Financial services quarterly update - Q1 2020 Deloitte Corporate Finance LLC | www.investmentbanking.deloitte.com
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Financial services quarterly update Q1 2020 Deloitte Corporate Finance LLC | www.investmentbanking.deloitte.com
Financial services trends In this update
Revolving credit drawdowns swell
• Financial services trends
to $252 billion1
Job losses strain US bank portfolios2, 3 • Economic outlook
As a result of liquidity actions by US Widespread job losses caused by COVID-19
• Industry analysis
corporates during the COVID-19 crisis, there will likely weigh on bank loan portfolios as • Select M&A transactions
has been roughly $252.2 billion in revolving business borrowers shut down and workers • Appendix
credit drawdowns. Consumer discretionary in formerly secure positions are at risk of
accounts accounted for nearly half of the missing payments. The unemployment rate
revolving credit drawdowns in the United has historically had a clear, direct impact on This update will focus on news
States. The maturity wall for these revolving credit performance, and bank credit costs and trends in the following areas:
credit drawdowns for both the investment- are likely to jump in the coming periods even
grade and speculative-grade segments peaks as massive amounts of federal aid attempt to • US banks
in 2024. limit the damage. • US specialty finance
EPS drop driven by loan loss provisions
Increase in small bank loan growth4
changes5, 6 Who we are
As lenders began to fund federally backed Banks across the sector reported meager EPS Deloitte Corporate Finance LLC is
small business loans, commercial loan as they set aside large provisions for a leading global middle-market
growth reaccelerated, and creditors are anticipated loan losses. In addition to feeling
preparing to process a second round of the impacts of the COVID-19 pandemic and
M&A adviser. Our professionals
applications under the COVID-19 relief PPP loans, some banks saw falling oil prices have extensive knowledge and
program. Commercial and industrial loans weigh on their energy lending portfolios. years of experience in the
increased 6.3 percent during the week ended Many banks will have to tap in the dark for a
April 15. However, the ongoing increase in big part of their loss modeling, given the
financial services space.
commercial lending was offset by a uncertainty surrounding the effect of COVID-
continuing decline in consumer loans. 19 on the economy.
Contacts
Phil Colaco
CEO and Managing Director
US revolving credit drawdowns1
philcolaco@deloitte.com
+1 704 333-0533
Consumer Discretionary 46%
Industrials 12%
Consumer Staples 11%
Real Estate 8%
Information Technology 8%
Other 14% Volume: $252B
0% 10% 20% 30% 40% 50%
US revolving credit drawdowns since March 5, 2020
US unemployment claims2, 7
10.0% 1,600
9.0% 1,400
Jobless Claims (Thousands)
8.0% 1,200
% Unemployed
7.0% 1,000
6.0% 800
5.0% 600
4.0% 400
3.0% 200
Initial Jobless Claims Unemployment Rate (%)
Copyright © 2020 Deloitte Development LLC. All rights reserved. Financial services quarterly update 2Banking sector outlook
Whole bank M&A volume1 Announced price/TBV2
350 250%
227%
296 225% 216%
300 283 280 277
262 259 267
200% 191%
239
Number of Bank M&A Deals
250
217 222
175% 164%
Median P / TBV
159%
200 176 149%149%
150% 141%
145 135% 132%
143
150 124%
119%119% 116%
110 125% 110%
100 78
100%
41
50 75%
0 50%
Commercial bank capital ratios and ROAE3 Number of US bank branches4
14% 100,000
12%
96,000
Number of US Bank Branches
10%
92,000
Percentage
8%
88,000
6%
84,000
4%
2% 80,000
Capital ratio ROAE
Footnote:
Q1 2020 announced price/TBV is reliant on only three deals completed in the quarter.
Capital ratios from Q4 2008 to Q4 2009 have been omitted, as they fell below 0 due to the financial crisis.
