 56.9
0
2005 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: Bloomberg LP and Wells Fargo Securities, LLC
80
14
10
0
Auto Lending
New Auto Sales
As Percent of Total New Auto Sales by FICO Scores
110%
100%
90%
There has been an increase in
auto sales to sub and near-prime
buyers
110%
Prime (680 and above): Aug @ 59.6%
Sub Prime (619 and below): Aug @ 19.7%
100%
Near Prime (620-679): Aug @ 20.7%
90%
80%
80%
70%
70%
60%
60%
50%
50%
40%
40%
30%
30%
20%
20%
10%
10%
0%
2006
2007
2008
2009
2010
Source: CNW Research and Wells Fargo Securities, LLC
15
2011
2012
2013
2014
0%
Auto Lending
Used Auto Sales
As Percent of Total Used Sales By FICO Scores
The rise in sub-prime auto sales
has been most prevalent in the
used auto sales market
70%
70%
60%
60%
50%
50%
40%
40%
30%
30%
20%
20%
Prime: Aug @ 40.3%
10%
Near Prime: Aug @ 33.7%
10%
Sub-Prime: Aug @ 26.0%
0%
2006
2007
2008
2009
2010
Source: CNW Research and Wells Fargo Securities, LLC
16
2011
2012
2013
2014
0%
Income Growth: Rising at Different Rates
Income Growth by Quintile
250%
After-tax nominal income has
increased the most for the
lowest and highest income
households since the mid-1980s
Percent Change from 1984 to 2012, After-Tax Income
200%
200%
150%
150%
100%
100%
50%
0%
50%
Lowest 20
percent
Second 20
percent
Third 20
percent
250%
17
Fourth 20
percent
Highest 20
percent
0%
Income Growth: Rising at Different Rates
Income Growth by Quintile
8%
Percent Change in Nominal After-Tax Income 2007-2012
5.6%
6%
4.7%
3.5%
4%
2%
Since 2007, income growth has
been clearly concentrated in the
upper quintiles
6%
4%
2%
1.2%
0%
0%
-2%
-2%
-4%
-6%
-4%
-3.4%
Lowest 20
percent
Second 20
percent
Third 20
percent
8%
18
Fourth 20
percent
Highest 20
percent
-6%
Personal Income: Varied Sources
Transfers
100%
Proprietors Income
Rental Income
Receipts on Assets
Supplements to Wages
Wages & Salary
11.6%
0.8%
11.2%
0.6%
80%
15.5%
18.7%
15.6%
70%
6.9%
60%
10.2%
90%
Wages and salaries make up
about half of personal income as
transfer payments make up a
greater share of income over
time
Personal Income Sources
11.3%
2.0%
6.7%
8.1%
11.3%
11.0%
50%
17.0%
15.8%
90%
3.0%
4.0%
80%
13.0%
13.4%
7.7%
8.7%
11.8%
11.2%
40%
30%
55.3%
51.6%
51.7%
60%
50%
30%
47.5%
46.9%
10%
20%
10%
1980
1990
2000
70%
40%
20%
0%
100%
19
2010
Past 12
Months
0%
Household Debt Delinquencies: Student Loans the Exception
Household Debt Delinquencies
Percent of Balance 90+ Days Past Due
16%
14%
12%
Tighter credit standards and a
strengthening economy have
helped to improve the credit
position of households over the
past 3 years
16%
Credit Card: Q2 @ 7.8%
Other: Q2 @ 8.2%
Student Loans: Q2 @ 10.9%
Mortgage: Q2 @ 3.4%
Auto: Q2 @ 3.3%
HELOC: Q2 @ 3.3%
14%
12%
10%
10%
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
03
04
05
06
07
08
09
10
Source: Federal Reserve Bank of New York and Wells Fargo Securities, LLC
20
11
12
13
14
Business Spending
On an improving global demand outlook and diminishing fiscal policy headwinds, business
leaders are becoming more comfortable with capex plans.
Large-Ticket Spending Outlook Improves
Intellectual Investment Has Been Stable
Real Equipment Investment
Bars = CAGR
Real Intellectual Property Investment
Bars = CAGR
40%
40%
30%
30%
12%
12%
20%
20%
10%
10%
Forecast
10%
0%
14%
14%
8%
10%
8%
Forecast
6%
0%
6%
4%
4%
2%
2%
-20%
0%
0%
-30%
-30%
-2%
-2%
-40%
-40%
-4%
-4%
-10%
-10%
-20%
-50%
-60%
2000
-6%
Equipment Investment - CAGR: Q3 @ 7.2%
-50%
Equipment Investment - Yr/Yr Percent Change: Q3 @ 7.7%
2002
2004
2006
2008
2010
2012
2014
2016
-8%
-60%
-10%
2000
21
-6%
Intellectual Property Products - CAGR: Q3 @ 4.2%
-8%
Intellectual Property Products - Yr/Yr Pct Chg: Q3 @ 4.5%
2002
2004
2006
2008
2010
2012
2014
2016
-10%
New Orders
Nondefense Capital Goods Orders, Ex-Aircraft
Series Are 3-Month Moving Averages
40%
40%
3-Month Annual Rate: Sep @ 10.4%
Year-over-Year Percent Change: Sep @ 7.8%
30%
30%
20%
20%
10%
10%
0%
Signs of life appeared early in
this recovery in capital goods
orders—now the slowdown
0%
-10%
-10%
-20%
-20%
-30%
-30%
-40%
-40%
-50%
-50%
-60%
04
05
06
07
08
09
10
22
11
12
13
14
-60%
Inflation & Interest Rates
Core
Monetary
InflationInflation
Policy
Yield
Curve
Key
Drivers
Growth
Real Interest
Rates
Profits
Wage-Price
Spiral
Market
Expectations
23
Interest
Rates
The Dollar
Inflation: Rising – Not Low
PCE Deflator vs. Core PCE Deflator
Year-over-Year Percent Change
5%
Inflation remains historically
low, but should pick up as
growth accelerates and excess
slack lessens
4%
4%
3%
3%
2%
2%
1%
1%
0%
0%
-1%
-2%
-1%
PCE Deflator: Sep @ 1.4%
"Core" PCE Deflator: Sep @ 1.5%
92
94
96
98
00
02
04
06
5%
24
08
10
12
14
-2%
Inflation
Services continue to underpin overall inflation, led by rising shelter costs as the housing
market has recovered. Between 2008 and 2013, total prices are up 8.2 percent vs. 16.8 percent
for medical care.
Services vs. Goods
Shelter Costs
U.S. "Core" CPI - Services vs. Goods
Shelter, OER & Rent Costs
5%
5%
7%
7%
Shelter: Sep @ 3.0%
Rent: Sep @ 3.3%
4%
4%
6%
3%
3%
5%
5%
2%
2%
4%
4%
1%
1%
3%
3%
0%
0%
2%
2%
-1%
-1%
1%
1%
-2%
0%
0%
-3%
-1%
-2%
Core Services CPI: Sep @ 2.4%
6%
OER: Sep @ 2.7%
Core Goods CPI: Sep @ -0.3%
-3%
92
94
96
98
00
02
04
06
08
10
12
14
25
88
90
92
94
96
98
00
02
04
06
08
10
12
14
-1%
Wage Growth: Rising
Average Hourly Wages
Production & Nonsupervisory Employees, 3-Month Moving Average
6%
6%
Fed
Begins to
Tighten
5%
Wage growth remains fairly
tepid, but is showing signs of
firming in typical cyclical
fashion
5%
4%
4%
3%
3%
2%
2%
1%
1%
3-Month Annualized Rate: Oct @ 2.0%
Year-over-Year Change: Oct @ 2.3%
0%
90
92
94
96
98
00
02
04
26
06
08
10
12
14
0%
Inflation
PCE Deflator Forecast
Fed Central Tendency Forecast vs. Wells Fargo Forecast
4.5%
4.5%
Central Tendency Forecast Range
4.0%
Historical PCE Deflator
Wells Fargo Economics Forecast
3.5%
Q4-over-Q4
Percent Change
FOMC
Sept. Forecast
3.0%
The Fed anticipates a gradual
firming of inflation, but for slack
in the labor market to keep
inflation from overshooting in
the medium term
3.5%
3.0%
2.5%
2.2%
2.0%
2.0%
1.5%
2.5%
2.0%
1.5%
1.5%
1.0%
1.0%
0.5%
0.5%
0.0%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Source: U.S. Department of Commerce, Federal Reserve Board and Wells Fargo Securities, LLC
4.0%
27
0.0%
Inflation vs. Yields: Negative Real Yields – Three Non-market Buyers
Inflation and the Real Yield
Percent
8%
7%
7%
October 2013
Debt Ceiling
Raised
March 2008
Bear Stearns
6%
Inflation expectations exceed
nominal returns, suppressed
interest rates, not free market
8%
5-Year Treasury Note Yield: Oct @ 1.6%
Median Inflation Expect. for 5-10 Yrs: Oct @ 2.8%
6%
5%
5%
4%
4%
3%
3%
2%
2%
1%
1%
1990-2009 Average Median Inflation Expectation for 5-10 Years: 3.2%
0%
1996
1998
2000
2002
2004
2006
2008
2010
Source: Federal Reserve Board, University of Michigan and Wells Fargo Securities, LLC
28
2012
2014
0%
Yield Curve: Rates Rise Without Fed
Yield Curve
U.S. Treasuries, Active Issues
The Fed will continue easy
policy in 2014—shift mid-2015?
4.5%
4.5%
4.0%
4.0%
3.5%
3.5%
3.0%
3.0%
2.5%
2.5%
2.0%
2.0%
1.5%
1.5%
1.0%
1.0%
November 7, 2014
0.5%
October 10, 2014
0.5%
November 8, 2013
0.0%
0.0%
29
U.S. Forecast
Wells Fargo U.S. Interest Rate Forecast
Actual
2014
2014
0
0
Quarter End Interest Rates
1Q
0.0
Federal Funds Target Rate
0.25
3 Month LIBOR
0.23
Prime Rate
3.25
Conventional Mortgage Rate
4.34
3 Month Bill
0.05
6 Month Bill
0.07
1 Year Bill
0.13
2 Year Note
0.44
5 Year Note
1.73
10 Year Note
2.73
30 Year Bond
2Q
0
Forecast as of: November 12, 2014
3.56
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
0
q42014
q42014
0.25
0
3.25
0
4.16
0
0.04
0
0.07
0
0.11
0
0.47
0
1.62
0
2.53
0
0
0
4Q
0.0
0
0.23
3.34
2015
3Q
0.0
0
0.0
0.25
0.25
0.24
0.24
3.25
3.25
4.16
4.26
0.02
0.08
0.03
0.09
0.13
0.10
0.58
0.53
1.78
1.68
2.52
2.45
3.21
0
0
1Q
3.31
0
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
2Q
0.0
0.25
q42014
0.38
q42014
3.25
q42014
4.31
q42014
0.20
q42014
0.24
q42014
0.25
q42014
0.66
q42014
1.71
q42014
2.50
3.39
0
q42014
q42014
0
0
q42014
q42014
3Q
0.0
0.50
q42014
0.75
q42014
3.50
q42014
4.44
q42014
0.54
q42014
0.58
q42014
0.59
q42014
0.98
q42014
1.93
q42014
2.71
3.57
q42014
q42014
0
0
q42014
q42014
4Q
0.0
0.75
q42014
q42014
1.00
q42014
3.75
q42014
4.46
q42014
0.78
q42014
0.80
q42014
0.83
q42014
1.18
q42014
2.00
q42014
2.79
3.60
2016
q42014
0
0
q42014
q42014
1Q
0.0
1.00
1.25
4.00
4.62
1.02
1.03
1.08
1.39
2.06
2.86
3.66
0
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
q42014
0
Source: U.S. Department of Commerce, U.S. Department of Labor, Federal Reserve Board, Freddie Mac and Wells Fargo Securities, LLC
30
2Q
0.0
1.25
q42014
1.50
q42014
4.25
q42014
4.84
q42014
1.28
q42014
1.29
q42014
1.33
q42014
1.61
q42014
2.15
q42014
2.96
3.74
q42014
q42014
0
0
q42014
q42014
3Q
0.0
1.75
q42014
2.00
q42014
4.75
q42014
5.07
q42014
1.77
q42014
1.80
q42014
1.84
q42014
2.09
q42014
2.50
q42014
3.32
3.95
q42014
q42014
0
0
q42014
q42014
4Q
0.0
2.25
q42014
2.50
q42014
5.25
q42014
5.47
q42014
2.28
q42014
2.30
q42014
2.32
q42014
2.57
q42014
2.86
q42014
3.57
4.05
q42014
q42014
0
0
q42014
q42014
0.0
2.75
3.00
5.75
5.91
2.79
2.80
2.82
3.06
3.25
3.75
4.20
0
0
Corporate Spreads: Positive for Issuance
Aaa and Baa Corporate Bond Spreads
Over 10-Year Treasury, Basis Points
700
600
600
Bear Stearns
March 2008
500
Spreads have returned to a more
normal level; bond issuance is
strong
700
Baa Spread: Oct @ 238 Bps
Aaa Spread: Oct @ 161 Bps
400
400
300
300
200
200
100
100
0
1996
1998
2000
2002
2004
2006
Source: Federal Reserve Board and Wells Fargo Securities, LLC
500
31
2008
2010
2012
2014
0
Investment Grade Corporate Bonds
Investment Grade Corporate Issuance
3-Month Moving Average, Billions of USD
$30
Businesses are taking advantage
of low interest rates
$27
$27
$24
$24
$21
$21
$18
$18
$15
$15
$12
$12
$9
$9
$6
$6
$3
$0
$3
Investment Grade Corporate: Aug @ $19.8 Billion
04
05
06
07
08
Source: IFR Markets and Wells Fargo Securities, LLC
$30
32
09
10
11
12
13
14
$0
High Yield Corporate Bonds
High Yield Corporate Issuance
3-Month Moving Average, Billions of USD
$50
$45
As investors search for yield
among exceptionally low
interest rates, bond issuance has
gained momentum
$50
High Yield Corporate Issuance: Sep @ $23.4 Billion
$45
$40
$40
$35
$35
$30
$30
$25
$25
$20
$20
$15
$15
$10
$10
$5
$0
$5
04
05
06
07
08
Source: IFR Markets and Wells Fargo Securities, LLC
33
09
10
11
12
13
14
$0
M&A Volume
U.S. M&A Volume and S&P 500 Index
Billions of Dollars; Index
$500
U.S. M&A and the S&P 500
remain correlated over time
$400
1800
$300
1600
$200
1400
$100
1200
$0
2010
2011
2012
Source: Thomson Reuters, Capital IQ and Wells Fargo Securities, LLC
2000
U.S. M&A Volume: Q3 @ $476.4B (Left Axis)
S&P 500 Performance: Q3 @ 1972.3 (Right Axis)
34
2013
2014
1000
Business Lending
Commercial and Industrial Loans
At Commercial Banks in the United States
40%
Commercial and industrial
lending has surged over the past
quarter, helped by easier credit
and increased demand
40%
30%
30%
20%
20%
10%
10%
0%
0%
-10%
-10%
-20%
-20%
Year-over-Year Change: Sep @ 12.3%
3-Month Annualized Rate: Sep @ 10.9%
-30%
90
92
94
96
98
00
02
35
04
06
08
10
12
14
-30%
Corporate Profits: Increasing Role of Global Profits
Corporate Profits
As a Percent of GDP
14%
14%
NAFTA
12%
12%
10%
Profits as a percentage of GDP
are historically high and are
being boosted by profits earned
abroad post NAFTA
10%
8%
8%
6%
6%
4%
4%
2%
Rest of World: Q2 @ 2.3%
Domestic: Q2 @ 9.8%
0%
47 51 55 59 63 67 71 75 79 83 87 91 95 99 03 07 11
China
Joins
WTO
36
2%
0%
Corporate Profits from Abroad
U.S. Companies listed in the S&P 500 with Greater Than 50 Percent
of Sales Abroad
(A Sample)
Many U.S. companies rely on
the health of international
economies














