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Discussion Topics

Discussion Topics. My background and approach The housing recovery Bank stock outlook Distribution network challenges Consolidation Customer switching activity. Second Curve Capital Today. Investing since 2000 Manage 2 hedge fund and 1 levered long fund families (7 individual funds)

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Discussion Topics

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  1. Discussion Topics • My background and approach • The housing recovery • Bank stock outlook • Distribution network challenges • Consolidation • Customer switching activity

  2. Second Curve Capital Today • Investing since 2000 • Manage 2 hedge fund and 1 levered long fund families (7 individual funds) • $300mm in capital with 200 partners including 9 bank holding companies and many past and current financial executives • Distinguished advisory board

  3. Corporate Partners

  4. Advisory Board Jacqueline Corbelli, Founder, Chairman and CEO, BrightLine Richard Daniel, Former CFO, Bankers Trust and Freddie Mac Richard Davis, CEO, U.S. Bancorp Doug Freeman, Former CEO, NetBank Robert Kelly, Chairman, Canada Mortgage and Housing Corp. Richard Lehmann, Former Vice Chairman, Bank One John B. McCoy, Retired CEO, Bank One Carlos Rodriguez-Pastor, Chairman, Banco Internacional del Peru SAA Cecil Sewell, Former CEO, RBC Centura Banks

  5. General Thoughts about Investing • Multiple approaches • Investors vs traders spectrum

  6. Investors Traders Opposing Sides of the Investment Spectrum

  7. Second Curve Partners Net Performance Since Inception Through July 31st 2013 FN SCP $3,463,982 SPX $1,183,531 S5FINL $875,874 The above table represents NET rolling period returns for a partner that has been invested in SCP since inception. FN: Rider 1

  8. The Housing Recovery

  9. The Housing Recovery • Excess supply has been eliminated

  10. / 11 Inventory of Unsold Existing Houses Source: Stan Shipley, “ISI Quick Takes on Existing Home Sales: Home Buying on the Upswing” 9/19/12, ISI Group

  11. The Housing Recovery • Excess supply has been eliminated • Pent up demand returning

  12. / 13 ISI – U.S. Existing Houses Sales Jun 5.53 e Source: ISI Daily Economic Report 6/28/13

  13. / 14 Correlation of Births and Housing Starts With 18-Year Lag Source: Zelman & Associates, CDC

  14. / 15 Historical Relationship Between Changes in Population and Changes in HH Formation Since 1959. Thousands, 5-yr trailing annual average Source: Thomas J. Lee, “Housing Food Chain IV” 8/29/12, North America Equity Research, J.P. Morgan, Census Bureau, CDC

  15. / 16 Household Formation (annual average) Thousands Source: Thomas J. Lee, “Housing Food Chain IV” 8/29/12, North America Equity Research, J.P. Morgan, Census Bureau

  16. / 17 ISI – Homebuilders Sales Survey 0=Weak 100=Strong 4Wk. Avg. Aug 9: 59.5 Source: ISI Daily Economic Report 8/7/13

  17. / 18 Homebuilding Survey Overall Market Score 0-100 Scale July 2013 Market Conditions 21% improving 55% stable 24% deteriorating Source: Zelman & Associates Homebuilding Survey 8/12/13

  18. / 19 Annual Pace of Single-Family Housing Starts Per U.S. Household (%) Source: Tobias Levkovich, Monday Morning Musings, Citi Research, June 17th 2013; Haver Analytics and Citi Research

  19. The Housing Recovery • Excess supply has been eliminated • Pent up demand returning • Prices are rising

  20. / 21 ISI – U.S. Existing House Price SA by ISI Jun $200.2 Source: ISI Daily Economic Report 7/23/13

  21. / 22 ISI – U.S. 30 Year Mortgage Rate Aug 1: 4.46% Source: ISI Daily Economic Report 8/2/13

  22. / 23 ISI – U.S. 30-Year Fixed Mortgage Rate (LT) Jun 25 4.58% Source: ISI Daily Economic Report 6/26/13

  23. / 24 ISI - U.S. Housing Affordability Index SA by ISI Jun 148.7 e Source: ISI Daily Economic Report 7/8/13

  24. / 25 ISI – House Prices Don’t Have Much of a Fit with Mortgage Rates Source: ISI Daily Economic Report 5/29/13

  25. The Housing Recovery • Supply has been reduced • Pent up demand returning • Prices are rising • Demographics will add to the cycle

