Banks
SOUTHEAST BANK QUARTERLY
Analyst: Andrew W. Stapp
502-588-4190 / [email protected]
Associate Analyst: Tyler Agee
502-588-8686 / [email protected]
Institutional Sales Desk: George Moorin
502-588-9141 / [email protected]
J.J.B. Hilliard, W.L. Lyons, LLC
May 12, 2017
1Q17 REVIEW
FINANCIAL REVIEW
This section presents financial trends realized by the 1,082 financial institutions (959 banks and 123 thrifts)
headquartered in the Southeast based on regulatory data provided by SNL Financial. States included in the
Southeast region according to SNL’s definition are Alabama, Arkansas, Florida, Georgia, Mississippi,
North Carolina, South Carolina, Tennessee, Virginia and West Virginia. The section contains the following
subcategories: Income Statement Trends, Asset Quality Trends and Balance Sheet Trends. Unless otherwise
noted, data is presented on a median annualized basis. Please note that growth and other statistics can be
influenced by acquisition activity.
Income Statement Trends
11.0
4.00
10.0
3.90
9.0
3.80
8.0
3.70
7.0
3.60
6.0
3.50
5.0
3.40
4.0
3.30
3.0
2.0
3.20
1.0
3.10
Net Interest Margin (%)
LQA Median Growth (%)
NET INTEREST INCOME ANALYSIS
Linked-quarter annualized
(LQA) growth in net interest
income for banks & thrifts
was 2.2% in 1Q17 versus
3.4% in 4Q16 and 1.1% in
the year-ago quarter. The
median net interest margin
for banks fell three bps to
3.74%, while thrifts
registered a five bp decline
to 3.37%.
3.00
0.0
2Q15
3Q15
4Q15
Non-FTE NIM - Banks
1Q16
2Q16
3Q16
Non-FTE NIM - Thrifts
4Q16
1Q17
Growth - Banks & Thrifts
To obtain important disclosure information regarding Hilliard Lyons’ rating system, valuation methods,
risk factors and potential conflicts of interest with respect to the companies covered in this report, please
call (800) 444-1854 ext. 8820, send a request via e-mail to [email protected], or go online to
http://hilliard.com/site/market-info/research-disclosures.html. Requests should include the name and date
of this report and a list of companies for which the disclosure information is requested.
Note Important Disclosures on page 10
Note Analyst Certification on page 10
Industry Report
May 12, 2017
25.0
18.0
20.0
16.0
15.0
14.0
10.0
12.0
5.0
10.0
0.0
8.0
-5.0
6.0
-10.0
2.0
-20.0
2Q15
3Q15
4Q15
Fee Income / Revenue - Banks
1Q16
2Q16
3Q16
4Q16
Fee Income / Revenue - Thrifts
1Q17
Growth - Banks & Thrifts
REVENUE GROWTH
14.0
12.0
LQA Median Growth (%)
Noninterest income growth
for Southeast-based
depository institutions was
(2.5%) in 1Q17, up from
(15.0%) in 4Q16 and (8.8%)
in the year-ago quarter. The
accompanying chart also
indicates that banks tend to
be stronger fee income
generators than thrifts.
4.0
-15.0
10.0
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0
2Q15
3Q15
4Q15
1Q16
2Q16
Southeast Banks
3Q16
4Q16
1Q17
Total revenues (net interest
and noninterest income) for
Southeast banks rose 2.0%
on a LQA basis in 1Q17
versus (0.6%) in 4Q16 and
0.9% in 1Q16. Thrifts
realized a decline of (0.1%),
and increases of 2.2% and
0.4% in 1Q17, 4Q16 and the
year-ago period,
respectively. Revenue
growth in the first quarter of
each year is typically the
weakest for both banks and
thrifts.
Southeast Thrifts
Loan loss provisions as a
percentage of average loans
fell three bps sequentially to
0.07% for banks in Q1,
while the median ratio for
thrifts was unchanged at
0.00%.