Goodyear Tire
BorgWarner
Priceline.com
Nike
Coca-Cola
Heinz
Proctor & Gamble
Avon
Exxon Mobil
AFLAC
Intel
Applied Materials
Oracle
Johnson & Johnson
37














Merck
Boeing
Eaton Corp.
Emerson Electric
Fluor
GE
3M
Caterpillar
Cisco
Qualcomm
Apple
eBay
IBM
Symantec
Interest Expense
Non-Fin. Corporate Business: Corporate Interest
As a Percentage of Pre-Tax Profits
120%
120%
Corporate Interest: Q2 @ 17.6%
100%
Corporate interest expenses
remain low amid the low-rate
environment
100%
80%
80%
60%
60%
40%
40%
20%
20%
0%
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
38
0%
Corporate Profit Growth
After-Tax Corporate Profit Growth
35%
Corporate profit growth remains
firm—typical mid-cycle
slowdown
Year-over-Year Percent Change, 2-Year Moving Average
30%
30%
25%
25%
20%
20%
15%
15%
10%
10%
5%
5%
0%
0%
-5%
-5%
-10%
-15%
-20%
-10%
After-Tax Profits: Q2 @ 7.3%
82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
35%
39
-15%
-20%
Corporate Profits: Domestic Profits
Domestic Profits
Financial and Nonfinancial Corporations, Billions of Dollars
$1,400
$1,400
Nonfinancial Corporations: Q2 @ $1,260.2B
Financial Institutions: Q2 @ $452.0B
$1,200
$1,200
$1,000
Big gains in profits have been
from nonfinancial corporations
$1,000
$800
$800
$600
$600
$400
$400
$200
$200
$0
-$200
$0
01
02
03
04
05
06
07
08
09
40
10
11
12
13
14
-$200
Housing: A New Model for Housing
U.S. Housing Starts
Millions of Units
2.4
2.4
2.1
2.1
1.8
1.8
Forecast
1.5
Continued improvement
ahead—multifamily a greater
share
1.2
1.2
0.9
0.9
0.6
0.6
0.3
0.3
0.0
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
1.5
41
0.0
Housing Demographics
Median Home Size vs. Average Household Size
Square Feet; Number of Persons
Secular Shift?
Households were living in
smaller homes with more people
after the recession, but longer
term trends have won out
2,600
2.80
2,400
2.75
2,200
2.70
2,000
2.65
1,800
2.60
1,600
2.55
1,400
2.50
Median Square Footage: 2013 @ 2,384 (Left Axis)
Number of Persons per Household: 2013 @ 2.54 (Right Axis)
1,200
80
84
88
92
96
00
42
04
08
12
2.45
Housing: Emergence of Renters as Occupants
U.S. Homeowners vs. Renters
Annual Change in Occupied Units, In Thousands
2,500
2,000
The number of renters has been
accelerating steadily since 2007,
while homeowners have been
declining
2,000
1,500
1,500
1,000
1,000
500
500
0
0
Series
Break
1981
-500
-500
-1,000
-1,000
-1,500
-1,500
66
70
74
78
82
86
90
94
2,500
Renters: 2013 @ 525.5 Thousand
Homeowners: 2013 @ -76.5 Thousand
43
98
02
06
10
Housing: Overcoming the Rise in Rates
Overview
 Housing affordability: Still historically high
 Rental costs rising faster than cost of ownership
 Consumer confidence, jobs and income rising
What is the housing
environment looking like now?
 Negative equity declining
 Smaller families since 1982 suggests smaller homes,
more apartments
44
Housing
Negative Equity Share By State
As a Percent of Mortgages Outstanding
Maine
10.4%
4.3%
New York 5.1%
Negative equity in homes has
contributed to foreclosures and
reduced labor mobility, but
much improvement has been
seen since 3 years ago
Colorado
5.4%
Oregon
5.8%
Washington
6.3%
North Carolina
7.2%
South Carolina
8.0%
Massachusetts
9.1%
California
9.7%
Virginia
Q2-2011
22.5%
21.0%
19.9%
14.9%
20.1%
16.7%
32.2%
10.0%
23.8%
New Hampshire
12.0%
New Jersey
12.8%
Maryland
13.5%
Florida
20.9%
18.3%
26.0%
24.3%
National
48.3%
10.7%
0%
10%
Source: CoreLogic and Wells Fargo Securities, LLC
Q2-2014
7.6%
45
24.8%
20%
30%
40%
50%
60%
Commercial Real Estate: Divergence
Apartments have seen the greatest improvement in operating fundamentals but are also seeing
intense new development. The industrial market has also improved quite significantly.
Apartment Supply & Demand
Industrial Supply & Demand
Apartment Supply & Demand
Industrial Supply & Demand
Percent, Thousands of Units
Percent, Millions of Square Feet
9%
100
12%
80
8%
75
11%
60
7%
50
10%
40
9%
20
6%
25
8%
0
7%
-20
6%
-40
5%
0
4%
-25
Apartment Net Completions: Q3 @ 47,293 Units (Right Axis)
Apartment Net Absorption: Q3 @ 37,691 Units (Right Axis)
Apartment Vacancy Rate: Q3 @ 4.2% (Left Axis)
3%
2%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
-50
5%
-75
4%
Source: Reis, Inc., PPR, U.S. Department of Commerce and Wells Fargo Securities, LLC
46
Industrial Net Completions: Q3 @ 22.6M SF (Right Axis)
Industrial Net Absorption: Q3 @ 34.6M SF (Right Axis)
Industrial Vacancy Rate: Q3 @ 7.0% (Left Axis)
2005
2006
2007
2008
2009
2010
2011
2012
2013
-60
2014
-80
Commercial Real Estate
Office and retail commercial real estate have not seen the same type of improvement as
apartments and industrial space, as vacancy rates remain somewhat elevated.
Office Supply & Demand
Retail Supply & Demand
Office Supply & Demand
Retail Supply & Demand
21%
30
14%
20
Retail Net Completions: Q3 @ 1.4M SF (Right Axis)
Retail Net Absorption: Q3 @ 2.7M SF (Right Axis)
Retail Vacancy Rate: Q3 @ 10.3% (Left Axis)
18%
20
12%
15%
10
10%
12%
0
8%
8
9%
-10
6%
4
6%
-20
4%
0
-30
2%
-4
-40
0%
Office Net Completions: Q3 @ 5.8M SF (Right Axis)
Office Net Absorption: Q3 @ 8.0M SF (Right Axis)
Office Vacancy Rate: Q3 @ 16.8% (Left Axis)
3%
0%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: Reis, Inc., PPR, U.S. Department of Commerce and Wells Fargo Securities, LLC
47
16
12
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
-8
Fed Balance Sheet: Challenge to Asset Values
Federal Reserve Balance Sheet vs. S&P 500 Index
Trillions, Index
$5.5
$5.0
$4.5
We have seen a strong
correlation in the expansion of
the Fed’s balance sheet and the
rise in the S&P 500
Agencies & MBS: Nov @ $1,757.6B (Left Axis)
Treasuries: Nov @ $2,461.6B (Left Axis)
Other Securities: Nov @ $225.9B (Left Axis)
S&P 500 Index: Nov @ 2,031.6 (Right Axis)
2,000
1,800
$4.0
1,600
$3.5
1,400
$3.0
1,200
$2.5
1,000
$2.0
800
$1.5
600
$1.0
400
$0.5
200
$0.0
2007
0
2008
2009
2010
2011
2,200
48
2012
2013
2014
Federal Government Spending: Entitlements in the Driver’s Seat
U.S. Federal Government Mandatory Outlays
Trillions of U.S. Dollars, Projections Begin in 2014
$4.0T
$3.5T
The unfunded liabilities of the
entitlement programs reflect a
commitment to spend in the
future
$3.5T
$3.0T
$3.0T
$2.5T
$2.5T
$2.0T
$2.0T
$1.5T
$1.5T
$1.0T
$1.0T
$0.5T
$0.5T
$0.0T
2013
2015
2017
2019
Source: Congressional Budget Office and Wells Fargo Securities, LLC
$4.0T
Other Programs: 2024 @ $0.2T
Income Security: 2024 @ $0.3T
Social Security: 2024 @ $1.5T
Healthcare Programs: 2024 @ $1.6T
49
2021
2023
$0.0T
U.S. Government Debt: Who Holds Our Debt?
Top Holders of U.S. Treasuries
Billions of Dollars
$1,400
$1,400
Aug-12
Aug-13
Aug-14
$1,200
$1,000
Japan and China hold an
unprecedented amount of U.S.
debt
$1,000
$800
$800
$600
$600
$400
$400
$200
$200
$0
Japan
China
U.K.
OPEC
Source: U.S. Department of the Treasury and Wells Fargo Securities, LLC
$1,200
50
Taiwan
Caribbean
$0
Global Growth
2014
Wells
Fargo
Economics
Global
2013
Blue Chip
Consensus
Historical
(year-over-year unless otherwise specified)
The global recovery is being
driven by emerging markets,
downshift ahead
Global Real GDP
3.2%
3.6%*
3.0%
Eurozone Real GDP
0.8%
0.8%
-0.4%
United Kingdom Real GDP
3.0%
3.0%
1.7%
China Real GDP
7.3%
7.3%
7.7%
Japan Real GDP
0.9%
0.9%
1.5%
Canada Real GDP
2.4%
2.3%
2.0%
Mexican Real GDP
1.9%
2.4%
1.1%
* IMF Estimate
Source: International Monetary Fund and Wells Fargo Securities, LLC
51
Global Economies: A Strong Dollar Policy?
U.S. Dollar Index
Broad Index
130
Asian Financial
Crisis
Mexican Peso
Crisis
Economic fundamentals and
risks abroad will drive the dollar
upward?
130
120
120
110
110
100
100
90
90
80
80
US$ Broad Index: Q3 @ 85.7
Long-run Average (1982-2012): 96.99
70
82
84
86
88
90
92
94
96
98
52
00
02
04
06
08
10
12
14
70
U.S. Trade Weighted Currency Indexes
U.S. Trade Weighted Currency Indexes
March 1973=100
150
The dollar has experienced
recent strength against both
major and emerging currencies
120
140
110
130
100
120
90
110
80
100
70
90
"Other ITP" Index: Oct @ 132.7 (Left Axis)
60
Major Currency Index: Oct @ 80.8 (Right Axis)
80
1995
1997
1999
2001
2003
2005
53
2007
2009
2011
2013
50
Euro, Pound & Yen Exchange Rates
USD per Euro, USD per Pound Yen per USD
2.20
The euro and the pound have
depreciated recently as the yen
continues to decline as well
2.00
60
1.80
80
1.60
100
1.40
120
1.20
140
1.00
160
0.80
180
Dollars per Euro: Oct @ 1.26 (Left Axis)
Dollars per Pound: Oct @ 1.61 (Left Axis)
Yen per Dollar: Oct @ 107.66 (Right Axis, Inverted)
0.60
0.40
00
01
02
03
04
05
06
40
54
07
08
09
10
11
200
12
13
14
220
Dollar Exchange Rates: Canada & Mexico
Foreign Currency per U.S. Dollar
16.70
1.45
Mexican Pesos/U.S. Dollar: Oct @ 13.48 (Left Axis)
15.50
The Canadian dollar and
Mexican peso have both seen
recent depreciation against the
U.S. dollar
Canadian Dollars/U.S. Dollar: Oct @ 1.12 (Right Axis)
14.30
1.25
13.10
1.15
11.90
1.05
10.70
0.95
9.50
2006
2007
2008
2009
2010
1.35
55
2011
2012
2013
2014
0.85
Federal Fiscal Policy: When Will We Discount Future Liabilities?
U.S. Budget Gap
CBO Baseline Scenario Projections, Percent of GDP
26%
26%
24%
24%
22%
The federal government faces
some significant fiscal
challenges—the current path is
not sustainable
22%
Avg. Outlays
1973-2012
20%
20%
18%
18%
Avg. Revenues
1973-2012
16%
16%
Outlays: 2024 @ 22.4%
Revenues: 2024 @ 18.4%
14%
1974
1979
1984
1989
1994
1999
2004
56
2009
2014
2019
2024
14%
Federal Fiscal Policy
The composition of federal spending has shifted dramatically.
The CBO projects that the debt-to-GDP ratio will reach nearly 80 percent by 2024.
Composition of Federal Spending
Federal Debt Continues to Rise
Federal Spending
U.S. Debt Held By The Public
Percent of Total
Discretionary
1970
Mandatory
80%
Net Interest
31%
7%
Total Spending 1970: 19 percent of GDP
35%
59%
6%
2050
18%
60%
22%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
70%
70%
60%
60%
50%
50%
40%
40%
30%
30%
20%
1974
100%
80%
Baseline Debt: 2024 @ 77.2%
62%
2013
CBO Baseline Projections Begin in 2014, Percent of GDP
57
1979
1984
1989
1994
1999
2004
2009
2014
2019
2024
20%
North Carolina
North Carolina – Labor Market
North Carolina’s unemployment rate has plummeted over the past year, but has recently seen a
slight uptick
Employment
Unemployment
North Carolina Nonfarm Employment
North Carolina vs. U.S. Unemployment Rate
3-Month Moving Averages
Seasonally Adjusted
6%
6%
4%
4%
2%
2%
0%
0%
-2%
-2%
-4%
-4%
-6%
-6%
3-Month Annual Rate: Sep @ 3.3%
North Carolina: Sep @ 2.2%
Household: Yr/Yr Pct. Change: Sep @ 0.6%
-8%
-10%
90
92
94
96
98
00
02
04
06
08
12%
10%
10%
8%
8%
6%
6%
4%
4%
-8%
10
12
14
-10%
2%
12%
North Carolina: Sep @ 6.7%
United States: Oct @ 5.8%
59
90
92
94
96
98
00
02
04
06
08
10
12
14
2%
North Carolina has seen broad-based employment gains.
Stronger job growth has led to increased population growth.
Employment
Population Growth
North Carolina Population Growth
North Carolina Employment Growth By Industry
Year-over-Year Percent Change, 3-MMA
Total Nonfarm
In Thousands
September
2014
Trade, Trans. & Utilities
Government
240
200
200
160
160
120
120
More
Educ. & Health Services
Prof. & Bus. Svcs.
240
Number of
Employees
Manufacturing
Leisure and Hospitality
Less
Financial Activities
80
80
40
40
Construction
Other Services
Information
-4%
-2%
0%
2%
4%
6%
0
8%
Source: U.S. Department of Labor , U.S. Department of Commerce and Wells Fargo Securities, LLC
60
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
0
Raleigh, Charlotte and Wilmington lead the state in employment growth
Employment
Unemployment
North Carolina Job Growth
North Carolina Unemployment Rates
Year-over-Year Percent Change, Not Seasonally Adjusted
Raleigh
Fayetteville
0.0%
1.9%
North Carolina:
Sep @ 2.2%
0.6%
0.2%
2.0%
3.0%
4.0%
Durham
4.9%
Raleigh
5.0%
0.0%
61
North
Carolina:
Sep @ 7.0%
5.6%
Asheville
Sep-14
6.0%
Winston
0.9%
1.0%
6.2%
Wilmington
2.4%
Durham
6.3%
Charlotte
2.6%
Asheville
7.1%
Greensboro
2.8%
Charlotte
Greensboro
Fayetteville
3.2%
Wilmington
Winston
Not Seasonally Adjusted
Sep-14
4.6%
2.0%
4.0%
6.0%
8.0%
10.0%
North Carolina
North Carolina Employment Growth: Sept. 2014
3-Month Moving Averages
1.5%
Recovering
Jacksonville
Expanding
Asheville
Raleigh-Cary
3-Month Percent Change
1.0%
DurhamChapel Hill
Wilmington
Charlotte
0.5%
Winston-Salem
Burlington
Greensboro
0.0%
Hickory
Population Size
Less than 200,000
200,000-500,000
More than 500,000
-0.5%
Fayetteville
Decelerating
Contracting
-1.0%
-1%
0%
1%
2%
3%
62
4%
5%
North Carolina
North Carolina Employment Growth by Industry
3-Month Moving Averages, September 2014
10%
Expanding
Recovering
3-Month Annualized Percent Change
8%
Financial
Activities
Information
6%
Other Services
4%
2%
Educ.
& Health Svcs.
Construction
Manufacturing
Trade, Trans. &
Utilities
Government
0%
Leisure and
Hospitality
-2%
Contracting
-4%
-1%
0%
Decelerating
1%
2%
3%
4%
5%
Percent of Total Employees
Less than 5%
5 % to 10%
More than 5%
63
6%
7%
North Carolina – Housing Market
Home prices have picked up in past months, and are now close to their prerecession peak
Housing Permits
Home Prices
North Carolina Housing Permits
CoreLogic HPI: NC vs. U.S.
Index, 2000=100, Not Seasonally Adjusted
Thousands of Permits, Seasonally Adjusted Annual Rate
120
100
120
Single-Family: Sep @ 35,796
Single-Family, 12-MMA: Sep @ 34,520
Multifamily, 12-MMA: Sep @ 15,502
Single-Family Average (1998-2003): 62,968
80
60
60
40
40
20
20
90
92
94
96
98
00
02
04
06
08
10
12
14
0
64
200
180
180
160
160
140
140
120
120
100
100
80
80
60
60
40
Source: U.S. Department of Commerce, CoreLogic and Wells Fargo Securities, LLC
220
United States: Aug @ 175.0
North Carolina: Aug @ 138.7
200
100
80
0
220
90
92
94
96
98
00
02
04
06
08
10
12
14
40
Outlook Risks
Potential Challenges to the Outlook
 Fitful Fed exit brings questions for the dollar,
inflation and interest rate outlook/ volatility/
confidence
 Fiscal policy: tax increases and/or spending cuts face
unsustainable long-run outlook
What are the primary risks to
the outlook?
 Housing: able to sustain growth on its own if rates
rise?
 European debt crisis weighs on global growth and
global credit stagnation over the long-run
 China/global trade weakness hits U.S. exports,
foreign earnings of U.S. corporations
 Ebola: Unknown unknown. The unquantifiable risk
65
U.S. Forecast
Wells Fargo U.S. Economic Outlook
Actual
2014
Real Gross Domestic Product
Personal Consumption
Inflation Indicators
PCE Deflator
1
Actual
2013
2012
Forecast
2016
2015
2014
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
-2.1
4.6
3.5
1.6
2.4
2.6
2.8
2.9
2.3
2.2
2.2
2.7
3.0
1.2
2.5
1.8
2.5
2.5
2.6
2.5
2.6
1.8
2.4
2.2
2.4
2.6
1.1
1.6
1.5
1.4
1.4
1.3
1.5
1.9
1.8
1.2
1.4
1.5
2.0
1.4
2.1
1.8
1.5
1.5
1.3
1.6
2.2
2.1
1.5
1.7
1.7
2.4
2
Consumer Price Index
Industrial Production
1
Corporate Profits Before Taxes
Trade Weighted Dollar Index
Unemployment Rate
Housing Starts
Forecast
2015
2
3
4
Quarter-End Interest Rates 5
Federal Funds Target Rate
3.9
5.5
3.2
5.9
5.0
4.9
4.9
4.9
3.8
2.9
4.1
5.0
4.2
-4.8
0.1
3.8
4.0
4.1
4.2
4.4
4.5
11.4
4.2
0.9
4.3
3.4
76.9
75.9
81.3
82.5
83.0
83.8
84.5
85.5
73.5
75.9
79.1
84.2
87.2
6.7
6.2
6.1
5.8
5.7
5.6
5.5
5.4
8.1
7.4
6.2
5.6
5.2
0.93
0.99
1.02
1.00
1.06
1.13
1.21
1.24
0.78
0.92
1.01
1.16
1.26
0.25
0.25
0.25
0.25
0.25
0.50
0.75
1.00
0.25
0.25
0.25
0.63
2.00
Conventional Mortgage Rate
4.34
4.16
4.16
4.26
4.31
4.44
4.46
4.62
3.66
3.98
4.23
4.46
5.32
10 Year Note
2.73
2.53
2.52
2.45
2.50
2.71
2.79
2.86
1.80
2.35
2.56
2.71
3.40
Forecast as of: November 12, 2014
1
C ompound Annual Growth Rate Quarter-over-Quarter
2
Year-over-Year Percentage C hange
3
Federal Reserve Major C urrency Index, 1973=100 - Quarter End
4
Millions of Units
5
Annual Numbers Represent Averages
Source: U.S. Department of Commerce, U.S. Department of Labor, Federal Reserve Board, Freddie Mac and Wells Fargo Securities, LLC
66
Appendix
Wells Fargo Economics Group Publications
Recent Special Commentary
Date
Title
Authors
U.S. Macro
October-30
U.S. Economy Grew at a Solid Pace in Q3 2014
Bryson
October-29
Income Growth: The Taxman Cometh
Silvia & Nelson
October-23
Corp. Profits: Reward, Incentive & That Standard of Living
Silvia
October-23
Hourly Earnings Underperform - As an Indicator of Spending
Silvia & House
U.S. Regional
November-03 Florida Economic Outlook: November 2014
To join any of our research
distribution lists please visit our
website:
http://www.wellsfargo.com/
economics
Vitner, Wolf & Moehring
October-17
California Employment Conditions: September 2014
Vitner & Wolf
October-17
Texas Payrolls Charge Ahead
Vitner & Wolf
October-17
Florida Payrolls Push Higher
Vitner & Wolf
October-31
Global Econom y
Taiwan GDP Growth Edges Up in Q3
Bryson & Griffiths
October-31
BoJ Eases Again Despite Positive Growth in Q3
Bryson
October-28
Swedish Riksbank Cuts Rates to Zero Percent
Bryson
October-27
U.K. GDP Growth Slows in Line With Expectations
Bryson & Griffiths
Interest Rates/Credit Market
October-29
FOMC: So Begins the Era of Normalizing Interest Rates
Silvia & Miller
October-29
Escape from Alcatraz: Ending Financial Repression
Silvia, Vitner & Brown
October-14
Support for Economic Growth: Bank Lending Improves
Silvia & Griffiths
October-08
Federal Deficits Expected to Grow Along with Higher Rates
Silvia, Vitner & Brown
Real Estate
November-05 Housing Data Wrap-Up: October 2014
October-31 Nonresidential Construction Recap: October
Vitner & Khan
Khan
October-28
The S&P Case-Shiller HPI Moderates in August
Vitner & Moehring
October-27
Pending Home Sales Edge Higher
Vitner & Moehring
68
Wells Fargo Securities, LLC Economics Group
Global Head of Research and Economics
Economists
Azhar Iqbal, Econometrician………………… ……………[email protected]
Diane Schumaker-Krieg
………………… …[email protected]
Global Head of Research & Economics
……
Tim Quinlan, Economist …………………… ……………[email protected]
Eric J. Viloria, Currency Strategist
Chief Economist
Sarah Watt House, Economist
John E. Silvia …
...................... …
[email protected]
.
…………… …………[email protected]
Michael A. Brown, Economist ……………… …
Michael T. Wolf, Economist
Senior Economists
Mark Vitner, Senior Economist……………....………. .
[email protected]
………………… …
[email protected]
.
[email protected]
Economic Analysts
[email protected]
Zachary Griffiths, Economic Analyst
[email protected]
Jay H. Bryson, Global Economist …………………....…… …[email protected]
Mackenzie Miller, Economic Analyst
[email protected]
Sam Bullard, Senior Economist
.
Erik Nelson, Economic Analyst
[email protected]
Alex Moehring, Economic Analyst
Nick Bennenbroek, Currency Strategist ……[email protected]
Administrative Assistants
Eugenio J. Alemán, Senior Economist… …………[email protected]
Anika R. Khan, Senior Economist …
[email protected]
[email protected]
Donna LaFleur, Executive Assistant.
. [email protected]
Cyndi Burris, Senior Administrative Assistant
[email protected]
[email protected]
Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer registered with the U.S. Securities and Exchange Commission, the
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compensation that is based upon and impacted by the overall profitability and revenue of the firm which includes, but is not limited to investment banking revenue. The information and
opinions herein are for general information use only. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does Wells Fargo Securities, LLC assume any liability
for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general
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SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE
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should not be relied upon by, retail clients. This document and any other materials accompanying this document (collectively, the "Materials") are provided for general informational purposes
only.
69
2014 Community Banking Forum
Thursday November 20, 2014
Tony Gaeta, Attorney, Wyrick Robbins Yates & Ponton, LLP
Bill Lathan, Partner, Ward & Smith, PA
Bob Singer, Partner, Brooks, Pierce, McLendon, Humphrey
& Leonard, LLP
 Complete ALM Solutions 
Empowering Your ALCO with the Tools & Critical Information
for Successful Strategy Development
North Carolina Community Banking Forum
November 20, 2014
Mark A. Haberland, Managing Director
[email protected]
Page 1
Key Take Aways

