Florida Banking Industry Update

Fourth Quarter 2013 Florida Banking For additional information or Industry Update inquiries, please contact: Benjamin C. Bishop, Jr. Chairman (904) 354-5573 [email protected] David W. Jackson, Jr. President (704) 332-2032 [email protected] Commentary W. Allen Rogers II Vice President-Corporate Finance Operating Results (704) 332-2032 [email protected] Capital Markets Errol Parsons Associate Mergers & Acquisitions (904)354-5573 [email protected] Banks in Florida & Asset Quality Ratios Robert Dunlap President of Ewing Loan Advisors (904)354-5573 [email protected] Ben C. Bishop, III President of Ewing Real Estate, Inc. (904)354-5573 bbisho [email protected] Allen C. Ewing & Co. 50 North Laura Street, Suite 3625 Jacksonville, FL 32202 200 South Tryon, Suite 700 Charlotte, NC 28202 www.AllenEwing.com Allen C. Ewing & Co. Industry Update – 4Q13 TABLE OF CONTENTS The worst is over for banks in terms of identifying and reserving for loan losses and selling NPAs. While the worst may be over in terms of NPA levels, the significant increase in fixed overhead expenses seriously impact the Commentary Page 2 ability of smaller banks to earn acceptable profits to generate capital to support asset growth. Net interest Florida Bank Operating Results Page 3 margins at their present level of 3.50% are likely to continue in view of recent Federal Reserve Capital Markets Page 4 announcements concerning continued monetary easing. Most bankers would agree that the community bank of the Florida Bank Regional Results Page 5 future must become larger to be able to absorb these projected costs. Market Price / TBV Data Page 6 Small community bank presidents and directors are Florida Bank M&A Page 7 dealing with low prices for their shares, a slow-growth future for their bank, and shareholder discontent. Banks FDIC-Assisted Transactions Page 7 with an established franchise, a low level of NPAs, and positive core earnings have several options to improve their earnings and stock values. A merger of equals Decline in Florida Banks Page 8 (MOEs) would allow two banks to participate in the Florida’s 197 Banks Page 8 management of the pro forma bank created by an MOE. An MOE could be the first step in a longer-term strategy to 50 Largest Out of State Banks in Florida Page 12 merge the combined banks with a publicly traded BHC at a later date at a higher price. Banks with an established franchise, a low level of NPAs, and positive core earnings Florida’s Largest Publicly Traded Stocks Page 13 also have the option to sell their bank for cash or stock to an interested larger BHC, of which there are many. Florida Bank Texas Ratios Page 13 There have been few recent sales of community banks because: (1) sellers have been reluctant to sell or merge with an improving economy; and (2) the perception of under-reserved NPAs continues to be a deterrent particularly to buyers and MOE participants. Similarly, COMMENTARY there have been few mergers involving MOEs because of: (1) the absence of meaningful earnings on the part of both FOURTH QUARTER 2013 banks which makes it difficult to agree upon exchange ratios; and (2) the FDIC’s continued restrictive policy While there were modest positive improvements in the whereby it will only encourage MOEs if the MOE’s pro operating performance of Florida’s banks during the forma balance sheet meets CAMELS 2 requirements. We fourth quarter, the important event for the year as a believe that this policy will be modified soon as it is whole reflected the return of profitability to the Florida entirely too restrictive, particularly in an improving banking banking industry. Over 160 of Florida’s 197 banks environment. generated pre-tax profits during the year. This reversal of losses during the four-year recessionary period is The Florida banking industry has been consolidating for attributable primarily to the sharp reduction of loan loss several decades, and the new demographics for banking provisions and the reduction of NPAs. The return to will require it to continue to do so (note new chart on page profitability for the industry was a very positive event, 8). Community banks which are so important to the but future improvement in earnings must come from overall