LOAN LOSS PROVISION ANALYSIS
0.12
Median Provision / Avg. Loans (%)
Fee Income / Revenue (%)
LQA Median Growth (%)
NONINTEREST INCOME ANALYSIS
0.10
0.08
0.06
0.04
0.02
0.00
2Q15
3Q15
4Q15
Southeast Banks
Hilliard Lyons Equity Research
1Q16
2Q16
3Q16
4Q16
1Q17
Southeast Thrifts
2
Banking
Industry Report
May 12, 2017
12.0
84.0
10.0
82.0
8.0
80.0
78.0
6.0
76.0
4.0
74.0
2.0
72.0
0.0
70.0
-2.0
68.0
-4.0
66.0
-6.0
64.0
62.0
-8.0
2Q15
3Q15
4Q15
Efficiency Ratio - Banks
1Q16
2Q16
3Q16
4Q16
Efficiency Ratio - Thrifts
1Q17
Growth - Banks & Thrifts
Noninterest expense for
banks & thrifts decreased by
(3.7%) LQA in 1Q17
compared to 4.7% in 4Q16
and (5.4%) in the year-ago
period. The efficiency ratio
was 69.6% for banks and
77.7% for thrifts in 1Q17.
The efficiency ratio is
essentially noninterest
expense divided by total
revenues. Given that it
provides insights regarding
how much institutions must
spend to generate a $1 in
revenues, a lower number is
better.
The median ROA for banks
was 0.83% in 1Q17 versus
0.84% in 4Q16 and 0.83%
in 1Q16. Southeast thrifts
had a median ROA of
0.60%, representing a LQ
gain of nine bps and a YOY
increase of seven bps.
RETURN ON AVERAGE ASSETS
1.0
0.9
0.8
Median ROA (%)
Efficiency Ratio (%)
LQA Median Growth (%)
NONINTEREST EXPENSE ANALYSIS
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
2Q15
3Q15
4Q15
1Q16
2Q16
Southeast Banks
3Q16
4Q16
1Q17
Southeast Thrifts
The median ROE for banks
rose seven bps to 7.79% LQ
and was up 25 bps YOY.
With a ROE of 4.62% in
1Q17, thrifts did not earn
their cost of equity capital.
RETURN ON AVERAGE COMMON EQUITY
9.0
8.0
Median ROE (%)
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2Q15
3Q15
4Q15
Southeast Banks
Hilliard Lyons Equity Research
1Q16
2Q16
3Q16
4Q16
1Q17
Southeast Thrifts
3
Banking
Industry Report
May 12, 2017
Asset Quality Trends
COMMERCIAL BANK ASSET QUALITY
0.10
1.20
1.00
0.08
0.07
0.80
0.06
0.05
0.60
0.04
0.40
0.03
0.02
NPAs / Assets (%)
Median NCOs / Avg. Loans
0.09
0.20
0.01
0.00
0.00
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
Nonperforming Assets / Assets
1Q17
NCO Ratio
0.03
1.20
0.03
1.00
0.02
0.80
0.02
0.60
0.01
0.40
0.01
0.20
0.00
NPAs / Assets (%)
Median NCOs / Avg. Loans
THRIFT ASSET QUALITY
Thrift NPAs were 0.70% of
assets at March 31, 2017,
down from 0.75% at the end
of 4Q16. The median net
charge-off ratio for the
group was flat sequentially
at 0.00%.
0.00
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
Nonperforming Assets / Assets
1Q17
NCO Ratio
The reserve coverage of
loans fell one bp LQ to
1.26% for banks and was
down four bps LQ to 1.00%
for thrifts at March 31,
2017.
LOAN LOSS RESERVES / GROSS LOANS
1.6
1.4
Median Coverage (%)
Commercial bank nonperforming assets (NPAs)
fell three bps LQ to 0.75%
of assets at March 31, 2017.