Understand your true long-term interest rate risk profile

Bank-specific assumptions provide the most accurate profile
 Regulatory focus
 Requires time, resources and $$ to derive

ALCO’s focus should be on forward-looking strategies, not
historical review
 Manage risk
 Maximize earnings
Page 2
Identifying True Risk Profile
Page 3
Profit Margins Declining
Page 4
Economic Value of Equity
Long and Short of It
RATE SHOCK SCENARIOS
Book Value
ASSETS
Investments
-100BP
0 Shock
+100BP
+200BP
+300BP
+400BP
406,471
412,854
406,399
398,487
390,739
383,256
376,059
2,029,532
2,075,769
2,043,546
1,999,157
1,956,987
1,917,306
1,879,243
91,735
91,735
91,735
91,735
91,735
91,735
91,735
TOTAL ASSETS (EVA)
% Chg from 0 Shock
2,527,738
-0.55%
2,580,359
1.52%
2,541,680
2,489,379
-2.06%
2,439,462
-4.02%
2,392,297
-5.88%
2,347,038
-7.66%
LIABILITIES
Non Maturity Deposits
1,586,719
1,576,656
1,517,102
1,481,884
1,449,166
1,418,911
1,390,594
Time Deposits
531,026
537,991
534,438
528,581
522,868
517,294
511,856
Borrowings
157,323
161,477
157,974
153,990
150,135
146,403
142,790
16,567
16,567
16,567
16,567
16,567
16,567
16,567
2,291,635
2.94%
2,292,690
2.99%
2,226,082
2,181,023
-2.02%
2,138,737
-3.92%
2,099,176
-5.70%
2,061,806
-7.38%
236,103
287,669
315,598
308,356
300,725
293,121
285,231
Loans
Other Assets
Other Liabilities
TOTAL LIABILITIES (EVL)
% Chg from 0 Shock
ECONOMIC VALUE
OF EQUITY (EVE)
% Chg from 0 Shock
Policy Limits
EVE Ratio (EVE/EVA)
BP Chg from 0 Shock
-8.8%
-15.0%
9.34%
11.15%
-127
12.42%
-2.3%
-15.0%
-4.7%
-25.0%
-7.1%
-30.0%
-9.6%
12.39%
12.33%
12.25%
12.15%
-3
-9
-16
-26
Page 5
Economic Value of Equity
Long and Short of It
RATE SHOCK SCENARIOS
Book Value
ASSETS
Investments
-100BP
0 Shock
+100BP
+200BP
+300BP
+400BP
406,471
412,854
406,399
398,487
390,739
383,256
376,059
2,029,532
2,075,769
2,043,546
1,999,157
1,956,987
1,917,306
1,879,243
91,735
91,735
91,735
91,735
91,735
91,735
91,735
TOTAL ASSETS (EVA)
% Chg from 0 Shock
2,527,738
-0.55%
2,580,359
1.52%
2,541,680
2,489,379
-2.06%
2,439,462
-4.02%
2,392,297
-5.88%
2,347,038
-7.66%
LIABILITIES
Non Maturity Deposits
1,586,719
1,576,656
1,517,102
1,481,884
1,449,166
1,418,911
1,390,594
Time Deposits
531,026
537,991
534,438
528,581
522,868
517,294
511,856
Borrowings
157,323
161,477
157,974
153,990
150,135
146,403
142,790
16,567
16,567
16,567
16,567
16,567
16,567
16,567
2,291,635
2.94%
2,292,690
2.99%
2,226,082
2,181,023
-2.02%
2,138,737
-3.92%
2,099,176
-5.70%
2,061,806
-7.38%
236,103
287,669
315,598
308,356
300,725
293,121
285,231
Loans
Other Assets
Other Liabilities
TOTAL LIABILITIES (EVL)
% Chg from 0 Shock
ECONOMIC VALUE
OF EQUITY (EVE)
% Chg from 0 Shock
Policy Limits
EVE Ratio (EVE/EVA)
BP Chg from 0 Shock
-8.8%
-15.0%
9.34%
11.15%
-127
12.42%
-2.3%
-15.0%
-4.7%
-25.0%
-7.1%
-30.0%
-9.6%
12.39%
12.33%
12.25%
12.15%
-3
-9
-16
-26
Page 6
EVE Analyses
Conflicting Perspectives
Regulatory
2.5 Yrs
Bank
7.5 Yrs
Page 7
Perform a Deposit Study
Simulation:
Time
Horizon
to Obtain
Bank-Specific
Assumptions
Deposit Study Average Life Assumptions
Economic Value of Equity Model
Decay & Average Life
Account
DDA
MMDA
MMDA - Access Plus
NOW
NOW - IOLTA
NOW - Other
NOW - Platinum
Public Savings
Public Savings - State Treasurer
Savings
Savings - Brokered
Savings - Other
Savings - Platinum Blue High Rat
Savings - Platinum Blue HY
Savings - Platinum Blue HY Busin
Savings - Preferred Business
Savings - Premium
Savings - Premium Business
Savings - Top Rate Business
Core
Percent*
96.56%
97.71%
97.46%
97.49%
81.97%
81.72%
96.02%
37.03%
100.00%
97.19%
78.44%
96.09%
82.16%
95.41%
92.40%
76.90%
97.48%
92.40%
30.24%
*Based on 12/31/2013 deposit study
*Use 12.5Y Final Decay for Core Funds
**Use 6 Month Final Decay and 3 Month Avg Life for Non-Core Funds
Non-Core
Percent**
3.44%
2.29%
2.54%
2.51%
18.03%
18.28%
3.98%
62.97%
0.00%
2.81%
21.56%
3.91%
17.84%
4.59%
7.60%
23.10%
2.52%
7.60%
69.76%
Decay Rate
13.40%
7.70%
8.75%
11.55%
9.26%
19.66%
8.58%
0.00%
0.00%
12.85%
0.00%
17.59%
5.47%
20.19%
8.20%
16.68%
23.74%
6.07%
0.00%
Avg Life
5.77
7.86
7.41
6.39
6.07
3.63
7.36
4.79
12.50
5.97
9.86
4.69
7.50
4.14
7.24
3.93
3.62
8.13
3.95
Page 8
EVE Analyses
What is Your Exposure to Rising Rates?
2.5 Yrs
5.6 Yrs
7.5 Yrs
(Deposit Study)
Page 9
EVE is NOT a Useful Indicator
Simulation:
Time
of Interest Rate
Risk Horizon
Exposure
What is Your Exposure to Rising Rates?
Page 10
And the Funny Thing is. . .
Net Interest Income ($000)
16,400
14,625
12,850
11,075
9,300
7,525
Q1
Q2
Q3
Q4
Q1
Q2
Base
Q3
Q4
Q1
Q2
Q3
Q4
Down 100BP
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Up 200BP
No matter the life assumption for EVE – same NII result!!!
Page 11
Often Times Your RiskSimulation:
ManagementTime
Tools Horizon
Disagree
Earnings at Risk
EVE Ratio (EVE/EVA)
Value at Risk
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
Page 12
Analyzing Your Risk Profile
NII simulations provide the most complete analysis of your
interest rate risk profile, but rely heavily on:
16,400
 Quality of data inputs
14,625
 Utility of scenarios reviewed
 Assumptions
 Backtesting of model
 Stress testing of key assumptions
12,850
11,075
9,300
7,525
Q1
Q2
Q3
Q4
Q1
Q2
Base
Q3
Q4
Q1
Q2
Q3
Q4
Down 100BP
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Up 200BP
 How results are presented to decision makers

