Bank Valuation and Financial Performance Metrics Workshop

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This workshop delves into understanding balance sheets, valuing banks, and analyzing financial performance metrics. Explore topics such as assets, liabilities, equity, income, expenses, net income, and key ratios like ROA, ROE, and net interest margin. Discover the importance of bank valuation for various scenarios like stock compensation, sales transactions, IPOs, and recapitalization. Understand the motivations behind bank mergers, focusing on efficiency and cost savings.

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Presentation Transcript

2 0 2 0 N C S C H O O L O F B A N K I N G PARK NATIONAL BANK BANK VALUATION

Agenda Speaker Background First 45 minutes - Understanding the BS Break Second 45 minutes How to Value the Bank Test Questions 2 P A R K N A T I O N A L B A N K

FIRST 45 MINUTES UNDERSTANDING THE BALANCE SHEET P A R K N A T I O N A L B A N K

ASSETS LIABILITIES = EQUITY 4 P A R K N A T I O N A L B A N K

ASSETS LIABILITIES Cash Deposits Fed Funds Sold Fed Funds Purchased FHLB Advances Bonds AIP Loans Less: ALLL Other Accrued Expenses AIR EQUITY Fixed Assets Common Stock Current Earnings Retained Earnings OREO 5 P A R K N A T I O N A L B A N K

INCOME EXPENSE = NET INCOME 6 P A R K N A T I O N A L B A N K

INCOME EXPENSE Interest Expense Money Market and Savings Time Deposits Fed Funds Purchased FHLB advances Interest Income Cash Fed Funds Sold Bonds Loans Provision for Loan Losses Non-Interest Income Service Charges on Deposits Gain on Sale of Mortgages Non-Interest Expense Salaries FDIC insurance Data processing Legal/Accounting/Consulting Advertising Office Supplies Income taxes NET INCOME 7 P A R K N A T I O N A L B A N K

Financial Performance Metrics Return on Assets (ROA) Return on Equity (ROE) Net Interest Margin Asset Quality Ratios Capital Ratios 8 P A R K N A T I O N A L B A N K

SECOND 45 MINUTES VALUING THE BANK P A R K N A T I O N A L B A N K

Why Value a Bank? Stock Compensation Sale Transaction IPO Recapitalization 10 P A R K N A T I O N A L B A N K

Why do Banks Merge? Efficiency and Cost Savings Enter New Geographic Area Enter New Line of Business Age of Management Timeline of Private Equity Investors Eliminate a Competitor 11 P A R K N A T I O N A L B A N K

What Drives Bank Valuations? What Helps: What Doesn t Help? Excess Capital Inadequate ALLL Significant Fixed Assets Lack of Flexibility to Restructure BS High Transaction Costs Core Earnings Earnings Potential Core Deposits Geography/Location People Excellent Asset Quality 12 P A R K N A T I O N A L B A N K

Valuation Approaches Asset Approach Market Approach Income Approach 13 P A R K N A T I O N A L B A N K

Asset Approach FV of Assets FV of Liabilities = FV of Equity 14 P A R K N A T I O N A L B A N K

Market Approach Look at recent sales of other similarly situated banks 15 P A R K N A T I O N A L B A N K

Income Approach Look at future cash flows and discount to current period 16 P A R K N A T I O N A L B A N K

Common Metrics Used in Bank Valuations Price 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) 17 P A R K N A T I O N A L B A N K