The median net charge-off
(NCO) ratio decreased six
bps to 0.02%
1.2
1.0
0.8
0.6
0.4
0.2
0.0
2Q15
3Q15
4Q15
Southeast Banks
Hilliard Lyons Equity Research
1Q16
2Q16
3Q16
4Q16
1Q17
Southeast Thrifts
4
Banking
Industry Report
May 12, 2017
The reserve coverage of
NPAs continued its ascent
for Southeast banks, rising
to 67.1% at the end of 1Q17
from 63.8% at December
31, 2016. The NPA
coverage for thrifts rose to
51.8% at March 31, 2017
from 47.0% at the end Q4.
LOAN LOSS RESERVES / NPAs
80.0
Median Coverage (%)
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
3Q15
4Q15
1Q16
2Q16
3Q16
Southeast Banks
4Q16
1Q17
Southeast Thrifts
Balance Sheet Trends
Southeast banks realized a
LQA increase in loans of
3.7% in 1Q17 versus growth
of 4.5% in 4Q16 and 4.2%
in 1Q16. Loan growth for
thrifts was 1.2%, 0.3% and
0.4%, respectively, during
these periods. Loan growth
tends to be seasonally weak
for depository institutions in
the first quarter of each
year.
LOAN GROWTH
10.0
9.0
LQA Median Growth (%)
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2Q15
3Q15
4Q15
1Q16
2Q16
Southeast Banks
3Q16
4Q16
1Q17
Southeast Thrifts
6.0
30.0
4.0
25.0
2.0
20.0
0.0
15.0
-2.0
10.0
-4.0
5.0
-6.0
-8.0
Securities / Assets (%)
LQA Median Growth (%)
INVESTMENT SECURITIES
Total securities of Southeast
banks & thrifts were up
3.6% in 1Q17 versus
declines of (3.6%) in 4Q16
and (0.1%) in the year-ago
period. Securities comprised
18.3% of bank assets and
11.5% of thrift assets at
March 31, 2017.
0.0
2Q15
3Q15
4Q15
Securities / Assets - Banks
Hilliard Lyons Equity Research
1Q16
2Q16
3Q16
4Q16
Securities / Assets - Thrifts
1Q17
Growth - Banks & Thrifts
5
Banking
Industry Report
May 12, 2017
Total deposits of banks rose
9.7% on a LQA basis in
1Q17, versus 5.5% in 4Q16
and 6.8% in the year-ago
quarter. Thrifts realized
growth of 4.4%, 1.6% and
2.4%, respectively, in these
periods.
DEPOSIT GROWTH
12.0
LQA Median Growth (%)
10.0
8.0
6.0
4.0
2.0
0.0
-2.0
2Q15
3Q15
4Q15
1Q16
2Q16
Southeast Banks
3Q16
4Q16
1Q17
Southeast Thrifts
CORE DEPOSITS
70.0
18.0
60.0
14.0
50.0
12.0
10.0
40.0
8.0
30.0
6.0
20.0
4.0
10.0
2.0
Core Deposits / Deposits (%)
LQA Median Growth (%)
16.0
Core deposits (total
deposits less time deposits)
grew 15.6% for banks and
thrifts on a LQA basis in
1Q17. They accounted for
67.9% of bank deposits and
58.5% of thrift deposits at
March 31, 2017.
0.0
0.0
2Q15
3Q15
4Q15
Core Deposits / Deposits - Banks
1Q16
2Q16
3Q16
4Q16
Core Deposits / Deposits - Thrifts
1Q17
Growth- Banks & Thrifts
Total outside borrowings as
a percentage of assets were
1.3% for banks and 0.0%
for thrifts at March 31, 2017
compared to 1.6% and
1.4%, respectively, at
December 31, 2016.