Simulation horizon
Page 13
Net Interest
Income Simulation
– 1Year
Simulation:
Time Horizon
One Year NII Simulations Are Insufficient
Quick Conclusions
1. Worst Case Rising Rates
2. Margin Pressure
Sustained Beyond Year 1
3. Margin Pressure Worsens
Beyond Year 1
Page 14
Net Interest
Income Simulation
– 5 Year
Simulation:
Time Horizon
Managing
Horizon
Planning
Horizon
Page 15
Other Scenarios: Rate Shocks
Instantaneous Rate Movements
SHOCK ANALYSIS
11,750
10,300
8,850
7,400
5,950
4,500
Q1
Q2
Q3
Base
Q4
Q1
Q2
Shock Down 100BP
Q3
Q4
Q1
Shock Up 100BP
Q2
Q3
Q4
Shock Up 200BP
Q1
Q2
Q3
Shock Up 300BP
Q4
Q1
Q2
Q3
Q4
Shock Up 400BP
Page 16
Jan-10
Jan-08
Jan-06
Jan-04
Jan-02
Jan-00
Jan-98
Jan-96
Jan-94
Jan-92
Jan-90
Jan-88
Jan-86
Jan-84
Jan-82
Jan-80
Jan-78
Jan-76
Jan-74
Jan-72
Jan-70
MONTHLY Changes in Fed Funds…Since 1970
Avg. Monthly Change in Fed Funds (1970-2010) = 30bps
4
3
2
1
0
-1
-2
-3
-4
-5
-6
-7
Page 17
Extraordinary Rate Shifts (e.g. +400bp over 24mos)
2,554
2,354
2,154
1,954
+400bp Parallel Rate Shifts
1,754
1,554
Q1
Q2
Base
Q3
Q4
Q1
Q2
Down 100BP
Q3
Q4
Q1
Q2
Q3
Up 200BP
Q4
Q1
Q2
Q3
Q4
Up 400BP 24M
Q1
Q2
Q3
Q4
Flat Up 500BP
Page 18
Flattening of the Yield Curve (Back to 2007)
2,554
2,354
2,154
1,954
1,754
1,554
Q1
Q2
Base
Q3
Q4
Q1
Q2
Down 100BP
Q3
Q4
Q1
Q2
Up 500bp w/ Flattening Curve
Q3
Up 200BP
Q4
Q1
Q2
Q3
Q4
Up 400BP 24M
Q1
Q2
Q3
Q4
Flat Up 500BP
Page 19
“Yield Curve Twist” Scenario
4.50
4.00
3.50
3.00
3. Curve Flattens in Months 19-36 as
Fed Tightens: Short end up 3.75%
2.50
2.00
2. Curve Steepens
Over Next 18 Months
as 2015 Fed Target for
Tightening Nears:
Long end up 1%
1.50
1.00
0.50
1. Current Rates
0.00
3mo
6mo
Oct 2014 CMT Rates
1yr
2yr
Apr 2016 (18 Months)
3yr
5yr
10yr
Oct 2017 (36 Months)
Page 20
Yield Curve Twist vs. Other Rising Rate Ramp Scenarios
Yield Curve Twist
11,075
Less actual rising rate
risk due to timing of 35 year loan resets
Great earnings
environment as curve
steepens
10,000
8,925
7,850
6,775
5,700
Q1
Q2
Q3
Q4
Base
Q1
Q2
Q3
Q4
Up 200BP
Q1
Q2
Q3
Q4
Q1
Up 400BP 24M
Q2
Q3
Flat Up 500BP
Q4
Q1
Q2
Q3
Q4
Yield Curve Twist
NII SUMMARY
Base
Up 200BP
Up 400BP 24M
Flat Up 500BP
Yield Curve Twist
Year-1 NII
31,431
29,726
29,732
28,966
31,708
Year-2 NII
31,128
30,754
29,082
26,744
32,043
Year-3 NII
31,150
33,277
32,507
29,071
30,045
Year-4 NII
31,364
35,417
37,058
32,952
31,020
Year-5 NII
31,790
36,884
39,958
35,015
32,315
Yield curve steepens over the first 18 months (10Y CMT = 3.75%) and flattens over months 19-36 to the average slope from 2005-2007 (Fed Funds targeted @ 4.00%).
Page 21
Identifying True Risk Profile

Simulations provide most accurate risk profile

Identify timing and degree of sensitivity

Gauge exposure under a variety of rate scenarios

Dependent upon inputs (data, assumptions) and must focus on
right information when developing strategies

Assumptions have a HUGE impact!
Page 22
Bank-Specific Assumptions
Page 23
Critical Model Assumptions
1.
Deposit sensitivity/lives
2.
Replacement/new volume
3.
Prepayment
They Should Be Stress Tested Regularly
Page 24
Prepayment Assumptions
Page 25
New Volume Assumptions: Loans
Page 26
New Volume Assumption: Loans
Page 27
Deposit Assumptions

Key assumptions:
 Rate sensitivity factors or “betas”
 Rates paid on non-maturity deposits (NMD) have greatest impact
 Rising and falling not likely symmetrical
 Core versus “hot” money
 Potential disintermediation or shift due to changing market conditions
 Particularly important under rising rates
 Retention/decay on non-maturity deposits
 Potential cash flows from non-maturity
 Needed for valuation analysis (EVE)

Critical to formulate reliable deposit assumptions, perform
deposit studies and stress test results!
Page 28
Non-Maturity Deposits…Key Assumptions

Potential for Reductions in NMD Balances (“Surge,” “Parked,” etc.)






Disintermediation (leave “banking” system)
Migrate/Shift Back to CDs
Public Funds
Etc.
Sensitized Customers (“Smarter”/More Aware/Less Loyal?)
Important Consideration: > “Normal” Growth Can be “CORE”



Local Market Bank Failures/Troubled Institutions
In-Market Mergers (Large and/or Out-of-Market Banks)
Some Simply DO BETTER JOB @ Increasing Market Share
Page 29
Validating Deposit Assumptions

“Core deposit study”
 Internal or externally performed
 Many different flavors
 Higher cost <> more accurate results
 Can provide meaningful information…but
 Will NOT provide answers with any
certainty

Analyzing historical activity can tell you a lot
 Balances, rates, # of accounts, open/closed activity
 Provides perspective – can serve as reference point

Should relate quantitative results with qualitative experience
 No single right answer – range of possible outcomes
 Too many influencing factors

Applying “optimistic” and “pessimistic” assumptions is best practice
Page 30
Validating Deposit Assumptions
MMDA - Personal
5
30,000
700
25,000
600
Rate
300
10,000
200
-2
Thousands
0
4
LIBOR
Beta Estimates
Rising
Full Rising Cycle 437bp Increase from March 2004 - June 2006
Reason
R-Sq
Beta Sign R-Sq Rank Func Res
High R-Squared
98%
1
High
Yes
Falling
Full Falling Cycle 537bp Decrease from August 2007 - December 2009
Reason
R-Sq
Beta Sign R-Sq Rank Func Res
High R-Squared
90%
1
High
Yes
Baseline 12 Mo.
Baseline 36 Mo.
Stress 12 Mo.
Stress 36 Mo.
Volatility
Core %
98.6%
98.0%
95.5%
93.9%
Non-Core $
3,668,221
5,261,411
11,763,139
15,815,559
Dec-12
Aug-12
Apr-12
Dec-11
Aug-11
Apr-11
Dec-10
Aug-10
Apr-10
Dec-09
Aug-09
Apr-09
Dec-08
Aug-08
Apr-08
Dec-07
Aug-07
Apr-07
Dec-06
Aug-06
Apr-06
Dec-05
Aug-05
Apr-05
Dec-04
Aug-04
Apr-04
Dec-03
Aug-03
Apr-03
Dec-02
Aug-02
Apr-02
0
Dec-01
50,000
-6
Non-Core %
1.4%
2.0%
4.5%
6.1%
-400
-300
-200
Type
MMDA - Personal
Account Information
Balance
260,565,421
Rate
0.13%
Func. Cost
0.86%
Decay Estimates
Core $
256,897,200
255,304,010
248,802,283
244,749,862
Dec-12
Apr-12
Aug-12
Dec-11
Apr-11
Aug-11
Dec-10
Apr-10
Aug-10
Dec-09
Apr-09
Aug-09
Dec-08
Apr-08
Aug-08
Dec-07
Apr-07
-100
0
100
200
300
400
Market Value
Spread
12Mo
36Mo
Aug-07
Dec-06
Apr-06
Aug-06
Dec-05
Apr-05
Aug-05
Dec-04
Apr-04
100,000
0
Beta
31%
Aug-04
150,000
-4
Beta
35%
Dec-03
200,000
2
Rate
Apr-03
250,000
4
2
Closed
300,000
6
6
Opened
0
Market Values, MMDA - Personal
8
8
Per Acct Balance
Aug-03
100
Count
10
Thousands
400
15,000
LIBOR
Per Acct Balances Vs Spread to LIBOR, MMDA - Personal
12
500
Dec-02
Dec-12
Apr-12
Aug-12
Dec-11
Apr-11
Aug-11
Dec-10
Apr-10
Aug-10
Dec-09
Apr-09
Aug-09
Dec-08
Apr-08
Aug-08
Dec-07
Apr-07
Aug-07
Dec-06
Apr-06
Aug-06
Dec-05
Apr-05
Aug-05
Dec-04
0
Apr-04
0
Aug-04
0
Dec-03
5,000
Apr-03
1
Aug-03
50
Dec-02
2
Apr-02
100
Aug-02
3
Dec-01
150
Balance
800
20,000
Apr-02
4
Millions
200
35,000
Aug-02
250
MMDA - Personal Opened and Closed
6
Dec-01
MMDA - Personal Balances & Rates
300
Baseline
14.1%
13.4%
12Mo
36Mo
Stress
14.4%
15.1%
Scenario
-400
-300
-200
-100
0
100
200
300
400
Baseline 12 Mo. Scenario Valuation
Value
Premium
269,511,795
-8,946,374
269,511,795
-8,946,374
265,317,231
-4,751,810
256,437,797
4,127,624
246,171,150
14,394,271
240,062,281
20,503,140
234,440,502
26,124,919
229,259,554
31,305,867
224,477,968
36,087,453
Prem%
-3.4%
-3.4%
-1.8%
1.6%
5.5%
7.9%
10.0%
12.0%
13.8%
Average Lives
Baseline
12Mo
36Mo
Stress
5.7
5.9
12Mo
36Mo
5.4
4.2
Page 31
The Future of Deposit Analysis – GET INTO THE DATA
Page 32
Stress-Testing Recommendations
Quarter 1 (As of date: January, February, March)
 Option Risk Stress Test – Alternative prepayments in various rate
environments.
Quarter 2 (As of date: April, May, June)
 Asset Pricing/Mix Stress Test – Alternative product pricing and/or mix
in different rate simulations (e.g. asset spreads, investment mix, etc.).
Quarter 3 (As of date: July, August, September)
 Deposit Sensitivity Stress Test – Retail deposit migration, alternative
elevated betas, etc.
Quarter 4 (As of date: October, November, December)
 Alternative EVE Stress Test – Significant changes to non-maturity
deposit average life assumptions.
Page 33
Stress Testing Example – NMD Migration
Page 34
Stress Testing Example – Alt NMD Pricing
Identifying risk exposure drives strategy development
Page 35
Liquidity
Must be measured and monitored closely
Page 36
How Much Liquidity Do We Have?
Liquidity Defined
“the ability to raise cash quickly
with minimal principal loss and
at a reasonable cost.”
Page 37
Liquidity Funds Management Process
Plan Needs to Include
Balance Sheet Liquidity
• Cash and Securities
Just in Time Inventory
• FHLB
Strategic Reserve
• Brokered CDs
Catastrophe Insurance
• FRB
Contingency Liquidity Policy/Plan
•What if/Stressed Scenarios
•Pre-Emptive Funding Gameplan(s)
Page 38
Detailed Liquidity Analysis:
The Basic Surplus Approach
I. LIQUID ASSETS
Overnight Funds Sold & Short-Term Investments
51,809
(avg. balance, if wide daily fluctuations)
UST & Agency
Security Collateral
Collateral Value
Total Market Value of Securities
Less Securities Pledged to:
FHLB
Fed Discount/Other Secured
Wholesale Repos
Retail Repos/Sweeps
Municipal Deposits
Other
Available / Unencumbered Security Collateral
100%
168,910
0
-10,133
0
-50,284
0
0
108,493
TOTAL ASSETS =
M BS / CM Os / ABS
Agency Backed
Private Label
95%
90%
65,182
7,613
0
0
0
0
0
0
61,923
0
0
0
0
0
0
6,852
177,268
Over Collateralized Securities Pledging Position
Short
Term
2
Cash Investments
Investment Collateral
45,558
Other Readily Available
Cash Resources
0
Government Guaranteed Loans
Cash flow (< 30 Days) from Securities not listed above
6,872
Other Liquid Assets (Int. Bearing Deposits, MM Mutual Funds, etc.)
Pct. Of
Assets
33,840
315,346
TOTAL LIQUID ASSETS
12.5%
II. SHORT TERM / POTENTIALLY VOLATILE LIABILITIES & COVERAGES
Maturing Unsecured Liabilities (< 30 Days)
Deposit Coverages
25% of Regular CDs Maturing < 30 Days
35% of Jumbo CDs Maturing < 30 Days
10% of Other Deposits
Fed Funds Purchased
0
8.0%
of Total Deposits
TOTAL SHORT TERM / POTENTIALLY VOLATILE LIABILITIES & COVERAGES
9,284
645
158,672
Deposit Contingency/Reserve
168,601
BASIC SURPLUS
146,745
5.8%
Page 39
Detailed Liquidity Analysis:
The Basic Surplus Approach
BASIC SURPLUS
146,745
5.8%
III. QUALIFYING FHLB LOAN COLLATERAL
A. Maximum Borrowing Line at FHLB is Not Available
B. Qualifying Loan Collateral at the FHLB (net of haircut)
C. Excess Loan Collateral (if A < B)
Maximum Borrowing Capacity (Lesser of A or B)
Collateral Currently Encumbered by Outstanding Advances/Letters of Credit
REMAINING FHLB LOAN BASED BORROWING CAPACITY
FHLB - Loan Collateral
800,072
800,072
142,464
657,608
BASIC SURPLUS W/ FHLB
804,353
31.8%
IV. BROKERED DEPOSIT ACCESS
Maximum Board Authorized Brokered Deposit Capacity (15% of Total Assets)
Current Brokered Deposit Balances
379,161
1,586
REMAINING CAPACITY TO UTILIZE BROKERED DEPOSITS
377,575
BASIC SURPLUS W/ FHLB & BROKERED DEPOSITS
Brokered CD Capacity
4.5% of Assets
1,181,928
46.8%
Page 40
Contingency Liquidity: Risk Monitor
Page 41
Contingency Liquidity: Stress Testing
Page 42
New Capital Requirements
The Phase in of Basel III
Page 43
Do We Have Adequate Capital?
ALCO Objective = Stability & Growth in Capital