Copyright © 2020 Deloitte Development LLC. All rights reserved. Financial services quarterly update 3Banking sector breakdown and trading statistics1
ii
YTDi Quarterly
Net
Number of Price Price / Return on Return on Efficiency TE / NPA /
Sector interest
companies change Book assets equity ratio TA TA
margin
Banks ($50B Assets) 21 (45.2) 112.1 1.23 3.0 8.6 58.7 8.9 0.6
Banking Sector Index 822 (28.6) % 122.3 % 1.05 % 3.6 % 9.2 % 64.5 % 9.9 % 0.6 %
Notes:
• As of March 31, 2020.
• As of Q1 2020.
Macroeconomic outlook
US gross domestic product2 US Treasury yield curve
$25.0 5.0%
2.5% (nominal vs. real)3
$20.0 4.0% 2.0%
1.5%
YoY percent change
Interest rate
$15.0 3.0%
$ in trillions
1.0%
$10.0 2.0% 0.5%
$5.0 1.0% 0.0%
-0.5%
$0.0 0.0%
GDP ($ in Trillions) YoY % Growth (Adj. for Inflation) Real Yield (%) Nominal Yield (%)
Public comparable three-year stock market performance4
SNL US Bank (26.7%)
80.0% S&P 500 Index 9.4%
NASDAQ Composite Index 30.3%
60.0%
40.0%
20.0%
0.0%
(20.0%)
(40.0%)
SNL U.S. Bank NASDAQ S&P 500
Copyright © 2020 Deloitte Development LLC. All rights reserved. Financial services quarterly update 4Recent transactions1
Recent bank M&A transactions*
Announced Price Price /
Acquiror Target
date ($M) TBV (%)
Jan-20 FB Financial Corporation Franklin Financial Network, Inc. $643.7 148.3
Jan-20 Business First Bancshares, Inc. Pedestal Bancshares, Inc. 209.4 156.3
Jan-20 South State Corporation CenterState Bank Corporation 3,220.6 208.0
Feb-20 Pacific Premier Bancorp, Inc. Opus Bank 1,031.4 138.4
Feb-20 Arbor Bancorp, Inc. FNBH Bancorp, Inc. 101.4 184.8
Feb-20 Heartland Financial USA, Inc. AIM Bancshares, Inc. 280.3 202.0
Feb-20 Nicolet Bankshares, Inc. Commerce Financial Holdings, Inc. 129.6 198.0
Feb-20 LendingClub Corporation Radius Bancorp, Inc. 188.3 179.5
Mar-20 United Community Banks, Inc. Three Shores Bancorporation, Inc. 180.0 109.5
Mar-20 Provident Financial Services, Inc. SB One Bancorp 208.6 121.5
*Transactions with purchase price greater than $100 million.
Recent specialty finance M&A transactions
Announced Price Total assets
Acquiror Target
date ($M) ($M)
Feb-20 Ally Financial Inc. CardWorks, Inc. $2,647.6 NA
Nov-19 WillScot Corporation Mobile Mini, Inc. 1,936.6 2,116.9
*Transactions with purchase price greater than $100 million.