  26. / 27 Homeownership Rate by Age Group (%) 1995 to 2020E Forecast holds homeownership rates for each age group constant at 2011 levels through estimated 2020 Source: Thomas J. Lee, “Housing Food Chain IV” 8/29/12, North America Equity Research, J.P. Morgan, Census Bureau

  27. / 28 Incremental Units of Housing Needed by 2017 2012 to 2017 Source: Thomas J. Lee, “Housing Food Chain IV” 8/29/12, North America Equity Research, J.P. Morgan, Census Bureau

  28. / 29 US Homeownership Rate (%) From 1995 to 2020E. Holding homeownership rate for individual age groups constant at 2011 levels Source: Thomas J. Lee, “Housing Food Chain IV” 8/29/12, North America Equity Research, J.P. Morgan, Census Bureau

  29. / 30 Zelman & Associates Housing Start Forecasts Source: Zelman & Associates, “The Bank Charter”, 5/28/2013; Census Bureau, Zelman & Associates analysis

  30. / 31 Private Fixed Investment & Personal Consumption of Durable Goods as % of GDP Source: Thomas J. Lee, “YE S&P 500 Target of 1775”, North America Equity Research, J.P. Morgan, August 2013

  31. / 32 What are the Components of Durable Goods? Source: Thomas J. Lee, “YE S&P 500 Target of 1775”, North America Equity Research, J.P. Morgan, August 2013

  32. / 33 Only 4 Times Since 1950 Have These “4” Been Rising in Sync Source: Thomas J. Lee, “YE S&P 500 Target of 1775”, North America Equity Research, J.P. Morgan, Bloomberg and BEA August 2013

  33. Bank Stock Outlook

  34. Bank Stock Outlook • Credit-driven earnings recovery coming to an end

  35. / 36 Financial Sector Profits Rebound Source: BCA Research; U.S Equity Strategy; Special Report, 7/15/2013

  36. / 37 Quarterly Net Income 2009 - 2013 Source: FDIC Quarterly Banking Profile; First Quarter 2013, All FDIC-Insured Institutions

  37. / 38 Quarterly Return on Assets (ROA), Annualized 2004 - 2013 Source: FDIC Quarterly Banking Profile; First Quarter 2013, All FDIC-Insured Institutions

  38. / 39 Quarterly Return on Equity (ROE), Annualized 2004 - 2013 Source: FDIC Quarterly Banking Profile; First Quarter 2013, All FDIC-Insured Institutions

  39. Aggregate Loan Loss Provisions Includes all public banks between $1bil - $50bil

  40. / 41 Loan Loss Reserves as a Percentage of Net Loans Source: John E. McDonald, CFA; Bernstein Research, SNL, Bernstein Analysis; 5/28/2013

  41. / 42 Provision Rates Tend to Fall Below “Normal” Following a Recession Source: John E. McDonald, CFA; Bernstein Research, FDIC, Bernstein Analysis; 5/16/2013

  42. Bank Stock Outlook • Credit-driven earnings recovery coming to an end • Revenue growth will remain weak due to margin pressure and weak loan demand

  43. / 44 Excess Deposits Over Loans Source: FDIC Historical Statistics On Banking

  44. / 45 Smaller Banks’ Average Loan-to-Deposit Ratio The Past 7 ½ Years Source: Christopher Marinac, “The Weekly Musings”, FIG Partners Research, SNL Financial LC, FDIC call report filings 8/12/13

  45. / 46 ISI – U.S. Bank Total Loans Adjusted for FASB Accounting Change 4 Wk. Avg. Y/Y % Jul 10 2.6% Source: ISI Daily Economic Report 7/23/13

  46. / 47 Total Loan Growth Compares Unfavorably to Previous Recoveries Source: Keith Horowitz, CFA; Josh Levin, CFA; “Bank Stocks 2013”; Citi Research, Fed H.8 Loan Data as of 7/5/13

  47. / 48 Credit Deleveraging Trends US Credit is running ~160% of GDP vs. recent peak of ~180% and L/T median of 100% Source: Keith Horowitz, CFA; Josh Levin, CFA; “Bank Stocks 2013” , Citi Research estimates, Haver Analytics, Flow of Funds data as of 1Q13. Total US Credit Excludes US Government and Financial borrowing.

  48. / 49 Revolving Consumer Credit and Home Equity Growth Source: Bernstein Research; Federal Reserve, Bernstein estimates and analysis

  49. / 50 ISI Source: ISI Daily Economic Report 6/19/13

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