How Much Growth Can Be Supported?..
GROWTH CAPACITY
( $ IN THOUSANDS)
9/30/2014
9/30/2015
9.79%
9.94%
10.28%
Excess Tier 1 Leverage Capital @ 8.00%
$11,899
$13,593
$16,717
Cum ulative Grow th Capacity @ 8.00%
$148,738
$169,917
$208,965
23.02%
12.38%
9.45%
Tier 1 Leverage
Im plied Com pound Grow th Rate (vs. 2013)

How Much Loss Can Be Absorbed?...
…Without Violating Capital Standards
9/30/2016
Risk-Based Ratio
13.73%
13.96%
14.42%
Excess RBC @ 12.00%
$8,998
$10,704
$13,857
Cum ulative Grow th Capacity @ 12.00% / 75% RWA
$99,973
$118,938
$153,966
Im plied 75% RWA Loan Grow th Rate (vs. 2013)
21.65%
12.14%
10.07%
ABSORPTION CAPACITY
Tier 1 Leverage
Excess Capital @ 8.00%
* Pre-Tax Loss Capacity
9/30/2014
9.79%
$11,899
$15,865
9/30/2015
9.94%
$13,593
$18,125
9/30/2016
10.28%
$16,717
$22,290
Risk-Based Ratio
Excess Capital @ 12.00%
* Pre-Tax Loss Capacity
13.73%
$8,998
$11,997
13.96%
$10,704
$14,273
14.42%
$13,857
$18,476
* Provisions, charge-offs & losses
Page 44
Do We Have Adequate Capital?
Phase-in Schedule
Item
Minimum Tier 1 Leverage Capital Ratio
Minimum Common Equity Tier 1 Risk-based Capital Ratio
Minimum Tier 1 Risk-based Capital Ratio
Minimum Total Risk-based Capital Ratio
Buffer
Capital Conservation Buffer
Minimum Common Equity Tier 1 Plus Capital Conservation Buffer
Minimum Tier 1 Capital Plus Capital Conservation Buffer
Minimum Total Capital Plus Conservation Buffer
Deductions/Adjustments
Phase-in of certain deductions and adjustments
Current
3.0 / 4.0
N/A
4.0
8.0
2015 (%) 2016 (%) 2017 (%) 2018 (%) 2019 (%)
4.0
4.5
6.0
8.0
N/A
4.5
6.0
8.0
0.625
5.125
6.625
8.625
1.25
5.75
7.25
9.25
1.875
6.375
7.875
9.875
2.50
7.00
8.50
10.50
40
60
80
100
100
Page 45
Purpose of ALCO
ALCO should be a PROFIT CENTER, not
a regulatory check box
Page 46
Which ALCO Are You?
Financial
Performance
Regulatory
Compliance
Page 47
Which ALCO Are You?
Page 48
Forward-Looking Strategy Development
Manage Risk. . .
Maximize Earnings
Page 49
ALCO Agenda ̶ Example
I. Current Position Summary
1. Earnings
2. Liquidity
3. Interest Rate Risk
4. Capital
5. Important Operating Trends/Issues
and Implications
II. Strategy Formulation
1. Objectives
2. Strategy Elements
3. Interest Rate Environment/Yield Curve
III. Potential Strategies (Actions/Results/Risks)
IV. Action Plan
1. Recommended Strategies/Actions
2. Implementation: Timetable & Responsibilities
V. Other Items
Page 50
Assess Risk and Need for Action
Policy
Guidelines
Risk Assessment
MODERATE
6/30/2014
3/31/2014
12/31/2013
9/30/2013
6/30/2013
LOW
HIGH
4.00%
8.00%
6.4%
16.7%
21.5%
7.5%
15.8%
21.6%
6.3%
19.4%
26.1%
7.8%
17.6%
24.3%
5.0%
24.7%
32.4%




35.00%
10.00%
45.00%
14.8%
5.2%
20.1%
16.5%
4.2%
20.6%
13.6%
3.3%
16.9%
14.8%
3.3%
18.1%
7.6%
2.3%
9.9%









-0.3%
-5.4%
0.1%
-5.8%
0.1%
-5.4%
-0.2%
-7.0%
0.1%
-3.4%

-1.0%
-5.8%
-2.2%
-1.9%
-5.7%
-4.5%
-2.0%
-5.7%
-3.6%
-1.5%
-5.0%
-6.3%
-0.9%
-4.1%
-0.7%

44.1%
33.3%
51.0%
43.4%
33.4%
50.8%
42.4%
34.1%
49.6%
45.5%
35.1%
53.6%
40.2%
35.1%
45.2%
LIQUIDITY
Basic Surplus (Min.)
Basic Surplus w/ FHLB (Min.)
Basic Surplus w/ FHLB & Brokered (Min.)
Borrowings / Assets (Max.)
Brokered Deposits / Assets (Max.)
Total Wholesale Funds / Assets (Max.)
INTEREST RATE RISK
Earnings at Risk (Max.)
Pct.(%) Change in Net Interest Income with
+/- 200bps ramp (12 Mths)
Year 1 NII (% Change from Year 1 - Base)
Down 100BP
Up 200BP
-10.00%
Year 2 NII (% Change from Year 1 - Base)
Base
Down 100BP
Up 200BP
-15.00%
Core Funding Utilization (Max.)
Base
Down 100BP
Up 200BP
EVE Analysis
10.39%
11.93%
11.67%
12.30%
Pre-shock EVE ratio
11.06%
Post-shock EVE ratio
8.00%
9.26%
8.99%
9.05%
9.56%
9.79%
-288
Basis Point Change in EVE
-113
-208
-210
-251
Percentage Change in EVE
-10.00%
-9.36%
-25.89%
-31.10%
-22.11%
-27.35%
-100
+400
+400
Policy Guidelines are for -100 scenario. See EVE report for detail.
+400
+200
NOTE: Net Income Policy - Projected Net Income over the next twelve months will not be reduced by more than 45% in a +/-200bp ramp in rates (60% for year 2).















CAPITAL RATIOS
Tier 1 Leverage (Min.)
Total Risk Based (Min.)
5.00%
10.00%
9.51%
12.21%
10.14%
12.76%
10.62%
13.91%
11.25%
14.52%
12.30%
15.95%