MEDIAN BORROWINGS / ASSETS
2.5
2.0
(%)
1.5
1.0
0.5
0.0
2Q15
3Q15
4Q15
Southeast Banks
Hilliard Lyons Equity Research
1Q16
2Q16
3Q16
4Q16
1Q17
Southeast Thrifts
6
Banking
Industry Report
May 12, 2017
18.0
11.0
17.0
10.8
10.6
16.0
10.4
15.0
10.2
14.0
10.0
13.0
9.8
9.6
12.0
9.4
11.0
9.2
10.0
9.0
2Q15
3Q15
4Q15
Total Capital Ratio
1Q16
2Q16
3Q16
4Q16
Tangible Common Equity Ratio
Median Leverage & TCE Ratios (%)
Median Total Capital Ratio (%)
COMMERCIAL BANK CAPITAL RATIOS
1Q17
Leverage Ratio
27.0
14.0
26.5
13.5
26.0
13.0
25.5
12.5
25.0
12.0
24.5
11.5
Median Leverage & TCE Ratios
THRIFT CAPITAL RATIOS
Median Total Capital Ratio
Southeast banks maintained
strong capital ratios at
March 31, 2017. The
median total capital,
tangible common equity
(TCE) and leverage ratios
were 16.1%, 10.2% and
10.4%, respectively, at this
date.
Thrifts had stronger capital
ratios than banks at March
31, 2017, with total capital,
TCE and leverage ratios of
26.5%, 13.0% and 13.3%,
respectively.
11.0
24.0
2Q15
3Q15
4Q15
Total Capital Ratio
Hilliard Lyons Equity Research
1Q16
2Q16
3Q16
4Q16
Tangible Common Equity Ratio
7
1Q17
Leverage Ratio
Banking
Industry Report
May 12, 2017
MERGER & ACQUISITION ACTIVITY
There were 26 whole bank acquisitions announced since 4Q16 involving Southeast-based financial
institutions excluding any deals involving private investors. Pricing multiples for these deals are provided
in the following table.
ANALYSIS OF BANK & THRIFT M&A ACTIVITY
INVOLVING SOUTHEAST-BASED INSTITUTIONS
ANNOUNCED AFTER DECEMBER 31, 2016
Pricing @ Announcement
Buyer/ Target Name
First Citizens BancShares, Inc./ Harvest Community Bank
Renasant Corporation/ Metropolitan BancGroup, Inc.
HCBF Holding Company, Inc./ Jefferson Bankshares, Inc.
Pinnacle Financial Partners, Inc./ BNC Bancorp
Simmons First National Corporation/ First Texas BHC, Inc.
Southern Bancorp, Inc./ Farmers Bank
FB Financial Corporation/ American City Bank/Clayton Bank & Trust
Progress Financial Corporation/ First Partners Financial, Inc.
West Town Bancorp, Inc./ Sound Banking Company
First Forest Corporation/ Bank of Walnut Grove
Piedmont Bancorp, Inc./ Mountain Valley Bancshares, Inc.
Jones Bancshares, L.P./ Atlantic National Bank
Home BancShares, Inc./ Stonegate Bank
FNS Bancshares, Inc./ Commerce Bancshares, Inc.
First Community Corporation/ Patriot Bank
United Community Banks, Inc./ HCSB Financial Corporation
National Commerce Corporation/ Patriot Bank
TowneBank/ Paragon Commercial Corporation
South State Corporation/ Park Sterling Corporation
Hancock Holding Company/ First NBC Bank
First Bancorp/ ASB Bancorp, Inc.
Emclaire Financial Corp/ Northern Hancock Bank & Trust Company
First Horizon National Corporation/ Capital Bank Financial Corp.
