Agenda Speaker Background First 45 minutes Understanding the BS Break Second 45 minutes How to Value the Bank Test Questions PARK NATIONAL BANK 2 UNDERSTANDING THE BALANCE SHEET FIRST 45 MINUTES ID: 1029633
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1. BANK VALUATION2020 NC SCHOOL OF BANKING
2. AgendaSpeaker BackgroundFirst 45 minutes - Understanding the BS BreakSecond 45 minutes – How to Value the BankTest QuestionsPARK NATIONAL BANK2
3. UNDERSTANDING THE BALANCE SHEETFIRST 45 MINUTES
4. ASSETS – LIABILITIES = EQUITYPARK NATIONAL BANK4
5. ASSETSCashFed Funds SoldBondsLoansLess: ALLLAIRFixed AssetsOREOLIABILITIESDepositsFed Funds PurchasedFHLB AdvancesAIPOther Accrued ExpensesPARK NATIONAL BANK5EQUITYCommon StockCurrent EarningsRetained Earnings
6. INCOME – EXPENSE = NET INCOMEPARK NATIONAL BANK6
7. INCOMEInterest IncomeCash Fed Funds SoldBondsLoansNon-Interest IncomeService Charges on DepositsGain on Sale of MortgagesEXPENSEInterest ExpenseMoney Market and SavingsTime DepositsFed Funds PurchasedFHLB advancesProvision for Loan LossesNon-Interest ExpenseSalariesFDIC insuranceData processingLegal/Accounting/ConsultingAdvertisingOffice SuppliesIncome taxesPARK NATIONAL BANK7NET INCOME
8. Financial Performance MetricsReturn on Assets (ROA)Return on Equity (ROE)Net Interest MarginAsset Quality RatiosCapital RatiosPARK NATIONAL BANK8
9. VALUING THE BANKSECOND 45 MINUTES
10. Why Value a Bank?Stock CompensationSale TransactionIPORecapitalizationPARK NATIONAL BANK10
11. Why do Banks Merge?Efficiency and Cost SavingsEnter New Geographic AreaEnter New Line of BusinessAge of ManagementTimeline of Private Equity InvestorsEliminate a CompetitorPARK NATIONAL BANK11
12. What Drives Bank Valuations?What Helps:Core EarningsEarnings PotentialCore DepositsGeography/LocationPeopleExcellent Asset QualityWhat Doesn’t Help?Excess CapitalInadequate ALLLSignificant Fixed AssetsLack of Flexibility to Restructure BSHigh Transaction CostsPARK NATIONAL BANK12
13. Valuation ApproachesAsset ApproachMarket ApproachIncome ApproachPARK NATIONAL BANK13
14. Asset ApproachFV of Assets – FV of Liabilities = FV of EquityPARK NATIONAL BANK14
15. Market ApproachLook at recent sales of other similarly situated banksPARK NATIONAL BANK15
16. Income ApproachLook at future cash flows and discount to current periodPARK NATIONAL BANK16
17. Common Metrics Used in Bank ValuationsPrice to Earnings (P/E)Price to Assets (P/A)Price to Tangible Assets (P/TA)Price to Book Value (P/BV)Price to Tangible Book Value (P/TBV)PARK NATIONAL BANK17
18. Multiples Should be Adjusted to Compensate for…RiskGrowthProfitabilityPARK NATIONAL BANK18
19. Bank Specific Risk FactorsCredit RiskInterest Rate RiskLiquidity RiskPARK NATIONAL BANK19
20. NOW PUT IT ALL TOGETHER COMPARE EACH APPROACH WEIGHT AS APPROPRIATE PARK NATIONAL BANK20
21. Thank You!