NOTE #1: Consolidated Tier 1 Leverage and Total Risk Based Capital ratios as of 06/30/2014: Tier 1 Leverage = 11.25% - Total Risk Based Capital = 14.26%.
NOTE #2: Tier 1 Leverage and Total Risk Based Capital limits reflect regulatory minimums for well capitalized institutions.
OTHER BALANCE SHEET INFORMATION
Balance Sheet Spread
Total Assets (Millions)
Investments (Millions)
Gross Loans (Millions)
Deposits (Millions)
Borrowings (Millions)
Net Loans / Assets
Net Loans / Deposits
Loan Loss / Loans
2.62%
$1,220.7
$203.5
$989.1
$908.6
$183.1
80.9%
108.7%
0.87%
2.63%
$1,168.5
$211.5
$929.4
$844.3
$194.6
79.4%
109.9%
0.90%
2.69%
$1,054.1
$185.4
$841.3
$781.2
$145.3
79.6%
107.4%
0.95%
2.75%
$1,022.5
$197.9
$798.1
$743.3
$154.3
77.8%
107.0%
0.92%
2.77%
$907.9
$150.4
$732.3
$711.6
$72.4
80.4%
102.5%
0.94%
NOTE: All Risk Assessment Sliders are based on the Bank's position relative to current policies.
Page 51
Strategy Development & Documentation
Potential Strategy
• Describe the purpose
of the potential
strategy and the
nature of the
transaction
• Provide the financial
characteristics or
details
Expected Results
• Summarize the
specific impact on:
Risks
• Describe the various
risks such as:
 IRR
 Opportunity costs
 Liquidity
 Prepayment
 Capital/Earnings
 Extension
 Other?
 Credit
 Etc.
Page 52
Reduce Exposure to Rising Rates
Base Simulation as of 6/30/2014
15,150
13,950
12,750
11,550
10,350
9,150
Q1
Q2
Q3
Base
Q4
Q1
Q2
Q3
Down 100BP
Q4
Q1
Q2
Q3
Up 200BP
Q4
Q1
Q2
Q3
Q4
Up 400BP 24M
Q1
Q2
Q3
Q4
Flat Up 500BP
NII SUMMARY
Down 100BP
Base
Up 200BP
Up 400BP 24M
Flat Up 500BP
Year-1 NII
47,703
48,153
49,445
49,472
47,752
Year-2 NII
46,732
47,878
47,317
48,136
45,206
Year-3 NII
45,512
47,404
46,369
44,391
41,499
Year-4 NII
44,182
47,181
48,019
47,696
44,224
Year-5 NII
43,209
47,578
51,443
54,538
50,748
Page 53
Extend Short-term FHLB into Long-term Ladder
Alternate FHLB Replacement
15,150
15,150
13,950
13,950
12,750
12,750
11,550
11,550
10,350
10,350
9,150
Q1
Q2
Q3
Base
Q4
Q1
Q2
Q3
Down 100BP
Q4
Q1
Q2
Q3
Q4
Up 200BP
Q1
Q2
Q3
Q4
Up 400BP 24M
Q1
Q2
Q3
Q4
9,150
Q1
Flat Up 500BP
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Down 100BP
Base
Q1
Q2
Q3
Up 200BP
NII SUMMARY
Q4
Q1
Q2
Q3
Q4
Up 400BP 24M
Q1
Q2
Q3
Q4
Flat Up 500BP
NII SUMMARY
Down 100BP
Base
Up 200BP
Up 400BP 24M
Flat Up 500BP
Down 100BP
Base
Year-1 NII
47,703
48,153
49,445
49,472
47,752
Up 200BP
Up 400BP 24M
Flat Up 500BP
Year-1 NII
47,623
47,977
49,306
49,333
Year-2 NII
46,732
47,878
47,317
48,136
47,675
45,206
Year-2 NII
46,139
46,170
45,819
48,055
Year-3 NII
45,512
47,404
46,369
46,208
44,391
41,499
Year-3 NII
44,882
45,566
44,741
45,565
Year-4 NII
44,182
47,181
44,181
48,019
47,696
44,224
Year-4 NII
43,559
45,343
46,373
48,782
Year-5 NII
43,209
47,578
46,808
51,443
54,538
50,748
Year-5 NII
42,624
45,741
49,719
54,596
52,194
CHANGE / DIFFERENCE IN RESULTS
Down 100BP
Base
Up 200BP
Up 400BP 24M
Year-1 NII
-80
-176
-139
-139
Flat Up 500BP
-77
Year-2 NII
-593
-1,708
-1,497
-81
1,002
Year-3 NII
-630
-1,838
-1,627
1,174
2,682
Year-4 NII
-622
-1,838
-1,646
1,086
2,584
Year-5 NII
-586
-1,838
-1,724
58
1,445
FHLB advances are replaced by a ladder of 3, 4, and 5 year advances. In the Base simulation, FHLB advances are replaced by overnight advances.
Page 54
Strong Loan Pipeline – How to Fund?
11,025
9,950
8,875
7,800
6,725
5,650
Q1
Q2
Q3
Base
Q4
Q1
Q2
Q3
Down 100BP
Q4
Q1
Q2
Q3
Up 200BP
Q4
Q1
Q2
Q3
Q4
Up 400BP 24M
Q1
Q2
Q3
Q4
Yield Curve Twist
NII SUMMARY
Down 100BP
Base
Up 200BP
Up 400BP 24M
Yield Curve Twist
Year-1 NII
28,993
29,135
29,580
29,636
29,330
Year-2 NII
28,026
28,865
30,074
30,654
29,829
Year-3 NII
27,139
28,684
30,568
31,825
30,390
Year-4 NII
26,557
28,697
31,898
34,355
30,968
Year-5 NII
26,669
29,170
33,628
37,459
32,927
Page 55
Loan Growth Funded Short
Loan Growth - Funded Short
11,025
11,025
9,950
9,950
8,875
8,875
7,800
7,800
6,725
6,725
5,650
Q1
Q2
Q3
Base
Q4
Q1
Q2
Q3
Down 100BP
Q4
Q1
Q2
Q3
Q4
Up 200BP
Q1
Q2
Q3
Q4
Up 400BP 24M
Q1
Q2
Q3
Q4
5,650
Q1
Yield Curve Twist
Q2
Q3
Base
Q4
Q1
Q2
Q3
Q4
Down 100BP
Q1
Q2
Q3
Up 200BP
NII SUMMARY
Q4
Q1
Q2
Q3
Q4
Up 400BP 24M
Q1
Q2
Q3
Q4
Yield Curve Twist
NII SUMMARY
Down 100BP
Base
Up 200BP
Up 400BP 24M
Yield Curve Twist
Down 100BP
Base
Year-1 NII
28,993
29,135
29,580
29,636
29,330
Up 200BP
Up 400BP 24M
Yield Curve Twist
Year-1 NII
30,450
30,648
30,921
30,977
Year-2 NII
28,026
28,865
30,074
30,654
30,950
29,829
Year-2 NII
30,937
31,906
32,627
32,644
Year-3 NII
27,139
28,684
30,568
33,031
31,825
30,390
Year-3 NII
30,028
31,718
33,197
33,464
Year-4 NII
26,557
28,697
32,348
31,898
34,355
30,968
Year-4 NII
29,442
31,734
34,599
36,240
Year-5 NII
26,669
29,170
32,322
33,628
37,459
32,927
Year-5 NII
29,549
32,208
36,382
39,535
34,430
Down 100BP
Base
Up 200BP
Up 400BP 24M
Yield Curve Twist
Year-1 NII
1,458
1,513
1,341
1,341
1,620
Year-2 NII
2,911
3,041
2,554
1,990
3,202
Year-3 NII
2,890
3,033
2,628
1,638
1,958
Year-4 NII
2,886
3,038
2,701
1,886
1,355
Year-5 NII
2,880
3,038
2,754
2,075
1,503
Fund $84 milliion of Loan growth over the next 12 months (mix of CRE fixed, C&I Floating and Auto Loans - WAR: 3.92%) funded by short term advances @ 31bps
Page 56
Loan Growth Funded Long
Loan Growth - Funded Long
11,325
11,325
10,175
10,175
9,025
9,025
7,875
7,875
6,725
6,725
5,575
Q1
Q2
Q3
Base
Q4
Q1
Q2
Q3
Down 100BP
Q4
Q1
Q2
Q3
Q4
Up 200BP
Q1
Q2
Q3
Q4
Up 400BP 24M
Q1
Q2
Q3
Q4
5,575
Q1
Yield Curve Twist
Q2
Q3
Q1
Q4
Base
Q2
Q3
Q4
Down 100BP
Q1
Q2
Q3
Up 200BP
NII SUMMARY
Q4
Q1
Q2
Q3
Q4
Up 400BP 24M
Q1
Q2
Q3
Q4
Yield Curve Twist
NII SUMMARY
Down 100BP
Base
Up 200BP
Up 400BP 24M
Yield Curve Twist
Down 100BP
Base
Year-1 NII
28,993
29,135
29,580
29,636
29,330
Up 200BP
Up 400BP 24M
Yield Curve Twist
Year-1 NII
29,886
29,941
30,463
30,519
Year-2 NII
28,026
28,865
30,074
30,654
30,096
29,829
Year-2 NII
29,926
30,483
31,990
32,861
Year-3 NII
27,139
28,684
30,568
31,453
31,825
30,390
Year-3 NII
29,021
30,298
32,561
34,538
Year-4 NII
26,557
28,697
32,688
31,898
34,355
30,968
Year-4 NII
28,434
30,315
33,963
37,315
Year-5 NII
26,669
29,170
33,761
33,628
37,459
32,927
Year-5 NII
28,542
30,788
35,746
40,610
35,868
Down 100BP
Base
Up 200BP
Up 400BP 24M
Year-1 NII
894
806
883
883
Yield Curve Twist
765
Year-2 NII
1,900
1,618
1,916
2,207
1,624
Year-3 NII
1,882
1,613
1,993
2,713
2,298
Year-4 NII
1,878
1,618
2,065
2,960
2,793
Year-5 NII
1,873
1,618
2,118
3,150
2,941
Fund $84 milliion of Loan growth over the next 12 months (mix of CRE fixed, C&I Floating and Auto Loans - WAR: 3.92%) funded by 5 Year FHLB advances @ 1.97%
Page 57
Loan Growth Funded with Barbell
Loan Growth - Funded with Barbell Advances
11,125
11,125
10,025
10,025
8,925
8,925
7,825
7,825
6,725
6,725
5,625
Q1
Q2
Q3
Base
Q4
Q1
Q2
Q3
Down 100BP
Q4
Q1
Q2
Q3
Q4
Up 200BP
Q1
Q2
Q3
Q4
Up 400BP 24M
Q1
Q2
Q3
Q4
5,625
Q1
Yield Curve Twist
Q2
Q3
Base
Q1
Q4
Q2
Q3
Q4
Down 100BP
Q1
Q2
Q3
Up 200BP
NII SUMMARY
Q4
Q1
Q2
Q3
Q4
Up 400BP 24M
Q1
Q2
Q3
Q4
Yield Curve Twist
NII SUMMARY
Down 100BP
Base
Up 200BP
Up 400BP 24M
Yield Curve Twist
Down 100BP
Base
Year-1 NII
28,993
29,135
29,580
29,636
29,330
Up 200BP
Up 400BP 24M
Yield Curve Twist
Year-1 NII
30,309
30,471
30,806
30,863
Year-2 NII
28,026
28,865
30,074
30,654
30,737
29,829
Year-2 NII
30,684
31,551
32,468
32,698
Year-3 NII
27,139
28,684
30,568
32,636
31,825
30,390
Year-3 NII
29,776
31,363
33,038
33,732
Year-4 NII
26,557
28,697
32,433
31,898
34,355
30,968
Year-4 NII
29,190
31,379
34,440
36,509
Year-5 NII
26,669
29,170
32,682
33,628
37,459
32,927
Year-5 NII
29,298
31,853
36,223
39,804
34,789
Down 100BP
Base
Up 200BP
Up 400BP 24M
Yield Curve Twist
Year-1 NII
1,317
1,336
1,227
1,227
1,406
Year-2 NII
2,658
2,686
2,394
2,044
2,807
Year-3 NII
2,638
2,678
2,470
1,907
2,043
Year-4 NII
2,634
2,683
2,542
2,154
1,714
Year-5 NII
2,628
2,683
2,595
2,344
1,862
Fund $84 milliion of Loan growth over the next 12 months (mix of CRE fixed, C&I Floating and Auto Loans - WAR: 3.92%) funded by (75%) Short term advances @ 31bps and (25%) 5 Year FHLB advances @ 1.97%, WAR: 73bps.
Page 58
Protect Against Worst Case – Flat/Falling Rates
55,625
48,925
42,225
35,525
28,825
22,125
Q1
Q2
Q3
Base
Q4
Q1
Q2
Q3
Down 100BP
Q4
Q1
Q2
Q3
Up 200BP
Q4
Q1
Q2
Q3
Q4
Up 400BP 24M
Q1
Q2
Q3
Q4
Yield Curve Twist
NII SUMMARY
Down 100BP
Base
Up 200BP
Up 400BP 24M
Yield Curve Twist
Year-1 NII
137,511
139,187
148,226
147,522
140,142
Year-2 NII
128,873
135,672
157,705
153,274
142,424
Year-3 NII
120,813
131,980
163,303
164,653
151,885
Year-4 NII
115,942
130,186
170,061
179,782
165,419
Year-5 NII
112,490
128,871
176,197
194,110
176,572
Page 59
Extend Cash into 3-Year Treasuries
Purchase $100 Million in 3 YR Treasuries
55,625
55,625
48,925
48,925
42,225
42,225
35,525
35,525
28,825
28,825
22,125
Q1
Q2
Q3
Base
Q4
Q1
Q2
Q3
Down 100BP
Q4
Q1
Q2
Q3
Q4
Up 200BP
Q1
Q2
Q3
Q4
Up 400BP 24M
Q1
Q2
Q3
Q4
22,125
Q1
Yield Curve Twist
Q2
Q3
Q4
Base
Q1
Q2
Q3
Q4
Down 100BP
Q1
Q2
Q3
Up 200BP
NII SUMMARY
Q4
Q1
Q2
Q3
Q4
Up 400BP 24M
Q1
Q2
Q3
Q4
Yield Curve Twist
NII SUMMARY
Down 100BP
Base
Up 200BP
Up 400BP 24M
Yield Curve Twist
Down 100BP
Base
Year-1 NII
137,511
139,187
148,226
147,522
140,142
Up 200BP
Up 400BP 24M
Yield Curve Twist
Year-1 NII
138,439
139,984
147,924
147,221
Year-2 NII
128,873
135,672
157,705
153,274
140,939
142,424
Year-2 NII
129,913
136,468
156,467
150,935
Year-3 NII
120,813
131,980
163,303
142,849
164,653
151,885
Year-3 NII
121,853
132,776
162,072
161,393
Year-4 NII
115,942
130,186
149,832
170,061
179,782
165,419
Year-4 NII
116,182
130,983
170,830
180,523
Year-5 NII
112,490
128,871
165,314
176,197
194,110
176,572
Year-5 NII
112,729
129,667
176,966
194,851
176,467
Down 100BP
Base
Up 200BP
Up 400BP 24M
Yield Curve Twist
Year-1 NII
928
797
-301
-301
797
Year-2 NII
1,040
796
-1,238
-2,338
425
Year-3 NII
1,040
797
-1,231
-3,259
-2,052
Year-4 NII
240
797
769
741
-106
Year-5 NII
240
797
769
741
-106
Assumes $100MM of excess cash is redeployed into 3 YR Treasuries @ 1.05%.
Page 60
Extend Cash into 15-Year MBS
Purchase $100 Million in 15 YR MBS
55,425
55,425
48,775
48,775
42,125
42,125
35,475
35,475
28,825
28,825
22,175
Q1
Q2
Q3
Base
Q4
Q1
Q2
Q3
Down 100BP
Q4
Q1
Q2
Q3
Q4
Up 200BP
Q1
Q2
Q3
Q4
Up 400BP 24M
Q1
Q2
Q3
Q4
22,175
Q1
Yield Curve Twist
Q2
Q3
Q1
Q4
Base
Q2
Q3
Q4
Down 100BP
Q1
Q2
Q3
Up 200BP
NII SUMMARY
Q4
Q1
Q2
Q3
Q4
Up 400BP 24M
Q1
Q2
Q3
Q4
Yield Curve Twist
NII SUMMARY
Down 100BP
Base
Up 200BP
Up 400BP 24M
Yield Curve Twist
Down 100BP
Base
Year-1 NII
137,511
139,187
148,226
147,522
140,142
Up 200BP
Up 400BP 24M
Yield Curve Twist
Year-1 NII
139,717
141,284
149,269
148,566
Year-2 NII
128,873
135,672
157,705
153,274
142,257
142,424
Year-2 NII
131,094
137,768
158,006
152,521
Year-3 NII
120,813
131,980
163,303
144,265
164,653
151,885
Year-3 NII
122,931
134,076
163,816
163,387
Year-4 NII
115,942
130,186
151,450
170,061
179,782
165,419
Year-4 NII
117,969
132,283
170,755
178,911
Year-5 NII
112,490
128,871
164,308
176,197
194,110
176,572
Year-5 NII
114,437
130,967
177,051
193,587
175,716
Down 100BP
Base
Up 200BP
Up 400BP 24M
Yield Curve Twist
Year-1 NII
2,206
2,097
1,043
1,043
2,115
Year-2 NII
2,220
2,096
302
-753
1,841
Year-3 NII
2,118
2,097
513
-1,265
-434
Year-4 NII
2,027
2,097
694
-871
-1,112
Year-5 NII
1,947
2,097
854
-523
-856
Assumes $100MM of excess cash is redeployed into 15 YR MBS @ 2.35%.
Page 61
Key Take Aways

Understand your true long-term interest rate risk profile

Bank-specific assumptions provide the most accurate profile
 Regulatory focus
 Requires time, resources and $$ to derive

ALCO’s focus should be on forward-looking strategies, not
historical review
 Manage risk
 Maximize earnings
Page 62
Thank You!
Page 63
DARLING CONSULTING GROUP
Who We Are

ALM Pioneer Since 1980s
 Trusted Advisors – Assess Risk, Evaluate Alternatives, Decisions & Execution
 Educators – Management, Boards, and Regulators
 Clients, Associations & Networks, Graduate Schools, FFIEC, …

Client Base
 Nationwide Reach
 300+ Retainers Clients (Quarterly on-site ALCO Meetings)
 150-200 Project Clients

INDEPENDENT PARTNER in ALCO Function
 12 Retainer Consultants w/ Variety of Backgrounds – Regulators, Bank Executives, Auditors/Accountants
 70+ Analysts & Project Consultants
 Varied Roles – Advisor, Collaborator, Devil’s Advocate

Value System…
 Integrity + Quality + Teamwork = Success
 Promote/Advocate BALANCE (Risk vs. Return)
Page 64
DCG Resources Available

White Papers





ALM & ALCO
Liquidity Risk Management
ALM Modeling & Audits
ALCO Performance
E-Mail Newsletters (Complimentary)
 ALM Insights
 DCG Bulletin

DCG Website – DarlingConsulting.com
Page 65
About DCG

DCG provides balance sheet management solutions for banks, thrifts and
credit unions across the United States. Our nearly 90 person professional
team offers a unique and comprehensive approach to balance sheet
management that incorporates specialized tools, educational programs, and
unbiased advice for institutions between $20 million and $200 billion in
assets. Working in partnership with senior management and boards of
directors, we produce significant, quantifiable results for hundreds of
financial institutions throughout the country.

DCG’s menu of products and services include:
 Timely and informative educational programs for executives and professional
associations
 Customized and pro-active advisory and consulting services in the areas of
balance sheet management, investments and financial and strategic planning
 Cost-effective outsourcing of the risk management and modeling process
 Comprehensive model and assumption validation services in support of OCC
Bulletin 2011-12 compliance
Page 66
About DCG (cont’d)