economy must become larger to compete increases in core operating earnings generated from effectively with regional and national and community higher margins and increasing earning assets. Florida banks that have become larger. We look forward to the community banks in 2014 and beyond must deal with a opportunity to assist community banks in addressing the variety of new cost pressures including much higher requirements of the next decade, and we welcome the compliance costs, a lack of capital to support growth of return to profitability for the Florida banking industry. assets, a low level of quality loan demand, flat net interest margins, and increasing competition. -Benjamin C. Bishop, Jr. 2 Allen C. Ewing & Co. Industry Update – 4Q13 FLORIDA & SOUTHEASTERN BANK OPERATING RESULTS RETURN ON AVERAGE ASSETS EFFICIENCY RATIO Annualized Median Median (Tax equivalent ratios) 0.80 0.74 0.73 86.0 0.68 0.66 83.3 83.2 83.6 0.70 0.61 84.0 81.9 0.60 81.3 82.0 0.46 0.47 (%) 0.50 0.41 0.42 80.0 (%) 0.40 0.35 Ratio 78.0 0.30 ROAA 76.0 75.2 0.20 74.6 Efficiency 73.5 0.10 74.0 72.4 72.6 0.00 72.0 ‐0.10 70.0 4Q12 1Q13 2Q13 3Q13 4Q13 4Q12 1Q13 2Q13 3Q13 4Q13 Florida Southeast Florida Southeast NPAs / ASSETS LOAN LOSS PROVISIONS Median (Government guaranteed NPAs not included) Totals and Averages for the 197 Florida Based Banks 6.00 180,000 900 5.00 160,000 800 4.34 ($000) ($000) 140,000 700 3.76 (%) 4.00 3.49 3.31 120,000 600 2.88 3.02 100,000 500 3.00 2.74 2.57 Provisions Provisions Assets 2.49 2.34 / 80,000 400 Loss Loss 2.00 60,000 300 NPAs 40,000 200 Loan Loan 1.00 20,000 100 Total 0 0 0.00 Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Average 4Q12 1Q13 2Q13 3Q13 4Q13 Aggregate Loan Loss Provisions in FL Florida Southeast Average Loan Loss Provisions per FL Bank NET INTEREST MARGIN – FLORIDA BASED BANKS NET INTEREST MARGIN – SE BANKS Median of the 197 Florida Based Banks Median of the 789 Banks in the Southeast (excluding FL) 4.59 5.0 5.0 4.43 4.43 4.42 4.42 4.16 4.07 4.05 4.08 4.10 4.0 4.0 3.91 3.78 3.80 3.85 3.87 3.0 3.61 3.49 3.52 3.59 3.59 3.0 2.0 2.0 1.0 1.0 0.75 0.0 0.62 0.56 0.55 0.51 0.51 0.0 0.68 0.65 0.62 0.59 4Q12 1Q13 2Q13 3Q13 4Q13 4Q12 1Q13 2Q13 3Q13 4Q13 Net Interest Margin (FTE) (%) Yield on Earning Assets (%) Net Interest Margin (FTE) (%) Yield on Earning Assets (%) Cost of Funds (%) Cost of Funds (%) NOTE: Florida results based on 197 Florida-based banks. Southeast results based on 789 banks based in Alabama, Georgia, North Carolina, South Carolina, Tennessee, and Virginia followed by SNL Financial. 3 Allen C. Ewing & Co. Industry Update – 4Q13 CAPITAL MARKETS CAPITAL OFFERINGS OF SOUTHEASTERN BANKS MEDIAN TANGIBLE EQUITY / TANGIBLE ASSETS 1 Banks with Assets less than $5 Billion & Not Issued Under TARP FLORIDA BANKS & SE BANKS Senior Debt 11.00 Sub Debt 2013 TruPS 10.34 10.27 Pref Stock 10.09 10.16 10.12 9.96 9.91 Common Stock 10.00 9.81 9.79 9.70 2012 (%) 9.00 Assets Tang. 2011 / 8.00 Equity $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 Tang. ($ in millions) 7.00 (In Thousands) 2011 2012 2013 Senior Debt $5,450 $10,000 $0 Sub Debt $13,729 $20,247 $49,050 6.00 TruPS $0 $0 $0 4Q12 1Q13 2Q13 3Q13 4Q13 Pref Stock $537,710 $640,516 $211,556 Florida Southeast Common Stock $1,052,675 $378,336 $408,928 NOTE: Southeast states include: Alabama, Florida, Georgia, North Carolina, South Carolina, Tennessee, and Virginia INTEREST RATES YIELD CURVE December 31, 2013, September 30, 2013, and December 31, 2012 December 31, 2012 – December 31, 2013 12/31/13 6/30/13 12/31/12 3.0 Federal Funds 0.07 0.07 0.09 2.5 Prime Rate 3.25 3.25 3.25 6 Month T Bill 0.10 0.10 0.11 2.0 (%) 1 Year T Bill 0.13 0.15 0.16 Yield 1.5 3 Year T Note 0.78 0.66 0.36 5 Year T Note 1.75 1.41 0.72 Treasury 1.0 10 Year T Note 3.04 2.52 1.78 0.5 30 Year T Bond 3.96 3.52 2.95 1 Month LIBOR 0.17 0.19 0.21 0.0 3 Mo 6 Mo 1 Yr 2 Yr 3 Yr 5 Yr 10 Yr 30 Yr 3 Month LIBOR 0.25 0.27 0.31 6 Month LIBOR 0.35 0.41 0.51 12/31/13 06/30/13 12/31/12 1 Year LIBOR 0.58 0.69 0.84 1. NOTE: Florida results based on 197 Florida-based banks. Southeast results based on 789 banks based in Alabama, Georgia, North Carolina, South Carolina, Tennessee, and Virginia followed by SNL Financial.

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