Seacoast Banking Corporation of Florida/ Palm Beach Community Bank
First Citizens BancShares, Inc./ Guaranty Bank (MHC)
First Mutual Holding Co./ Doolin Security Savings Bank, FSB
Announce Buyer
Date State
1/13/2017
NC
1/17/2017
MS
1/20/2017
FL
1/22/2017
TN
1/23/2017
AR
1/25/2017
AR
2/8/2017
TN
2/14/2017
AL
2/17/2017
NC
3/2/2017
MS
3/17/2017
GA
3/27/2017
GA
3/27/2017
AR
3/28/2017
AL
4/12/2017
SC
4/20/2017
GA
4/24/2017
AL
4/27/2017
VA
4/27/2017
SC
4/28/2017
MS
5/1/2017
NC
5/4/2017
PA
5/4/2017
TN
5/4/2017
FL
5/5/2017
NC
5/11/2017
OH
Median Multiple
Seller
State
MS
FL
NC
TX
AR
TN
AL
NC
MS
GA
GA
FL
TN
SC
SC
FL
NC
NC
NC
WV
NC
FL
WV
Deal Value/
Deal Value Deal Value/ Tangible Common
Equity (%)
($M) Earnings (x)
NA
NA
NA
182.7
25.7
209.2
40.0
22.5
164.7
1,760.6
23.8
269.7
462.0
26.1
250.4
4.5
NM
99.6
204.7
9.1
185.4
41.9
15.1
159.9
22.8
22.4
140.0
10.0
28.6
119.0
NA
NA
NA
NA
NA
NA
779.7
22.9
240.6
NA
NA
NA
25.7
34.5
138.8
66.2
1.9
187.4
31.3
27.2
157.0
324.0
22.1
237.3
692.4
27.4
237.8
NA
NA
NA
175.4
NM
174.3
1.9
NM
59.9
2,184.5
28.2
203.1
68.9
19.4
165.1
NA
NA
NA
NA
NA
NA
23.4
174.3
Source: SNL Financial
Hilliard Lyons Equity Research
8
Banking
Industry Report
May 12, 2017
PUBLIC COMPANY VALUATIONS
There are 219 Southeast-based financial institutions that are traded on the New York Stock Exchange,
NASDAQ or over the counter. Current valuation multiples for these stocks are provided in the table below.
Micro-cap institutions tend to have thinner tangible book multiples, which we largely attribute to the lack
of critical mass to effectively absorb the increase in regulatory compliance costs subsequent to the financial
crisis and their limited trading volume.
ANALYSIS OF COMMON STOCK VALUATIONS
SOUTHEAST-BASED FINANCIAL INSTITUTIONS
VALUATION DATA AS OF MAY 11, 2017
Market
Capitalization
Large
Mid
Small
Micro
Price/ TTM
EPS (X)
15.6
18.7
20.0
15.8
Median Statistics
Price/ 2017 Price/ 2018 Price/ Tang.
EPS Est (X) EPS Est (X)
Book (%)
13.9
12.5
159.6
17.9
15.1
199.9
18.3
15.8
200.2
18.8
15.3
119.4
Dividend
Yield (%)
2.0
1.5
1.4
1.2
Source: SNL Financial
The following table provides market data for publicly traded companies listed in this report.
MARKET DATA FOR PUBLICLY TRADED COMPANIES
REFERENCED IN THIS REPORT
VALUATION DATA AS OF MAY 11, 2017
Company
ASB Bancorp, Inc.
BNC Bancorp
Capital Bank Financial Corp.
Commerce Bancshares, Inc.
Cornerstone Bancorp
Emclaire Financial Corp
FB Financial Corporation
First Bancorp
First Community Corporation
First Citizens BancShares, Inc.
First Horizon National Corporation
Hancock Holding Company
HCSB Financial Corporation
Home BancShares, Inc.
Jefferson Bankshares, Inc.
National Commerce Corporation
Paragon Commercial Corporation
Pinnacle Financial Partners
Park Sterling Corporation
Renasant Corporation
Seacoast Banking Corporation of Florida
Simmons First National Corporation
Stonegate Bank
Sound Banking Company
South State Corporation
TowneBank
United Community Banks, Inc.
West Town Bancorp, Inc.