Find out more about balance sheet management by visiting our website
DarlingConsulting.com:
 DCG WEB SITE Articles on bank profit and risk management
 Gateway to additional banking industry information/research
 Register for the annual balance sheet management conference
 Upcoming educational events around the country
 ALM Insights & DCG Bulletin – DCG’s complimentary e-newsletters that
address a variety of topical balance sheet and risk management issues
 To register:
 Visit us: DarlingConsulting.com
 E-mail us: [email protected]
 Call us:
978.463.0400
Page 67
Jeff Burgess, Territory Supervisor, Federal Deposit Insurance
Corporation
Jim Euge, National Bank Examiner, Office of the Comptroller
of the Currency
Paul Frey, Supervisory Examiner, Federal Reserve Bank of
Richmond
Ray Grace, NC Commissioner of Banks
Investment Banking Update
Bill Sammon
Managing Director, Raymond James & Associates, Inc.
William F. Sammon, Managing Director of Financial Institutions Sales and Trading with Raymond James
and Associates. Mr. Sammon has over 17 years of experience in the investment business focusing on
Financial Institutions. His background includes institutional sales, capital formations of public and private
instruments and private equity. He currently manages the Financial Institutions Sales and Trading Group
which makes principal markets in over 600 banks. He is a member of the advisory board for the HBI
Private Equity Fund I, HBI Private Equity Fund II and ICBA Private Equity Fund I and is a director of HBI
Funds LLC. Mr. Sammon is a graduate of the University of Iowa with a Bachelor's degree in Economics.
Bill Wagner
Managing Director, Raymond James & Associates, Inc.
Mr. Wagner joined Raymond James as part of the Howe Barnes acquisition in 2010. Mr. Wagner is a
Managing Director, heading up the Financial Institutions Group in Raleigh, NC which focuses on
community depository businesses. Mr. Wagner has been an investment banker to financial institutions
in the Southeast since 1992 and has represented both buyers and sellers in merger transactions as well
as capital raising transactions involving all forms of capital; including, common equity, preferred equity
and subordinated debt.
In addition, Mr. Wagner works closely with numerous community banks providing strategic advisory
services regarding capital management, shareholder value creation and acquisition strategy. He began
his career with Deloitte & Touche in Columbus, OH. Mr. Wagner holds a B.S. degree from Miami
University and an M.B.A. degree from the Fuqua School of Business at Duke University. Mr. Wagner is
also a Certified Public Accountant.
Issues Facing Community Bank CFO’s
Terry Early
Chief Financial Officer, Yadkin Bank
Terry Earley has served as Chief Financial Officer of VantageSouth Bancshares, Inc. and VantageSouth
since February 2012. As Chief Financial Officer, he is responsible for the implementation of financial
strategies, including investment management, financial accounting and reporting, oversees enterprise
risk management, compliance and strategy and development functions of the Bank. Prior to joining our
team, Earley was the Chief Financial Officer and Chief Operating Officer of RBC Bank (USA), where he
worked for 18 years. A leader in his community, Earley attends Colonial Baptist Church, Cary and is a
former board member of Faith Christian School, Rocky Mount, North Carolina. He holds a bachelor’s
degree from the University of North Carolina at Chapel Hill in business administration.
Tony VunCannon
Chief Financial Officer, Home Trust Bank
Tony J. VunCannon is a certified public accountant and has served as Senior Vice President, Chief
Financial Officer, and Treasurer of HomeTrust Bancshares, Inc.(HTBI), Asheville, NC since its mutual to
stock conversion in July 2012. He has served as Senior Vice President, Chief Financial Officer and
Treasurer of HomeTrust Bank since July 2006. From March 1997 to June 2006, Mr. VunCannon served as
Vice President and Treasurer of HomeTrust Bank and from April 1992 to February 1997, Mr. VunCannon
served as Controller of HomeTrust Bank. Previously, Mr. VunCannon was employed by KPMG in
Charlotte, North Carolina serving on the external audit team for various community and regional banks
in the Carolinas.
Kirk Whorf
Chief Financial Officer, North State Bank
Mr. Whorf has been with North State Bank since it’s founding in June 2000. He is the Bank’s Chief
Financial Officer and a Senior Executive Vice President. He is responsible for internal and external
reporting, capital planning, funds management, investment portfolio management and the ALCO
process in the Bank. Mr. Whorf has been a speaker at BAI conferences as well as a speaker for the North
Carolina Bankers Association and North Carolina School of Banking on balance sheet, investment and
interest rate risk management.
Mr. Whorf received his BSBA degree in accounting from East Carolina University and is a graduate from
the Graduate School of Banking of the South located in Baton Rouge, La. He is a Certified Public
Accountant and a member of the American Institute of Certified Public Accountants.
Economic Update
John Silvia
Chief Economist, Wells Fargo Securities, LLC
John Silvia is a managing director and the chief economist for Wells Fargo. Based
in Charlotte, N.C., he has held his position since he joined Wachovia, a Wells Fargo
predecessor, in 2002 as the company’s chief economist.
Prior to his current position, John worked on Capitol Hill as senior economist for the
U.S. Senate Joint Economic Committee and chief economist for the U.S. Senate Banking,
Housing and Urban Affairs Committee. Before that, he was chief economist of Kemper
Funds and managing director of Scudder Kemper Investments, Inc.
John currently serves as the vice president of the National Association for Business
Economics (NABE) and was awarded a NABE Fellow Certificate of Recognition in 2011
for outstanding contributions to the Business Economics Profession and Leadership
Among Business Economists to the Nation. For the second time in three years, he was
awarded the best overall forecast by the Federal Reserve Bank of Chicago, as well as the
best unemployment rate forecast for 2011. John is on the Bloomberg Best Forecast list
for his forecasts of GDP, the ISM manufacturing index, housing starts and the
unemployment rate.
John holds B.A. and Ph.D. degrees in economics from Northeastern University in
Boston, and has a master’s degree in economics from Brown University. John’s first
book, Dynamic Economic Decision Making, was published by Wiley in August 2001. His
second book, Economic & Business Forecasting, was published in 2014, also by Wiley.
A&A Update
Garry Rank
Shareholder, Elliott Davis
Garry focuses on corporate auditing and accounting as well as consultation regarding governance,
financial systems and internal controls. With more than 34 years of experience, his industry
concentrations include financial services, manufacturing and Securities and Exchange Commission (SEC)
reporting. Additional professional experience includes the management of complex engagements,
mergers and acquisitions, projects involving subsidiary companies and the application of accounting and
reporting standards.
Tony Gaeta
Attorney, Wyrick Robbins
Tony practices in the areas of securities law, mergers & acquisitions, and corporate law. His practice
includes public and private offerings of securities for both financial institutions and business
corporations, regulatory matters affecting banks, thrifts and their holding companies, the formation of
banks, thrifts and trust companies and their reorganization into the holding company form of
organization, mergers & acquisitions of financial institutions and other corporate entities, and
counseling boards of directors as to their duties.
Tony received his B.A. from Wesleyan University, where he was a Davenport Scholar. He received his J.D.
from the College of William and Mary, where he was Articles Editor for the William and Mary Law
Review and a member of Omicron Delta Kappa. Tony is an Adjunct Professor of Law at the University of
North Carolina School of Law, teaching a course in mergers & acquisitions. During June 2013, he taught
his course in mergers & acquisitions at Augsburg University, Federal Republic of Germany, as a visiting
law professor.
Prior to joining the firm, Tony was the founder of Gaeta & Eveson, P.A. He has also practiced in the New
York office of Simpson Thacher & Bartlett, the New Bern and Raleigh offices of Ward & Smith, and the
Raleigh office of Moore & Van Allen. Tony also served as Vice President, General Counsel to United
Carolina Bancshares Corporation (now BB&T Corporation).
Bill Lathan
Partner, Ward & Smith, PA
Mr. Lathan's practice experience encompasses the formation, regulation, and operation of banks and
bank holding companies; securities offerings and reporting; mergers and acquisitions; and corporate
governance matters pertaining to publicly-held companies. He has been rated by his peers as being
"preeminent" in his fields of law. Prior to joining the Firm, Mr. Lathan served as vice president and
general counsel/corporate secretary for one of North Carolina's multi-bank holding companies.
Bob Singer
Partner, Brooks Pierce McLendon Humphrey & Leonard, LLP
Bob has practiced in the areas of banking, mergers and acquisitions, public and private securities
offerings, 1934 Act reporting, venture capital transactions, and general corporate matters since 1979.
He has been involved in over forty public offerings either as primary attorney or as our firm's securities
review partner. He has been primary attorney or review partner on over one hundred mergers, and has
directed numerous private equity placements. Since 2000, Bob served as issuer's or underwriter's
counsel in public securities offerings in excess of $1.0 billion.
Bob maintains an active practice in the representation of banking organizations and the North Carolina
Bankers Association. He also provides securities and corporate advice to a number of publicly-traded
corporations. Bob also advises our litigation practice in the defense of directors, auditors and others in
securities cases. He serves on the boards of directors of a number of private companies headquartered
in North Carolina, New York or Hong Kong. Bob is listed in The Best Lawyers in America
(Woodward/White) in Banking and Finance Law, Financial Services Regulation Law, Corporate Law and
Mergers & Acquisitions Law, recognized in Chambers USA: America's Leading Lawyers for Business in
Corporate Law/Mergers & Acquisitions and Banking and Finance, and recognized by North Carolina
Super Lawyers in the areas of Banking and Finance. Bob is also on the Board of Trustees of the North
Carolina Center for Banking and Finance of the University of North Carolina at Chapel Hill.
Empowering Your ALCO with the Tools & Critical Information for Successful
Strategy Development
Mark Haberland
Managing Director, Darling Consulting Group
Mark is a Managing Director at Darling Consulting Group. In this role, Mark works directly with financial
institutions to strengthen their asset liability management process. He provides support and direction to
clients in the areas of liquidity risk management, capital, ALM modeling and reporting and regulatory
compliance. He is a top rated speaker and frequent author on numerous balance sheet management
topics and conducts customized executive and board level workshops to enhance understanding and
involvement in the ALCO process.
Mark has been with DCG since 1997 and oversaw the operations of the company’s Financial Analytics
Group for many years. He has over 20 years of experience in the banking industry in the areas of asset
liability management and bank auditing.
Jeff Burgess
Territory Supervisor, Federal Deposit Insurance Corporation
Mr. Burgess is the Field Supervisor for the FDIC's Charlotte Territory. The Charlotte Territory is
responsible for all examination activities of state nonmember institutions in the Western half of North
Carolina and all of South Carolina. Prior to this role, Mr. Burgess served as a Supervisory Examiner
responsible for supervision of the Territory’s large banks. Mr. Burgess began his career with the FDIC in
1991 as an Assistant Examiner in the Hollywood, Florida Field Office.
In 1998, Mr. Burgess joined the Comptroller of the Currency as a National Bank Examiner in the
agency's Southeast Territory. While in this position he served on a number of large bank teams in the
Southeast ranging in size from $20 billion to several hundred billion. Mr. Burgess led a number of
complex examinations around the U.S. and overseas at foreign locations of large U.S. banks. Mr.
Burgess eventually returned to the FDIC in 2007 where he was promoted to Senior Examiner and,
ultimately, to his current position. Mr. Burgess holds a Bachelor of Science degree in Financial
Management from Clemson University.
Jim Euge
National Bank Examiner, Office of the Comptroller of the Currency
Mr. James Euge is National Bank Examiner with the Comptroller of the Currency. He is currently
assigned to the Carolina’s Field Office in Charlotte, North Carolina. He has over 30 years’ experience
examining community, midsize, and large banks. He is an asset quality subject matter expert, and has
developed and taught various training classes for the OCC. Prior to moving to Charlotte in 2006, he was
the examiner-in-charge of a midsize bank in Los Angeles from 2001 to 2006. Between when he started
with the OCC in 1984 until 2001, he was a field examiner in the Los Angeles and Orange County Field
Offices’ where he examined banks in California, Arizona, and Nevada.
Paul Frey
Supervisory Examiner, Federal Reserve Bank of Richmond
Paul is a Managing Examiner for the Federal Reserve Bank of Richmond. He works in the Supervision,
Regulation & Credit Department and is based out of the Charlotte, North Carolina office. Paul’s primary
responsibilities include managing the regulatory relationships of a portfolio of large and complex holding
companies across the Fifth District. Paul has over twenty one years of regulatory experience serving in a
variety of capacities and started his career with the Federal Reserve Bank of Philadelphia. Paul is a native
of the Philadelphia, Pennsylvania area, and received his Bachelors of Science degree in Accounting from
the Pennsylvania State University, and his Masters of Business Administration degree from Saint
Joseph’s University.
Ray Grace
Commissioner of Banks, State of NC Commissioners of Banks
Ray Grace is North Carolina Commissioner of Banks and oversees the regulation of banks, savings and
loans, trust companies, mortgage lending, consumer finance lending, and other non-bank lenders. Grace
was named Chief Deputy Commissioner in 2010, after serving as Deputy Commissioner since 2009.
Grace joined the U.S. Marine Corps in 1966, served in the Vietnam War from 1967 to 1968, and was
honorably discharged in 1969. He graduated from Niagara University, Niagara Falls, New York, in
December 1973, with a B.S. in Commerce, and began his career at NCCOB as an examiner trainee on July
1, 1974. For 40 years, he has dedicated his service to our State, serving in various capacities at the N.C
Office of the Commissioner of Banks, including Commercial Bank Examiner, Special Supervisory
Examiner (responsible for supervision of troubled banks), Director of Bank Applications, Chief Deputy
Commissioner and his current role - Commissioner.
Robert Beckwith, CPA
Shareholder
Services: Tax | Industries: Financial Services
200 East Broad Street
Suite 500
Greenville, SC 29601
Direct: 864.552.4763
Office: 864.242.3370
Fax: 864.241.5713
[email protected]
Professional Overview
Bob focuses on providing tax consulting services to clients in the financial services
industry. Bob has more than 40 years of bank tax consulting and compliance
experience, including 20 years at a Big Four accounting firm. He assists clients with
financial reporting in accordance with FASB ASC 740 and planning and analysis of C
corporation tax issues including mergers and acquisitions, tax benefit limitations
upon Sec. 382 change-of-control, compensation and golden parachutes, and
accounting methods and periods. Bob has served multi-billion dollar organizations,
filing complex consolidated and multi-state returns. He also possesses expertise in
planning for the election to be an S corporation bank and the resulting compliance
issues.
Education, Credentials and Special Training
Certified Public Accountant
M.S., Accounting, Colorado State University
B.S., Business Administration with emphasis in accounting, University of Nebraska
Professional Affiliations
American Institute of Certified Public Accountants
South Carolina Association of Certified Public Accountants
Thought Leadership
Panelist, Bank Tax Institute Community Banking Panel
Co-instructor, Co-Community Bank Tax Workshop
elliottdavis.com
© Elliott Davis LLC © Elliott Davis PLLC
William (Bill) J. Bossong, CPA, CBA
Shareholder
Financial Institutions Group Consulting
Services: Consulting | Industries: Financial Services
1901 Main Street
Suite 900
Columbia, SC 29201
Direct: 803.255.1497
Office: 864.242.3370
Fax: 803.255.0733
[email protected]
Bill has more than eight years of public accounting experience with an emphasis in financial
institutions and SEC registrants. He leads the firm’s Financial Institution Consulting Practice
for merger and acquisition matters. These services include due diligence projects, Day 1
valuations, Day 2 accounting, internal audits over other Day 2 providers, and accounting
policy creation and review. This team has developed ValuCastTM, a proprietary solution
designed to assist banks with Day 1 and 2 accounting in accordance with the Accounting
Standards Codification (ASC). Bill has led numerous FDIC-assisted and whole bank valuation
projects including valuing various net assets acquired to include but not limited to the loan
portfolio, core deposit intangible, time deposits, borrowings and other long term debt, and
share based payment awards. In addition to the Day 1 valuations and Day 2 experience, Bill
and his team have assisted their clients by developing projection and other financial
planning models and reports. Bill also has a significant amount of experience related to the
Allowance for Loan and Lease Losses (ALLL) under ASC 450-20 and ASC 310-10 to include
building an ALLL model for a large regional bank.
Bill has also worked closely with the valuation team for various financial service line of
business acquisitions to include leasing companies, mortgage companies, and broker
dealer/investment companies. He provides consulting services to numerous clients ranging
in size from $400 million in assets to over $20 billion in assets.
Certified Bank Auditor
Master of Accountancy, University of South Carolina
B.S., Accounting, University of South Carolina
SEC Reporting, AICPA
Civic and Community Activities
Walk Team Captain, Juvenile Diabetes Research Foundation