Annual bank and specialty finance M&A transaction volume by deal value2
761
800 723 720
715 712
687 677 692
700 620 608
600 552
500
400
300
200 131
100
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Undisclosed $1B
Copyright © 2020 Deloitte Development LLC. All rights reserved. Financial services quarterly update 5Appendix
Public comparables analysis1
YTD Quarterly
Price Price/ Return on Net Interest Return on Efficiency TE/ NPA/
Company (Ticker) Change Book Assets Margin Equity Ratio TA TA
Banks (AssetsAppendix
Public comparables analysis1
YTD Quarterly
Price Price/ Return on Net Interest Return on Efficiency TE/ NPA/
Company (Ticker) Change Book Assets Margin Equity Ratio TA TA
Banks (Assets >$50B) (21)
SVB Financial Group (40.6) 211.5 1.5 3.3 17.3 56.2 9.1 0.2 x
Zions Bancorporation, National Associatio (49.0) 126.3 1.1 3.5 9.8 63.3 9.3 0.5
Comerica Incorporated (59.1) 139.1 1.5 3.2 14.9 56.5 9.2 0.4
First Republic Bank (30.3) 153.0 0.9 2.8 8.6 63.2 8.2 0.1
Huntington Bancshares Incorporated (45.2) 145.2 1.2 3.1 10.7 56.7 8.9 1.1
M&T Bank Corporation (39.5) 153.2 1.6 3.7 12.5 53.1 9.6 1.0
Regions Financial Corporation (47.5) 53.6 1.3 3.4 3.9 57.5 9.6 0.8
KeyCorp (48.8) 65.2 1.3 3.0 3.4 63.3 9.5 0.6
Northern Trust Corporation (29.9) 226.9 1.3 1.6 13.6 67.2 7.6 0.1
Fifth Third Bancorp (52.1) 112.1 1.8 3.3 13.8 58.7 10.2 0.7
Citizens Financial Group, Inc. (53.8) 39.4 1.1 3.1 0.6 58.8 8.7 NA
Truist Financial Corporation (45.6) 123.3 1.0 3.4 7.0 57.6 8.8 NA
State Street Corporation (34.0) 87.6 1.0 1.3 10.4 71.3 4.1 NA
Capital One Financial Corporation (51.3) 88.4 1.2 6.9 8.1 53.3 11.5 0.6
Bank of New York Mellon Corporation (33.9) 79.3 1.6 1.0 9.3 65.5 4.7 NA
PNC Financial Services Group, Inc. (40.3) 89.7 1.3 2.9 7.5 58.4 9.1 NA
U.S. Bancorp (41.8) 113.9 1.2 2.9 9.1 57.2 7.8 0.6
Citigroup Inc. (48.1) 50.3 1.0 2.5 5.2 52.5 7.6 NA
Wells Fargo & Company (46.6) 72.3 0.6 2.6 1.1 68.4 NA NA
Bank of America Corporation (40.4) 76.3 1.1 2.3 6.1 58.8 7.6 NA
JPMorgan Chase & Co. (36.2) 118.7 1.2 2.4 4.3 59.9 6.9 NA
Median (45.2) % 112.1 % 1.2 % 3.0 % 8.6 % 58.7 % 8.9 x 0.6 x
Mean (43.5) % 110.7 % 1.2 % 3.0 % 8.4 % 59.9 % 8.4 x 0.6 x
Copyright © 2020 Deloitte Development LLC. All rights reserved. Financial services quarterly update 7Sources cited
Page 2:
1. LCD News. “Coronavirus-related US revolving credit drawdowns swell to $252B,” S&P Global Market Intelligence. May 4, 2020.
https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/update-coronavirus-related-us-revolving-credit-
drawdowns-swell-to-252b-58427415, Accessed May 4, 2020.
2. Terris, Harry , Hayes, David, and Tariq, Zain. “Rapid job losses strain US bank portfolios across country,” S&P Global Market Intelligence. April 15,
2020. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/rapid-job-losses-strain-us-bank-portfolios-across-
country-58000940, Accessed April 29, 2020.
3. Terris, Harry, and Khole, Rucha. “Credit costs slam big US banks as margin pressure persists,” S&P Global Market Intelligence. April 21, 2020.
https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/credit-costs-slam-big-us-banks-as-margin-pressure-
persists-58070739, Accessed April 29, 2020.
4. Tariq, Zain, and Terris, Harry. “Small bank loan growth jumps as PPP funding ramps up.” April 28, 2020. S&P Global Market Intelligence.
https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/small-bank-loan-growth-jumps-as-ppp-funding-ramps-up-
58305472, Accessed April 29, 2020.
5. Duren, Carolyn, and Melican, Nathaniel. “Most US community banks see EPS drop in Q1’20.” S&P Global Market Intelligence. April 29, 2020.
https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/most-us-community-banks-see-eps-drop-in-q1-20-
58330079, Accessed April 29, 2020.