City
Asheville
High Point
Charlotte
Nolensville
Easley
Emlenton
Nashville
Southern Pines
Lexington
Raleigh
Memphis
Gulfport
Loris
Conway
Oldsmar
Birmingham
Raleigh
Nashville
Charlotte
Tupelo
Stuart
Pine Bluff
Pompano Beach
Morehead City
Columbia
Portsmouth
Blairsville
Raleigh
State
NC
NC
NC
TN
SC
PA
TN
NC
SC
NC
TN
MS
SC
AR
FL
AL
NC
TN
NC
MS
FL
AR
FL
NC
SC
VA
GA
NC
Ticker Closing Price
ASBB
41.00
BNCN
32.60
CBF
38.25
CBCB
NA
CTOT
10.80
EMCF
29.25
FBK
37.62
FBNC
29.13
FCCO
20.10
FCNCA
343.27
FHN
17.62
HBHC
47.05
HCFB
0.13
HOMB
24.36
JFBF
14.10
NCOM
38.30
PBNC
52.74
PNFP
62.20
PSTB
11.88
RNST
41.74
SBCF
23.28
SFNC
52.90
SGBK
45.10
SNBN
13.05
SSB
85.85
TOWN
30.65
UCBI
27.26
WTWB
24.70
Source: SNL Financial
Additional information is available upon request.
Hilliard Lyons Equity Research
9
Banking
Industry Report
May 12, 2017
Analyst Certification
I, Andrew W. Stapp, hereby certify that the views expressed in this research report accurately reflect my
personal views about the subject company(ies) and its (their) securities. I also certify that I have not been,
am not, and will not be receiving direct or indirect compensation in exchange for expressing the specific
recommendation(s) in this report.
I, Tyler Agee, hereby certify that the views expressed in this research report accurately reflect my personal
views about the subject company(ies) and its (their) securities. I also certify that I have not been, am not,
and will not be receiving direct or indirect compensation in exchange for expressing the specific
recommendation(s) in this report.
Important Disclosures
Hilliard Lyons’ analysts receive bonus compensation based on Hilliard Lyons’ profitability. They do not
receive direct payments from investment banking activity.
Renasant Corporation is/was a client of Hilliard Lyons within the past 12 months, received noninvestment banking securities-related services, and Hilliard Lyons received compensation for those
services.
Definitions of Ratings:
Buy - We believe the stock has significant total return potential in the coming 12 months.
Long-term Buy - We believe the stock is an above average holding in its sector, and expect solid returns
to be realized over a longer time frame than our Buy rated issues, typically 2-3 years.
Neutral - We believe the stock is an average holding in its sector, is currently fully valued, and may be
used as a source of funds if better opportunities arise.
Underperform - We believe the stock is vulnerable to a price decline in the next 12 months.
Definitions of Suitabilities:
1. A large cap, core holding with a solid history.
2. A historically secure company which could be cyclical, has a shorter history than a "1" or is subject to
event driven setbacks.
3. An above average risk/reward ratio could be due to small size, lack of product diversity, sporadic earnings
or high leverage.
4. Speculative, due to small size, inconsistent profitability, erratic revenue, volatility, low trading volume
or a narrow customer or product base
Rating
Buy
Hold/Neutral
Sell
Hilliard Lyons
Recommended Issues
# of
% of
Stocks Covered Stocks Covered
32
26%
79
64%
12
10%
Investment Banking
Provided in Past 12 Mo.
Banking
13%
8%
0%
No Banking
88%
92%
100%
As of 8 May 2017
Hilliard Lyons Equity Research
10
Banking
Industry Report
May 12, 2017
Other Disclosures
Opinions expressed are subject to change without notice and do not take into account the particular
investment objectives, financial situation or needs of individual investors. Employees of J.J.B. Hilliard,
W.L. Lyons, LLC or its affiliates may, at times, release written or oral commentary, technical analysis or
trading strategies that differ from the opinions expressed here.
J.J.B. Hilliard, W.L. Lyons, LLC is a multi-disciplined financial services firm that regularly seeks
investment banking assignments and compensation from issuers for services including, but not limited to,
acting as an underwriter in an offering or financial advisor in a merger or acquisition, or serving as
placement agent in private transactions.
The information herein has been obtained from sources we believe to be reliable but is not guaranteed and
does not purport to be a complete statement of all material factors. This is for informational purposes and
is not a solicitation of orders to purchase or sell securities. Reproduction is forbidden unless authorized.
All rights reserved.
Hilliard Lyons Equity Research
11
Banking