Board of Directors, Midlands March of Dimes
Deacon and Former Member of the Finance Committee, First Baptist
Church of Columbia
elliottdavis.com
R. Jason Caskey, CPA
Shareholder and Financial Services Practice Leader
Services: Assurance | Industries: Financial Services
1901 Main Street
Suite 900
Columbia, SC 29201
Direct: 803.255.1203
Office: 803.256.0002
Fax: 803.255.0714
[email protected]
As leader of the firm’s Financial Services practice, Jason focuses on serving financial
institutions and SEC registrants. With more than 24 years of experience, he serves
community banking clients in both the private and public sector. Jason has assisted
clients with public stock offerings, mergers and acquisitions, and SEC filings including
comfort letters. In addition, he also serves clients with a number of consulting
engagements including outsourced internal audit, external loan reviews and Bank
Secrecy Act reviews. Jason recently completed six years as an elected member of the
firm’s Executive Committee. He recently completed four years as the managing
shareholder of the firm’s Columbia office.
University of Virginia National Banking School
South Carolina and North Carolina Association of Certified Public Accountants
State Bankers Associations in South Carolina, North Carolina, Georgia and Virginia
Independent Bankers Association of South Carolina
Board of Directors and Audit Committee, United Way of the Midlands
Board of Directors and Audit Committee, Navigating from Good to Great
Board of Advisors and Audit Committee, USC Business Partnership Foundation
Member, Greater Columbia Chamber of Commerce Finance Committee
Deacon, First Baptist Church of Columbia
Columbia Chamber of Commerce Committee of 100
Former Board of Directors and Audit Committee, Central Carolina Community
Foundation
Former Member Board of Directors, Children’s Trust of South Carolina
Former Board of Directors, South Carolina Student Loan Corporation
Former Board of Directors and Audit Committee, SC Economics
Former Member Board of Trustees, Charleston Southern University
Former Member Board of Directors, Juvenile Diabetes Research Foundation
2011 Heart Ball Chair, American Heart Association, Columbia
2008 Distinguished Young Alumnus, USC Moore School of Business
Class of 2006 "20 Under 40,” The State
elliottdavis.com
Lee E. Haynes, CPA
Shareholder
Lee has more than 20 years of combined experience in public accounting and
accounting/management positions in publicly held companies. He has participated
in the audits of larger entities, including multinational and multistate operations.
Lee concentrates his time in the financial services industry serving both publicly
traded as well as privately held community banks located in North Carolina, South
Carolina and Virginia.
700 East Morehead Street
Suite 400
Charlotte, NC 28202
Direct: 704.808.5208
Office: 704.333.8881
Fax: 704.749.7908
[email protected]
In addition to financial services expertise, Lee has extensive experience with
preparation of consolidated financial statements, Securities and Exchange
Commission (SEC) filings and Sarbanes-Oxley compliance. This experience is
complemented by Lee’s experience with engagements involving internal controls
within an organization. Lee works on audits of the design and effectiveness of
internal controls of service organizations under SSAE 16 (formerly SAS 70) SOC1
Type 1 and Type 2 engagements as well as AT101 SOC2 Type 1 and Type 2
engagements and has also overseen audits of internal control over financial
reporting as required by Sarbanes-Oxley and FDICIA for audit clients as well as
assisted in the design, documentation and implementation of internal control
programs for non-audit clients.
B.A., Accounting, Furman University
National Banking School, McIntire School of Commerce at the University of Virginia
North Carolina Association of Certified Public Accountants
Georgia Society of Certified Public Accountants
North Carolina Bankers Association
South Carolina Bankers Association
Virginia Bankers Association
Independent Bankers Association of South Carolina
Georgia Bankers Association
elliottdavis.com
F. Andrew Mitchell, CPA
Shareholder
Services: Assurance, Consulting | Industries: Financial Services, Manufacturing &
Distribution, Professional Services
Suite 500
Direct: 864.242.2691
Office: 864.242.3370
Fax: 864.241.5798
[email protected]
Andy focuses on providing clients with corporate strategy, transaction, finance and
auditing services. With 40 years of accounting experience, including 20 years with
a Big Four accounting firm, his extensive background includes significant work with
public companies and merger and acquisition transactions in the financial services,
professional services, manufacturing and distribution industry sectors. As an audit
partner, Andy served numerous public company clients and was the partner for
more than a dozen initial public offerings. He recently completed five years as an
elected member of the firm’s Executive Committee and currently serves as the
managing shareholder for the Greenville office assurance practice.
Andy also served as chief financial officer for a publicly held company and two
large private companies. In this capacity, he was responsible for all financial areas
including accounting, acquisitions, budgeting, forecasting, credit, cash
management, borrowings, information systems and stock offerings for these
companies. Andy participated in the completion of an initial public offering and a
secondary offering for the public company which owned numerous retail stores,
then negotiated the sale of the company. He also participated in the acquisition of
a large operating subsidiary in the aviation service industry where he was actively
involved in the completion of an underwritten bond offering and subsequent
registration of those securities. For the third company, he was responsible for the
reorganization and ultimate sale of the company which was involved in the sale of
hardware and software development and integration services for national retail
chains.
Since joining Elliott Davis in 2004, Andy has been responsible for the formation and
development of the firm’s transaction services practice and serving financial
institutions as a client service shareholder, including several public reporting
companies.
B.B.A., Accounting, University of Cincinnati
Ohio Society of Certified Public Accountants
elliottdavis.com
George Noonan, CPA
Shareholder
Services: Tax | Industries: Financial Services
Suite 400
Charlotte, NC 28202
Direct: 704.808.5293
Office: 704.333.8881
Fax: 704.749.7993
[email protected]
elliottdavis.com
With more than 18 years of experience in public accounting, George has worked
extensively in the banking and related industries. He provides his clients with a
variety of services including tax planning and research, ASC 740 consultation, FIN
48 analysis, tax return preparation, quarterly estimate preparation, forecasts and
projections. His experience includes tax preparation and consulting of numerous
financial institutions. George has served multi-billion dollar financial institutions
filing complex consolidated and multi-state income tax returns.
B.S., Accounting and Finance, Wright State University
Bank Tax Institute, Annually
Paul M. Pickett, CPA
Shareholder
Riverfront Plaza
West Tower, Suite 1000
901 E. Byrd Street
Richmond, VA 23219
Direct: 804.887.2256
Office: 804.612.4380
Fax: 877.803.0432
[email protected]
Paul focuses on providing professional accounting services to the financial services
industry, specifically community banks. With more than 20 years of public
accounting experience, he has served on audit engagements for more than 40
community banks and bank holding companies in Virginia, West Virginia, North
Carolina and South Carolina. Paul has extensive knowledge of GAAP and SEC
policies and assists clients with the preparation of consolidated financial
statements, quarterly reviews and assistance with SEC filings and reporting, and
merger and acquisition reporting. In addition, he serves as an instructor for a
number of continuing education courses relating to financial institution accounting
and auditing.
University of Virginia National Banking School and National Banking Conference,
B.B.A., Accounting, Radford University
Virginia Society of Certified Public Accountants
Virginia Association of Community Banks
Virginia Bankers Association
West Virginia Bankers Association
elliottdavis.com
Christopher R. Purvis, CPA
Shareholder
Chris has more than a decade of experience providing audit and consulting services
for financial institutions. Chris leads the firm’s Compliance Consulting Services
group. Training relevant to compliance includes the North Carolina Bankers
Association's Regulatory Compliance School.
Suite 400
Charlotte, NC 28202
Direct: 704.808.5216
Office: 704.333.8881
Fax: 704.749.7916
[email protected]
Prior to joining Elliott Davis in August 2009, Chris was employed as the Controller
of American Founders Bank, a mid-sized community bank headquartered in
Lexington, Kentucky. Chris' prior experience in public accounting was with BKD,
LLP in Louisville, Kentucky and Dean, Dorton & Ford PSC in Lexington, Kentucky.
Chris' primary focus in public accounting has been in providing services for
community banks, including external audit, internal audit, regulatory compliance,
external loan reviews, Bank Secrecy Act reviews and Interest Rate Risk testing.
B.S., Accounting, University of Kentucky
B.B.A., Finance, University of Kentucky
General School of Banking, Kentucky Bankers Association
Regulatory Compliance School, North Carolina Bankers Association
Board of Directors, Charlotte Steeplechase Association/Charlotte Queen’s Cup
elliottdavis.com
Garry A. Rank, CPA
Shareholder
Services: Assurance | Industries: Financial Services, SEC Reporting
Suite 500
Direct: 864.242.2638
Office: 864.242.3370
Fax: 864.241.5819
[email protected]
Garry focuses on corporate auditing and accounting as well as consultation
regarding governance, financial systems and internal controls. With more than 34
years of experience, his industry concentrations include financial services,
manufacturing and Securities and Exchange Commission (SEC) reporting.
Additional professional experience includes the management of complex
engagements, mergers and acquisitions, projects involving subsidiary companies
and the application of accounting and reporting standards.
Graduate, American Bankers Association, Business of Banking School
B.S., Accounting, University of Akron
American Institute of Certified Public Accountants, Center for Audit Quality Small
Firm Task Force
Georgia Bankers Association
Past President and Past Treasurer, Habitat for Humanity of Greenville County
Alumnus, Leadership Greenville, Greenville Chamber of Commerce
Past President and Past Treasurer, Greenville Breakfast Rotary Club
Thought Leadership
Speaker on audit committee responsibilities
SCBA/FDIC Directors College, 2003-2012
NCBA Bank Directors Assembly, 2004, 2007-2012
Presentations on SEC, corporate governance and new accounting pronouncements
Elliott Davis CFO forum, 2003-2013
Authored various articles for publication regarding corporate governance,
Sarbanes-Oxley Act of 2002 and ethics
elliottdavis.com
Barbara S. Rushing, CPA
Shareholder
Suite 500
Direct: 864.242.2625
Office: 864.242.3370
Fax: 864.241.5830
[email protected]
Barbara focuses on providing services to SEC clients in the financial services
industry. With more than 20 years of experience, including several years at a Big
Four accounting firm, Barbara has extensive knowledge of GAAP and SEC policies.
She works with SEC registrant clients with complex accounting issues, comment
letters, stock offerings and merger and acquisition reporting. Barbara has serviced
more than 40 public offerings.
Barbara is Vice Chairperson of the Firm’s Assurance & Advisory Committee, a
technical committee that oversees quality control policies and risk management of
the Firm’s attest practice.
elliottdavis.com
Beverly A. Seier, CPA, CPCU
Shareholder
Services: Tax | Industries: Financial Services and Insurance
1901 Main Street
Suite 900
Columbia, SC 29201
Direct: 803.255.1214
Office: 803.256.0002
Fax: 864.241.5808
[email protected]
With more than 20 years of experience, Bev focuses on serving financial
institutions, insurance companies and SEC registrants. She provides both public
and private clients with a wide range of services, including tax planning and
compliance, ASC 740 and SSAP 101 tax provision consulting, federal and state audit
examinations assistance, mergers and acquisitions tax planning and Sec. 382
change-in-control and 280G golden parachute studies.
Prior to joining Elliott Davis, Bev was a Tax Partner at a Northeast-based
accounting firm.
Chartered Property Casualty Underwriter
B.S., Business Administration/Accounting and Mathematics, magna
cum laude, University of Mary Washington
Pennsylvania Institute of Certified Public Accountants
elliottdavis.com
Stacy S. Stokes, CPA
Shareholder
Services: Tax | Industries: Closely Held Businesses, Personal Financial Services
With more than 18 years of experience, Stacy focuses on providing comprehensive
tax services to a diverse client base which includes closely held businesses, passthrough entities and high net worth individuals. He has extensive experience in the
area of wealth management solutions for family owned businesses and high net
worth individuals.
1901 Main Street
Suite 900
Columbia, SC 29201
Direct: 803.255.1472
Office: 803.256.0002
Fax: 803.255.0730
[email protected]
Masters of Taxation, University of South Carolina
President, Habitat for Humanity - Central South Carolina Chapter
Treasurer, Congaree Land Trust
Past Board Member, Family Connection of SC
Past President, University of South Carolina Friends of Accounting
Past Board Member, Juvenile Diabetes Research Foundation
Past Treasurer, Satchel Ford Elementary PTO
Past President, Kiwanis Young Professionals of Columbia
Riley Institute for Diversity Leadership Class Participant
elliottdavis.com
Grandover Resort
Greensboro, North Carolina
Sweta Adkin
Heather Almond
Steve Arnall
First Citizens Bank
Uwharrie Capital Corp
Capitala Finance Corp.
Raleigh, North Carolina
Albemarle, North Carolina
Charlotte, North Carolina
Gary Austin
J. Michelle Bailey
Brandon Barrier
CommunityOne Bank, N.A.
TrustAtlantic Bank
CommunityONE Bank, N.A.
Asheboro, North Carolina
Bonnie Bastow
Douglas Beane
David Beaver
Elliott Davis
High Point Bank & Trust
Uwharrie Capital Corp
High Point, North Carolina
Albemarle, North Carolina
William Bossong
JoAnn Bratton
Jay Brietz
Elliott Davis
North State Bank
Elliott Davis
Columbia, South Carolina
Jason Brodmerkel
Jeff Burgess
Lisa Campbell
Elliott Davis
Federal Deposit Insurance Corporation
Fidelity Bank
Fuquay-Varina, North Carolina
Steve Casey
Jason Caskey
Willie Closs
First Citizens Bank
Elliott Davis
Mechanics & Farmers Bank
Durham, North Carolina
Lynn Coats
Lou Coines
Drew Coleman
First Federal Bank
Raymond James & Associates
First Citizens Bank
Dunn, North Carolina
Chicago, Illinois
Richard Cook
Eric Credle
Suzanne DeFerie
Elliott Davis
First Bank
Asheville Savings Bank
Southern Pines, North Carolina
Asheville, North Carolina
Alford Drew
Mildred Dixon
Jim Doyle
First Citizens Bank
HomeTrust Bank
Old Town Bank
Waynesville, North Carolina
Grandover Resort
Jennings Duncan
Winston Dwyer
Terry Early
Conway National Bank
First Capital Bank
Yadkin Bank
Conway, South Carolina
Laurinburg, North Carolina
Aboubakr Eddraa
Blake Edwards
Craig Engle
First Citizens Bank
Grayson National Bank
Elliott Davis
Independence, Virginia
John Fisher
Joy Fisher
Kathy Fox
F&M Bank
Carolina Bank
Salisbury, North Carolina
Paul Frey
Tony Gaeta
Fred Gennari
Federal Reserve Bank of Richmond
Wyrick Robbins
Paragon Bank
Erin Goodson
Ray Grace
John Gray
First Citizens Bank
North Carolina Commissioner of Banks
Yadkin Bank
Jason Grooters
Mark Haberland
Randall Hall
First Citizens Bank
Darling Consulting Group
Newburyport, Massachusetts
Ramsey Hamadi
Chadwick Hammond
Neekis Hammond
NewBridge Bank
Lumbee Guaranty Bank
Elliott Davis
Pembroke, North Carolina
Betsy Harbers
Rebecca Hargis
Deanna Hart
Alliance Bank and Trust
First Citizens Bank
Four Oaks Bank & Trust
Gastonia, North Carolina
Four Oaks, North Carolina
Robert Hatley
Lisa Herring
Carrie Hewitt
Paragon Bank
Four Oaks Bank and Trust
Yadkin Bank
Four Oaks, North Carolina
Mooresville, North Carolina
Grandover Resort
Joy Hiatt
Donna High Brickell
TC Hinkle
Select Bank & Trust
First Citizens Bank
Elliott Davis
Dunn, North Carolina
Derek Hipp
Caroline Hodge
Carrie Holmes
Elliott Davis
First Citizens Bank
Jim Hooper
Guy Hoskins
Anne Howard
Carolina Bank
F&M Bank
TrustAtlantic Bank
Geeensboro, North Carolina
Salisbury, North Carolina
Ryan Hutchins
Joan Ingle
Janet Kahl
First Citizens Bank
Yadkin Bank
CertusBank, N.A.
Statesville, North Carolina
Sara Kollien
Kevin Koonts
Michael Koupal
Wells Fargo Bank
Capitala Finance Corp.
Elliott Davis
Carrie Lackey
Marie LaMonica
Joe Lampron
Taylorsville Savings Bank
First Citizens Bank
Peoples Bank
Taylorsville, North Carolina
Newton, North Carolina
Carl Larson
William Lathan
Michael Lawrence
Blueharbor Bank
Ward & Smith
Mooresville, North Carolina
New Bern, North Carolina
Edwin Laws
Matthew Leach
Jamie Lewis
First Bank
Carolina Bank
Allen Liles
Doug Lowder
Jennifer Mabe
Carolina Bank
First Citizens Bank
Grandover Resort
Edwin MacEwan
Scott McLean
Andy Mitchell
Elliott Davis
First South Bank
Elliott Davis
Washington, North Carolina
Greenville, South Carolina
Ryan Mulhearn
Jim Nance
Michelle Partin
First Citizens Bank
First Capital Bank
First Citizens Bank
Laurinburg, North Carolina
Sunny Petty
Chris Purvis
Phyllis Rainey
First Citizens Bank
Elliott Davis
Carolina Bank
Garry Rank
Stacy Reedy
Kevin Reynolds
Elliott Davis
North State Bank
River Community Bank, NA
Martinsville, Virginia
Lorie Rupp
Regina Rush
William Sammon
First Citizens Bank
Chicago, Illinois
Ford Sanders
David Sauls
Beverly Seier
Conway National Bank
Southern Bank and Trust
Elliott Davis
Conway, South Carolina
Mount Olive, North Carolina
Dean Sexton
Brett Shadoin
Arthur Sheppard
Carolina Bank
First Citizens Bank
First Citizens Bank
John Silvia
Robert Singer
Erica Smith
Wells Fargo Securities, LLC
Brooks, Pierce, McLendon, Humphrey &
Leonard LLP
First Bank
Renata Spencer
Cheryl Steed
Marshall Stein
First Citizens Bank
High Point Bank & Trust
Elliott Davis
Trinity, North Carolina
Grandover Resort
Kent Stone
Ed Swing
David Therit
Office of the Comptroller of the Currency
Premier Commercial Bank
Yadkin Bank
Mark Towe
Charles Umberger
Lori Vaught
Surrey Bank & Trust
Old Town Bank
Mount Airy, North Carolina
Waynesville, North Carolina
Tony VunCannon
William Wagner
Rose Washofsky
HomeTrust Bank
Elliott Davis
Scott Wells
Josh White
Kirk Whorf
Square1 Bank
Elliott Davis
North State Bank
Mary Willis
Debbie Yontz
Tracie Youngblood
Fidelity Bank
Square 1 Bank
Fuquay-Varina, North Carolina

North Carolina Community Banking Forum 2014

Transcription

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