6. Damyanova, Vanya, and Garrido, Francis. “COVID-19 uncertainty turns banks' loan loss provisioning into guesswork.” S&P Global Market
Intelligence. April 7, 2020. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/covid-19-uncertainty-turns-
banks-loan-loss-provisioning-into-guesswork-57853787, Accessed April 29, 2020.
7. US Bureau of Labor Statistics. Accessed April 10, 2020. Data as of April 4, 2020.
Page 3:
1. SNL Financial. Accessed April 17, 2020. Data as of March 31, 2020.
2. SNL Financial. Accessed April 17, 2020. Data as of March 31, 2020.
3. SNL Financial. Accessed April 17, 2020. Data as of March 31, 2020.
4. SNL Financial. Accessed April 17, 2020. Data as of March 31, 2020.
5. SNL Financial. Accessed April 17, 2020. Data as of March 31, 2020.
6. US FDIC. Accessed January 14, 2020. Data as of December 31, 2019.
Page 4:
1. SNL Financial. Accessed April 17, 2020. Data as of March 31, 2020.
2. US Bureau of Economic Analysis. Accessed January 14, 2020. Data as of December 31, 2019.
3. US Department of the Treasury. Accessed January 14, 2020. Data as of December 31, 2019.
4. SNL Financial. Accessed April 17, 2020. Data as of March 31, 2020.
Page 5:
1. SNL Financial. Accessed April 17, 2020. Data as of March 31, 2020.
2. SNL Financial. Accessed April 17, 2020. Data as of March 31, 2020.
Page 6:
1. SNL Financial. Accessed April 17, 2020. Data as of March 31, 2020.
Page 7:
1. SNL Financial. Accessed April 17, 2020. Data as of March 31, 2020.
Copyright © 2020 Deloitte Development LLC. All rights reserved. Financial services quarterly update 8Deloitte Corporate Finance LLC (DCF) DCF provides deal execution and lead financial advisory services to large corporate, middle-market, private equity, and venture capital firms. DCF and its affiliates maintain a presence in key US financial centers. For additional information, or to find out more about how DCF can assist the deal initiation and execution process, please contact one of our DCF managing directors: Phil Colaco John Deering James Miller CEO jdeering@deloitte.com jamesmiller5@deloitte.com philcolaco@deloitte.com +1 704 333 0574 +1 704 731 8230 +1 704 333 0533 Jonathan Adams Lorin DeMordaunt Byron Nelson jonadams@deloitte.com ldemordaunt@deloitte.com bynelson@deloitte.com +1 214 840 1779 +1 704 333 0591 +1 469 417 2462 Keith Adams Kevan Flanigan Lou Paone keadams@deloitte.com keflanigan@deloitte.com lpaone@deloitte.com +1 404 631 3455 +1 213 668 6560 +1 704 731 7202 Eric Andreozzi Will Frame Garett Poston eandreozzi@deloitte.com wframe@deloitte.com gposton@deloitte.com +1 704 333 0518 +1 312 486 4458 +1 213 593 4544 Vijay Balasubramanian Simon Gisby Matt Preece vbalasubramanian@deloitte.com sgisby@deloitte.com mpreece@deloitte.com +1 212 313 1723 +1 212 436 2495 +1 704 731 7186 Tony Blanchard Bill Kerkam Tom Spivey anblanchard@deloitte.com wkerkam@deloitte.com tspivey@deloitte.com +1 312 486 1640 +1 980 312 3613 +1 214 840 7014 Doug Bolt Jamie Lewin dbolt@deloitte.com jlewin@deloitte.com +1 704 731 7219 +1 214 840 7057 Deloitte Corporate Finance Business Development group: Brad Heston John Lindsey Bill Pucci Senior Vice President Senior Vice President Senior Vice President bheston@deloitte.com jlindsey@deloitte.com wpucci@deloitte.com +1 404 631 3839 +1 469 417 2147 +1 973 602 4542 www.investmentbanking.deloitte.com Copyright © 2020 Deloitte Development LLC. All rights reserved. Financial services quarterly update 9
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